UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(Commission File Number 1-11965)
ICG COMMUNICATIONS, INC.
(Commission File Number 1-11052)
ICG HOLDINGS (CANADA) CO.
(Commission File Number 33-96540)
ICG HOLDINGS, INC.
(Exact names of registrants as specified in their charters)
- ----------------------------------------- -------------------------------------
Delaware 84-1342022
Nova Scotia Not Applicable
Colorado 84-1158866
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
- ----------------------------------------- -------------------------------------
161 Inverness Drive West Not applicable
Englewood, Colorado 80112
161 Inverness Drive West c/o ICG Communications, Inc.
Englewood, Colorado 80112 161 Inverness Drive West
Englewood, Colorado 80112
161 Inverness Drive West Not applicable
Englewood, Colorado 80112
(Address of principal executive offices) (Address of U.S. agent for service)
- ----------------------------------------- -------------------------------------
Registrants' telephone numbers, including area codes:
(888) 424-1144 or (303) 414-5000
Indicate by check mark whether the registrants (1) have filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes |X| No
The number of registrants' outstanding common shares as of May 14, 1999
were 46,999,988, 31,931,558 and 1,918, respectively. ICG Canadian Acquisition,
Inc., a wholly owned subsidiary of ICG Communications, Inc., owns all of the
issued and outstanding common shares of ICG Holdings (Canada) Co. ICG Holdings
(Canada) Co. owns all of the issued and outstanding shares of ICG Holdings, Inc.
<PAGE>
TABLE OF CONTENTS
PART I .................................................................... 3
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ................. 3
Consolidated Balance Sheets as of December 31, 1998 and
March 31, 1999 (unaudited).................................. 3
Consolidated Statements of Operations (unaudited) for the
Three Months Ended March 31, 1998 and 1999.................. 5
Consolidated Statement of Stockholders' Deficit (unaudited)
for the Three Months Ended March 31, 1999 .................. 7
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 1998 and 1999 ................. 8
Notes to Consolidated Financial Statements, December 31,
1998 and March 31, 1999 (unaudited)......................... 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS .................................. 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .. 38
PART II .................................................................. 40
ITEM 1. LEGAL PROCEEDINGS ........................................... 40
ITEM 2. CHANGES IN SECURITIES ....................................... 40
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ............................. 40
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS ....... 40
ITEM 5. OTHER INFORMATION ........................................... 40
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................ 40
Exhibits .................................................... 40
Reports on Form 8-K ......................................... 41
2
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and March 31, 1999 (unaudited)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------------ ----------------
Assets (in thousands)
<S> <C> <C>
Current assets:
Cash, cash equivalents and restricted cash $ 210,831 291,876
Short-term investments available for sale 52,000 46,660
Marketable trading securities (note 4) - 30,439
Receivables:
Trade, net of allowance of $15,473 and
$18,355 at December 31, 1998 and March
31, 1999, respectively (note 6) 132,920 174,105
Revenue earned, but unbilled 11,063 12,557
Other 1,156 11,040
------------------ ----------------
145,139 197,702
Inventory 2,821 3,223
Prepaid expenses and deposits 12,036 15,697
------------------ ----------------
Total current assets 422,827 585,597
------------------ ----------------
Property and equipment 1,112,067 1,282,273
Less accumulated depreciation (177,933) (215,106)
------------------ ----------------
Net property and equipment 934,134 1,067,167
------------------ ----------------
Restricted cash 16,912 15,527
Investments in debt securities available for
sale and restricted preferred stock (note 4) - 27,466
Other assets, net of accumulated amortization:
Goodwill 130,503 129,184
Deferred financing costs 35,958 34,818
Transmission and other licenses 5,659 1,920
Deposits and other 25,189 15,580
------------------ ----------------
197,309 181,502
------------------ ----------------
Net non-current assets of discontinued
operations (note 3) 54,243 -
------------------ ----------------
Total assets (note 7) $ 1,625,425 1,877,259
================== ================
(Continued)
</TABLE>
3
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited), Continued
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------------- -------------------
Liabilities and Stockholders' Deficit (in thousands)
<S> <C> <C>
Current liabilities:
Accounts payable $ 33,781 36,003
Accrued liabilities 55,816 92,625
Deferred revenue 9,892 10,337
Deferred gain on sale (note 3) - 22,195
Current portion of capital lease obligations
(note 6) 5,086 8,311
Current portion of long-term debt (note 5) 46 861
Net current liabilities of discontinued operations
(note 3) 23,272 934
------------------- -------------------
Total current liabilities 127,893 171,266
------------------- -------------------
Capital lease obligations, less current portion
(note 6) 63,359 68,227
Long-term debt, net of discount, less current portion
(note 5) 1,598,998 1,676,954
------------------- -------------------
Total liabilities 1,790,250 1,916,447
------------------- -------------------
Redeemable preferred stock of subsidiary ($358.5
million liquidation value at March 31, 1999) (note 5) 338,310 350,787
Company-obligated mandatorily redeemable preferred
securities of subsidiary limited liability
company which holds solely Company preferred
stock ($133.4 million liquidation value at March
31, 1999) 128,042 128,137
Stockholders' deficit:
Common stock, $0.01 par value, 100,000 shares authorized;
46,360,185 and 46,771,679 shares issued and outstanding at
December 31, 1998 and March 31, 1999, respectively 584 468
Additional paid-in capital 577,820 584,170
Accumulated deficit (1,209,462) (1,102,750)
Accumulated other comprehensive loss (119) -
------------------- -------------------
Total stockholders' deficit (631,177) (518,112)
------------------- -------------------
Commitments and contingencies (notes 5 and 6)
Total liabilities and stockholders' deficit $ 1,625,425 1,877,259
=================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (unaudited)
Three Months Ended March 31, 1998 and 1999
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------------
1998 1999
----------------- -----------------
(in thousands, except per share data)
<S> <C> <C>
Revenue (note 7) $ 78,867 129,519
Operating costs and expenses:
Operating costs 61,515 70,176
Selling, general and administrative expenses 42,326 48,893
Depreciation and amortization (note 7) 13,603 39,031
Net loss (gain) on disposal of long-lived assets 505 (908)
----------------- -----------------
Total operating costs and expenses 117,949 157,192
----------------- -----------------
Operating loss (39,082) (27,673)
Other income (expense):
Interest expense (note 7) (34,471) (47,441)
Interest income 5,502 4,105
Other expense, net, including unrealized gain on marketable
trading securities (321) (504)
----------------- -----------------
(29,290) (43,840)
----------------- -----------------
Loss from continuing operations before preferred dividends and
extraordinary gain (68,372) (71,513)
Accretion and preferred dividends on preferred securities of
subsidiaries (13,192) (14,804)
----------------- -----------------
Loss from continuing operations before extraordinary gain (81,564) (86,317)
Loss from discontinued operations (20,191) -
Extraordinary gain on sales of operations of NETCOM, net of income
taxes of $6.4 million (note 3) - 193,029
----------------- -----------------
Net (loss) income $ (101,755) 106,712
================= =================
Other comprehensive income - foreign currency translation adjustment 105 -
----------------- -----------------
Comprehensive (loss) income $ (101,650) 106,712
================= =================
Net (loss) earnings per share - basic and diluted:
Loss from continuing operations $ (1.84) (1.85)
Loss from discontinued operations (0.46) -
Extraordinary gain on sales of operations of NETCOM - 4.14
----------------- -----------------
Net (loss) earnings per share - basic and diluted $ (2.30) 2.29
================= =================
Weighted average number of shares outstanding - basic and diluted 44,311 46,538
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Deficit (unaudited)
Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
Accumulated
Common stock Additional other Total
----------------------- paid-in Accumulated comprehensive stockholders'
Shares Amount capital deficit loss deficit
----------- ----------- ------------- ------------- --------------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1999 46,360 $ 584 577,820 (1,209,462) (119) (631,177)
Shares issued for cash in connection with the
exercise of options and warrants 232 2 2,767 - - 2,769
Shares issued for cash in connection with the
employee stock purchase plan 82 1 1,387 - - 1,388
Shares issued as contribution to 401(k) plan 98 1 2,076 - - 2,077
Exchange of ICG Holdings (Canada) Co.
common shares for ICG common stock - (120) 120 - - -
Reversal of cumulative foreign currency
translation adjustment (note 3) - - - - 119 119
Net income - - - 106,712 - 106,712
----------- ----------- ------------- ------------- --------------- --------------
Balances at March 31, 1999 46,772 $ 468 584,170 (1,102,750) - (518,112)
=========== =========== ============= ============= =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended March 31, 1998 and 1999
<TABLE>
<CAPTION>
Three months ended March 31,
-------------------------------------
1998 1999
---------------- ----------------
(in thousands)
Cash flows from operating activities:
<S> <C> <C>
Net (loss) income $ (101,755) 106,712
Loss from discontinued operations 20,191 -
Extraordinary gain on sales of operations - (193,029)
Adjustments to reconcile net (loss) income to net cash used by operating
activities:
Recognition of deferred gain - (3,805)
Accretion and preferred dividends on preferred securities of
subsidiaries 13,192 14,804
Depreciation and amortization 13,603 39,031
Provision for uncollectible accounts 2,582 3,651
Interest expense deferred and included in long-term debt 31,885 46,283
Interest expense deferred and included in capital lease obligations 1,528 1,082
Amortization of deferred financing costs included in interest expense 701 1,406
Interest expense capitalized on assets under construction (3,000) (3,168)
Contribution to 401(k) plan through issuance of common stock 464 2,077
Net loss (gain) on disposal of long-lived assets 505 (908)
Unrealized gain on marketable trading securities - (439)
Change in operating assets and liabilities, excluding the effects of
dispositions and non-cash transactions:
Receivables (6,054) (47,767)
Inventory (215) (197)
Prepaid expenses and deposits 1,155 (2,873)
Accounts payable and accrued liabilities 16,549 (8,330)
Deferred revenue 2,130 1,637
---------------- ----------------
Net cash used by operating activities (6,539) (43,833)
---------------- ----------------
Cash flows from investing activities:
Increase in long-term notes receivable from affiliates and others (4,943) -
Acquisition of property, equipment and other assets (65,748) (101,957)
Payments for construction of corporate headquarters (4,944) -
Proceeds from sales of operations of NETCOM, net of cash included in sale - 252,881
Proceeds from disposition of property, equipment and other assets 283 4,302
Proceeds from sale of corporate headquarters, net of selling and other costs 26,859 -
Proceeds from sales of short-term investments available for sale 83,281 5,340
Decrease in restricted cash 1,893 1,385
Purchase of investments - (27,466)
Purchase of minority interest in subsidiary - (4,189)
---------------- ----------------
Net cash provided by investing activities 36,681 130,296
---------------- ----------------
(Continued)
</TABLE>
7
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited), Continued
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------------------
1998 1999
------------------ -----------------
(in thousands)
Cash flows from financing activities:
Proceeds from issuance of common stock:
<S> <C> <C>
Sale by subsidiary $ 3,385 -
Exercise of options and warrants 4,836 2,769
Employee stock purchase plan 411 1,388
Proceeds from issuance of long-term debt 300,571 -
Deferred long-term debt issuance costs (9,575) -
Principal payments on capital lease obligations (2,787) (1,858)
Principal payments on long-term debt (413) (589)
Payments of preferred dividends (2,231) (2,231)
------------------ -----------------
Net cash provided (used) by financing activities 294,197 (521)
------------------ -----------------
Net increase in cash, cash equivalents and restricted cash 324,339 85,942
Net cash used by discontinued operations (393) (4,897)
Cash, cash equivalents and restricted cash, beginning of period 118,569 210,831
------------------ =================
Cash, cash equivalents and restricted cash, end of period $ 442,515 291,876
================== =================
Supplemental disclosure of cash flows information of continuing operations:
Cash paid for interest $ 3,357 1,838
================== =================
Cash paid for income taxes $ - 409
================== =================
Supplemental schedule of non-cash investing and financing activities of
continuing operations:
Acquisition of corporate headquarters assets through the issuance
of long-term debt and conversion of security deposit (note 5) $ - 33,719
================== =================
Assets acquired under capital leases $ - 3,760
================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998 and March 31, 1999 (unaudited)
(1) Organization and Nature of Business
ICG Communications, Inc., a Delaware corporation ("ICG"), was
incorporated on April 11, 1996 and is the publicly-traded U.S. parent
company of ICG Funding, LLC, a special purpose Delaware limited
liability company ("ICG Funding"), ICG Holdings (Canada) Co., a Nova
Scotia unlimited liability company ("Holdings-Canada"), ICG Holdings,
Inc., a Colorado corporation ("Holdings"), and ICG Services, Inc., a
Delaware corporation ("ICG Services"), and their subsidiaries. ICG and
its subsidiaries are collectively referred to as the "Company."
On January 21, 1998, the Company completed a merger with NETCOM On-Line
Communication Services, Inc. ("NETCOM"). At the effective time of the
merger, each outstanding share of NETCOM common stock, $.01 par value,
was automatically converted into shares of ICG common stock, $.01 par
value ("ICG Common Stock"), at an exchange ratio of 0.8628 shares of
ICG Common Stock per NETCOM common share. The Company issued
approximately 10.2 million shares of ICG Common Stock in connection
with the merger, valued at approximately $284.9 million on the date of
the merger. The business combination was accounted for as a pooling of
interests. On February 17 and March 16, 1999, the Company completed the
sales of the operations of NETCOM (see note 3) and, accordingly, the
Company's consolidated financial statements prior to March 16, 1999
reflect the operations and net assets of NETCOM as discontinued. In
conjunction with the sales, the legal name of the NETCOM subsidiary was
changed to ICG PST, Inc. ("PST") (see note 3).
The Company's principal business activity is telecommunications
services, including Telecom Services, Network Services and Satellite
Services. Telecom Services consists primarily of the Company's
competitive local exchange carrier operations which provide local, long
distance and data services to business end users, Internet service
providers ("ISPs") and long distance carriers and resellers.
Additionally, in February 1999, the Company began marketing Internet
access and enhanced network services to ISPs and other
telecommunications providers. Network Services 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. Satellite Services consists of satellite
voice, data and video services provided to major cruise ship lines, the
U.S. Navy, the offshore oil and gas industry and integrated
communications providers.
(2) Significant Accounting Policies
(a) Basis of Presentation
The Company's financial statements should be read in conjunction
with ICG's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998, as certain information and note disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to the rules and regulations of the United
States Securities and Exchange Commission. The interim financial
statements reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of financial
position, results of operations and cash flows as of and for the
interim periods presented. Such adjustments are of a normal
recurring nature. Operating results for the three months ended
March 31, 1999 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1999.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
9
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Significant Accounting Policies (continued)
(b) Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
Restricted cash of $19.9 million, held as collateral by a third
party and remitted to the Company subsequent to March 31, 1999,
is included in cash, cash equivalents and restricted cash in the
accompanying consolidated balance sheet.
(c) Investments
The Company invests primarily in high grade short-term
investments which consist of money market instruments, commercial
paper, certificates of deposit, government obligations and
corporate bonds, all of which are considered to be available for
sale. Available for sale investments are carried at amortized
cost, which approximates fair market value, with unrealized gains
and losses, net of tax, reported in accumulated other
comprehensive income or loss. Realized gains and losses and
declines in value judged to be other than temporary are included
in the statement of operations.
Marketable securities consist of investments in common stock and
are stated at fair market value as determined by the most
recently traded price of the securities at the balance sheet
date, net of estimated costs of disposition. The Company's
marketable securities are accounted for as trading securities,
with realized and unrealized gains and losses included in the
statement of operations.
Investments in common or preferred stock for which there is no
public trading market and which represent less than a 20% equity
interest in the investee company are accounted for using the cost
method, unless the Company exercises significant influence and/or
control over the operations of the investee company, in which
case the equity method is used.
(d) Net (Loss) Earnings Per Share
Basic and diluted net (loss) earnings per share is calculated by
dividing net (loss) earnings by the weighted average number of
shares of common stock outstanding. Weighted average number of
shares outstanding represents ICG Common Stock outstanding for
the three months ended March 31, 1999 and combined ICG Common
Stock and Holdings-Canada Class A common shares outstanding for
the three months ended March 31, 1998. Potential common stock,
which include options, warrants and convertible subordinated
notes and preferred securities, are not included in the net
(loss) earnings per share calculation as their effect is
anti-dilutive. The Company has presented net (loss) earnings per
share from discontinued operations and extraordinary gain on
sales of operations of NETCOM in the consolidated statement of
operations for all periods presented.
(e) Reclassifications
Certain 1998 amounts have been reclassified to conform with the
1999 presentation.
10
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Discontinued Operations
Loss from discontinued operations consists of the following:
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------------------
1998 1999
---------------- ---------------
(in thousands)
<S> <C> <C>
Zycom (a) $ (2,397) -
NETCOM (b) (17,794) -
---------------- ---------------
Loss from discontinued operations $ (20,191) -
================ ===============
</TABLE>
(a) Zycom
The Company owns a 70% interest in Zycom Corporation ("Zycom")
which, through its wholly owned subsidiary, Zycom Network
Services, Inc. ("ZNSI"), operated an 800/888/900 number services
bureau and a switch platform in the United States and supplied
information providers and commercial accounts with audiotext and
customer support services. In June 1998, Zycom was notified by
its largest customer of the customer's intent to transfer its
call traffic to another service bureau. In order to minimize the
obligation that this loss in call traffic would generate under
Zycom's volume discount agreements with AT&T Corp. ("AT&T"), its
call transport provider, ZNSI entered into an agreement on July
1, 1998 with an unaffiliated entity, ICN Limited ("ICN"), whereby
ZNSI assigned the traffic of its largest audiotext customer and
its other 900-number customers to ICN, effective October 1, 1998.
As part of this agreement, ICN assumed all minimum call traffic
volume obligations to AT&T.
The call traffic assigned to ICN represented approximately 86% of
Zycom's revenue for the year ended December 31, 1998. The loss of
this significant portion of Zycom's business, despite
management's best efforts to secure other sources of revenue,
raised substantial doubt as to Zycom's ability to operate in a
manner which would benefit Zycom's or the Company's shareholders.
Accordingly, on August 25, 1998, Zycom's board of directors
approved a plan to wind down and ultimately discontinue Zycom's
operations. On October 22, 1998, Zycom completed the transfer of
all customer traffic to other providers. On January 4, 1999, the
Company completed the sale of the remainder of Zycom's long-lived
operating assets to an unrelated third party for total proceeds
of $0.2 million. As Zycom's assets were recorded at estimated
fair market value at December 31, 1998, no gain or loss was
recorded on the sale during the three months ended March 31,
1999. Zycom anticipates the disposition of its remaining assets
and the discharge of its remaining operating liabilities will be
completed in 1999.
The Company's consolidated financial statements reflect the
operations of Zycom as discontinued for all periods presented.
Zycom reported net losses from operations of approximately $1.2
million for the period from August 25, 1998 to December 31, 1998
and reported no income or losses from operations for the three
months ended March 31, 1999. The Company has accrued for all
expected future net losses of Zycom. Included in net current
liabilities and net non-current assets of discontinued operations
in the Company's consolidated balance sheets are the following
accounts of Zycom:
11
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Discontinued Operations (continued)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------------- ------------------
(in thousands)
<S> <C> <C>
Cash, cash equivalents and restricted cash $ 47 -
Receivables, net 90 -
Prepaid expenses and deposits 11 1
Accounts payable and accrued liabilities (1,092) (935)
------------------- ------------------
Net current liabilities of Zycom $ (944) (934)
=================== ==================
Net non-current assets of Zycom - property and
equipment, net $ 220 -
=================== ==================
</TABLE>
(b) NETCOM
On February 17, 1999, the Company sold certain of the operating
assets and liabilities of NETCOM to MindSpring Enterprises, Inc.,
an ISP located in Atlanta, Georgia ("MindSpring"). Total proceeds
from the sale were $245.0 million, consisting of $215.0 million
in cash and 376,116 shares of common stock of MindSpring, valued
at approximately $79.76 per share at the time of the transaction.
Assets and liabilities sold to MindSpring include those directly
related to the domestic operations of NETCOM's Internet dial-up,
dedicated access and Web site hosting services. In conjunction
with the sale to MindSpring, the Company entered into an
agreement to lease to MindSpring for a one-year period the
capacity of certain network operating assets formerly owned by
NETCOM and retained by the Company. MindSpring is utilizing the
Company's network capacity to provide Internet access to the
dial-up services customers formerly owned by NETCOM. Over the
term of the one-year agreement, MindSpring is required to pay the
Company a minimum of $27.0 million for the Company's network
capacity, although such minimum is subject to increase dependent
upon network usage. In addition, the Company is receiving for a
one-year period 50% of the gross revenue earned by MindSpring
from the dedicated access customers formerly owned by NETCOM,
estimated to be approximately $10.0 million for the term of the
agreement. The Company, through PST, is currently utilizing the
retained network operating assets to provide wholesale capacity
and other enhanced network services to MindSpring and intends to
provide similar services to other ISPs and telecommunications
providers in the future. The carrying value of the assets
retained by the Company was approximately $21.7 million,
including approximately $17.5 million of network equipment, on
February 17, 1999. The Company also retained approximately $11.3
million of accrued liabilities and capital lease obligations.
On March 16, 1999, the Company sold all of the capital stock of
NETCOM's international operations for total proceeds of
approximately $41.1 million. MetroNET Communications Corp., a
Canadian entity, and Providence Equity Partners, located in
Providence, Rhode Island ("Providence"), together purchased the
80% interest in NETCOM Canada Inc. owned by NETCOM for
approximately $28.9 million in cash. Additionally, Providence
purchased all of the capital stock of NETCOM Internet Access
Services Limited, NETCOM's operations in the United Kingdom, for
approximately $12.2 million in cash.
During the three months ended March 31, 1999, the Company
recorded a combined gain on the sales of the operations of NETCOM
of approximately $193.0 million, net of income taxes of
approximately $6.4 million. Offsetting the gain on the sales is
approximately $16.6 million of net losses from operations of
12
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Discontinued Operations (continued)
NETCOM from November 3, 1998 (the date on which the Company's
board of directors adopted the formal plan to dispose of the
operations of NETCOM) through the dates of the sales.
Additionally, since the Company expects to generate operating
costs in excess of revenue under its network capacity agreement
with MindSpring and the terms of the sale agreement were
dependent upon and negotiated in conjunction with the terms of
the network capacity agreement, the Company deferred
approximately $26.0 million of the proceeds from the sale
agreement to be applied on a periodic basis to the network
capacity agreement. The deferred proceeds will be recognized in
the Company's statement of operations as the Company incurs cash
operating losses under the network capacity agreement.
Accordingly, the Company does not expect to recognize any
revenue, operating costs or selling, general and administrative
expenses from services provided to MindSpring for the term of the
agreement. Any incremental revenue or costs generated by other
customers, or by other services provided to MindSpring, will be
recognized in the Company's consolidated statement of operations
as incurred. Since the operations sold were acquired by ICG in a
transaction accounted for as a pooling of interests, the gain on
the sales of the operations of NETCOM is classified as an
extraordinary item in the Company's consolidated statement of
operations. For fiscal 1996, 1997 and 1998, NETCOM reported
revenue of $120.5 million, $160.7 million and $164.6 million,
respectively.
(4) Investments
As discussed in note 3, the Company received 376,116 shares of common
stock of MindSpring, valued at $79.76 per share, or $30.0 million, at
the time of the transaction, as partial consideration for the sale of
the domestic operations of NETCOM. In April 1999, the Company sold its
investment in MindSpring for net proceeds of approximately $30.4
million. The Company has recorded an unrealized gain of approximately
$0.4 million in its statement of operations for the three months ended
March 31, 1999. The Company's investment in MindSpring is included in
marketable trading securities in the accompanying consolidated balance
sheet.
On March 30, 1999, the Company purchased, for approximately $10.0
million in cash, 454,545 shares of restricted Series D-1 Preferred
Stock (the "NorthPoint Preferred Stock") of NorthPoint Communications
Holdings, Inc., a Delaware corporation and competitive local exchange
carrier ("CLEC") based in San Francisco, California ("NorthPoint"). The
NorthPoint Preferred Stock has no voting rights and is ultimately
convertible into a voting class of common stock of NorthPoint, at an
exchange price which represents a discount, as provided in the relevant
documentation, to the initial public offering price of NorthPoint's
common stock. The Company is restricted from selling the NorthPoint
Preferred Stock or securities obtained upon conversion of the
NorthPoint Preferred Stock until March 23, 2000. On May 5, 1999,
NorthPoint completed the initial public offering of its common stock,
at which time the NorthPoint Preferred Stock, and additional shares of
NorthPoint Preferred Stock obtained as a result of stock splits, were
automatically converted into shares of Class B common stock, a
nonvoting class of common stock of NorthPoint (the "NorthPoint Class B
Shares"), which are convertible on or after March 23, 2000 on a
one-for-one basis into a voting class of common stock of NorthPoint.
The Company will account for its investment in NorthPoint under the
cost method of accounting until the NorthPoint Class B Shares are
converted into voting and tradable common stock of NorthPoint, after
which the investment will be classified as a trading security.
13
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(5) Long-term Debt and Redeemable Preferred Stock of Subsidiary
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
--------------------- -----------------
(in thousands)
<S> <C> <C>
9 7/8% Senior discount notes of ICG Services, net of discount $ 266,918 273,401
10% Senior discount notes of ICG Services, net of discount 327,699 335,793
11 5/8% Senior discount notes of Holdings, net of discount 122,528 126,006
12 1/2% Senior discount notes of Holdings, net of discount 414,864 427,565
13 1/2% Senior discount notes of Holdings, net of discount 465,886 481,412
Mortgage payable with interest at 8 1/2%, due monthly
into 2009, secured by building 1,084 1,073
Mortgage payable with variable rate of interest (14.34% at
March 31, 1999), due monthly into 2013, secured by
corporate headquarters (a) - 32,500
Other 65 65
--------------------- -----------------
1,599,044 1,677,815
Less current portion (46) (861)
--------------------- -----------------
$ 1,598,998 1,676,954
===================== =================
</TABLE>
(a) Note Payable
Effective January 1, 1999, the Company purchased ICG's
corporate headquarters building, land and improvements
(collectively, the "Corporate Headquarters") for approximately
$43.7 million, which amount represents historical cost and
approximates fair value. The Company, through a newly formed
subsidiary, financed the purchase primarily through a mortgage
secured by the Corporate Headquarters. Payments on the
mortgage are due monthly through January 31, 2013, at an
initial interest rate of 14.34% per annum, which rate
increases annually by 0.003%. The seller of the Corporate
Headquarters has retained an option to repurchase the
Corporate Headquarters at the original sales price, which
option is exercisable from January 1, 2004 through January 31,
2012.
Redeemable preferred stock of subsidiary is summarized as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
---------------------- -------------------
(in thousands)
<S> <C> <C>
14% Exchangeable preferred stock of Holdings,
mandatorily redeemable in 2008 $ 124,867 129,444
14 1/4% Exchangeable preferred stock of Holdings,
mandatorily redeemable in 2007 213,443 221,343
---------------------- -------------------
$ 338,310 350,787
====================== ===================
</TABLE>
14
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Commitments and Contingencies
(a) Network Construction
In March 1996, the Company and Southern California Edison Company
("SCE") entered into a 25-year agreement under which the Company
will license 1,258 miles of fiber optic cable in Southern
California, and can install up to 500 additional miles of fiber
optic cable. This network, which will be maintained and operated
primarily by the Company, stretches from Los Angeles to southern
Orange County. Under the terms of this agreement, SCE is entitled
to receive an annual fee for ten years, certain fixed quarterly
payments, a quarterly payment equal to a percentage of certain
network revenue, and certain other installation and fiber
connection fees. The aggregate fixed payments remaining under the
agreement totaled approximately $134.5 million at March 31, 1999.
The agreement has been accounted for as a capital lease in the
accompanying consolidated balance sheets.
In June 1997, the Company entered into an indefeasible right of
use ("IRU") agreement with Qwest Communications Corporation
("Qwest") for approximately 1,800 miles of fiber optic network
and additional broadband capacity in California, Colorado, Ohio
and the Southeast. Network construction is ongoing and is
expected to be completed in 1999. The Company is responsible for
payment on the construction as segments of the network are
completed and has incurred approximately $20.2 million as of
March 31, 1999, with remaining costs anticipated to be
approximately $14.8 million. Additionally, the Company has
committed to purchase $6.0 million in network capacity from Qwest
prior to the end of 1999, of which the Company has purchased $2.5
million as of March 31, 1999.
(b) Network Capacity and Line Purchase Commitments
In November 1998, the Company entered into two service agreements
with WorldCom Network Services, Inc. ("WorldCom"). Both of the
agreements have three-year terms and were effective in September
1998. Under the Telecom Services Agreement, WorldCom provides, at
designated rates, switched telecommunications services and other
related services to the Company, including termination services,
toll-free origination, switched access, dedicated access and
travel card services. Under the Carrier Digital Services
Agreement, WorldCom provides the Company, at designated rates,
with the installation and operation of dedicated digital
telecommunications interexchange services, local access and other
related services, which the Company believes expedites service
availability to its customers. Both agreements require that the
Company provide WorldCom with certain minimum monthly revenue,
which if not met, would require payment by the Company for the
difference between the minimum commitment and the actual monthly
revenue. Additionally, both agreements limit the Company's
ability to utilize vendors other than WorldCom for certain
telecommunications services specified in the agreements. The
Company's policy is to accrue and include in operating costs the
effect of any shortfall in minimum revenue commitments under
these agreements in the period in which the shortfall occurred.
The Company has successfully achieved all minimum revenue
commitments to WorldCom under these agreements through March 31,
1999.
In March 1999, the Company entered into an agreement with
NorthPoint, which designates NorthPoint as the Company's
exclusive digital subscriber line ("DSL") provider through June
1, 2001. Under the agreement, the Company is required to purchase
49,000 digital subscriber lines before June 1, 2001 at designated
intervals. In return, the Company receives substantial DSL
service price discounts and enhanced market access from
NorthPoint. Price discounts are determined pursuant to a
graduated schedule based on the number of digital subscriber
lines purchased by the Company, with maximum discounts achieved
by purchasing 75,000 digital subscriber lines over the two-year
term.
15
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Commitments and Contingencies (continued)
The Company's policy is to accrue and include in operating costs
the effect of any shortfall in DSL installations under its
agreement with NorthPoint in the period in which the shortfall
occurred. The 49,000 digital subscriber line purchase requirement
and the price discounts are adjustable based on NorthPoint's
compliance with a commitment schedule of DSL service availability
for various U.S. locations.
Additionally, the Company agreed to sell its existing DSL
equipment to NorthPoint, for total proceeds of approximately $2.7
million.
(c) Other Commitments
The Company has entered into various equipment purchase
agreements with certain of its vendors. Under these agreements,
if the Company does not meet a minimum purchase level in any
given year, the vendor may discontinue certain discounts,
allowances and incentives otherwise provided to the Company. In
addition, the agreements may be terminated by either the Company
or the vendor upon
prior written notice.
Additionally, the Company has entered into certain commitments to
purchase capital assets with an aggregate purchase price of
approximately $91.9 million at March 31, 1999.
(d) Transport and Termination Charges
The Company has recorded revenue of approximately $4.9 million,
$58.3 million and $30.8 million for fiscal 1997, fiscal 1998 and
the three months ended March 31, 1999, respectively, for
reciprocal compensation relating to the transport and termination
of local traffic to ISPs from customers of incumbent local
exchange carriers ("ILECs") pursuant to various interconnection
agreements. The ILECs have not paid most of the bills they have
received from the Company and have disputed substantially all of
these charges based on the belief that such calls are not local
traffic as defined by the various agreements and under state and
federal laws and public policies.
The resolution of these disputes will be based on rulings by state
public utility commissions and/or by the Federal Communications
Commission ("FCC"). To date, there have been favorable final
rulings from 31 state public utility commissions that ISP traffic
is subject to the payment of reciprocal compensation under current
interconnection agreements. Many of these state commission
decisions have been appealed by the ILECs. On February 25, 1999,
the FCC issued a decision that ISP-bound traffic is largely
jurisdictionally interstate traffic. The decision relies on the
long-standing federal policy that ISP traffic, although
jurisdictionally interstate, is treated as though it is local
traffic for pricing purposes. The decision also emphasizes that
because there are no federal rules governing intercarrier
compensation for ISP traffic, the determination as to whether such
traffic is subject to reciprocal compensation under the terms of
interconnection agreements properly is made by the state
commissions and that carriers are bound by their interconnection
agreements and state commission decisions regarding the payment of
reciprocal compensation for ISP traffic. The FCC has initiated a
rulemaking proceeding regarding the adoption of prospective
federal rules for intercarrier compensation for ISP traffic. In
its notice of rulemaking, the FCC expresses its preference that
compensation rates for this traffic continue to be set by
negotiations between carriers, with disputes resolved by
arbitrations conducted by state commissions pursuant to the
Telecommunications Act of 1996 (the "Telecommunications Act").
Since the issuance of the FCC's decision on February 25, 1999,
nine state utility commissions have either ruled or reaffirmed
that ISP traffic is subject to reciprocal compensation under
current interconnection agreements. On May 5, 1999,
16
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Commitments and Contingencies (continued)
the Public Utilities Commission of Ohio ("PUCO") issued a decision
affirming its August 1998 decision that ISP traffic is subject to
reciprocal compensation under the Company's current
interconnection agreement with Ameritech Corporation
("Ameritech"). The PUCO also denied Ameritech's request for a stay
of its obligation to remit payment to the Company and directed
Ameritech to remit the amounts owed to the Company within 45 days
of May 5, 1999. The Company expects that Ameritech will seek
judicial review of the PUCO decision and that Ameritech will
request the reviewing court to stay the decision pending appeal.
The Company cannot predict how the reviewing court would rule on
Ameritech's stay request, or the final outcome on the merits of
the court appeal. On March 4, 1999, the Alabama Public Service
Commission (the "Alabama PSC") issued a decision that found that
reciprocal compensation is owed for Internet traffic under four
CLEC interconnection agreements with BellSouth Corporation
("BellSouth"), which agreements were at issue in the proceeding.
With respect to the Company's interconnection agreement, which was
also at issue, the state commission interpreted certain language
in the Company's agreement to exempt ISP-bound traffic from
reciprocal compensation under certain conditions. The Company
believes that the Alabama PSC failed to consider (i) the intent of
the parties in negotiating and executing the Company's
interconnection agreement, and (ii) the specific language of the
Company's interconnection agreement and the impact of Alabama PSC
and FCC policies, and thereby misinterpreted the agreement. The
Company has filed a request with the Alabama PSC seeking
determination that the ruling with respect to the Company's
agreement be reconsidered, and that the Company should be treated
the same as the other CLECs that participated in the proceeding
and for which the Alabama PSC ordered the payment of reciprocal
compensation. While the Company intends to pursue vigorously the
petition for reconsideration with the Alabama PSC, and if the
Company deems it necessary, judicial review, the Company cannot
predict the final outcome of this issue.
The Company has also recorded revenue of approximately $19.1
million and $5.2 million for fiscal 1998 and the three months
ended March 31, 1999, respectively, related to other transport and
termination charges to the ILECs, pursuant to the Company's
interconnection agreements with these ILECs. Included in the
Company's trade receivables at December 31, 1998 and March 31,
1999 are $72.8 million and $105.5 million, respectively, for all
receivables related to transport and termination charges. The
receivables balance at March 31, 1999 is net of an allowance of
$8.1 million for disputed amounts.
As the Company's interconnection agreements expire or are
extended, rates for transport and termination charges are being
and will continue to be renegotiated. Some of the Company's
agreements are already being affected. Although the Company's
interconnection agreement with BellSouth has expired, the Company
has received written notification from BellSouth that the Company
may continue operating under the expired interconnection
agreement, until such agreement is renegotiated or arbitrated by
the relevant state commissions. Additionally, the Company's
interconnection agreement with Ameritech recently was extended
from June 15, 1999 to February 15, 2000. The Company's remaining
interconnection agreements expire in 1999 and 2000. The Company's
extension of its interconnection agreement with Ameritech includes
reduced rates for transport and termination charges, and the
Company expects that its negotiations with BellSouth will also
affect the rates for transport and termination charges included in
its existing interconnection agreement with BellSouth. While the
Company believes that all revenue recorded through March 31, 1999
is collectible and that future revenue from transport and
termination charges billed under the Company's current
interconnection agreements will be realized, there can be no
assurance that future regulatory and judicial rulings will be
favorable to the Company, that the Alabama PSC will reconsider its
ruling, or that different pricing plans for transport and
17
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Commitments and Contingencies (continued)
termination charges between carriers will not be adopted when the
Company's interconnection agreements are renegotiated or
arbitrated, or as a result of the FCC's rulemaking proceeding on
future compensation methods. In fact, the Company believes that
different pricing plans will be considered and adopted, and
although the Company expects that revenue from transport and
termination charges likely will decrease as a percentage of total
revenue from local services in periods after the expiration of
current interconnection agreements, the Company's local
termination services still will be required by the ILECs and must
be provided under the Telecommunications Act, and likely will
result in increasing volume in minutes due to the growth of the
Internet and related services markets. The Company expects to
negotiate reasonable compensation and collection terms for local
termination services, although there is no assurance that such
compensation will remain consistent with current levels.
(e) Litigation
On April 4, 1997, certain shareholders of Zycom filed a
shareholder derivative suit and class action complaint for
unspecified damages, purportedly on behalf of all of the minority
shareholders of Zycom, in the District Court of Harris County,
Texas (Cause No. 97-17777) against the Company, Zycom and certain
of their subsidiaries. This complaint alleges that the Company
and certain of its subsidiaries breached certain duties owed to
the plaintiffs. The plaintiffs were denied class certification by
the trial court and this decision has been appealed. Trial has
been tentatively set for August 1999. The Company is vigorously
defending the claims. While it is not possible to predict the
outcome of this litigation, management believes these proceedings
will not have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
The Company is a party to certain other litigation which has
arisen in the ordinary course of business. In the opinion of
management, the ultimate resolution of these matters will not
have a material adverse effect on the Company's financial
condition, results of operations or cash flows.
(7) Business Units
The Company conducts transactions with external customers through the
operations of its Telecom Services, Network Services and Satellite
Services business units. Shared administrative services are provided to
the business units by Corporate Services. Corporate Services consists
of the operating activities of ICG Communications, Inc., ICG Funding,
LLC, ICG Canadian Acquisition, Inc., ICG Holdings (Canada) Co., ICG
Holdings, Inc. and ICG Services, Inc., which primarily hold securities
and provide certain legal, accounting and finance, personnel and other
administrative support services to the business units.
Direct and certain indirect costs incurred by Corporate Services on
behalf of the business units are allocated among the business units
based on the nature of the underlying costs. Transactions between the
business units for services performed in the normal course of business
are recorded at amounts which are intended to approximate fair value.
Set forth below are revenue, EBITDA (before nonrecurring charges),
which represents the measure of operating performance used by
management to evaluate operating results, depreciation and
amortization, interest expense, capital expenditures of continuing
operations and total assets for each of the Company's business units
and for Corporate Services. As described in note 3, the operating
results of the Company reflect the operations of Zycom and NETCOM as
discontinued for all periods presented.
18
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Business Units (continued)
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------------
1998 1999
----------------- -------------------
(in thousands)
Revenue:
<S> <C> <C>
Telecom Services $ 58,841 105,727
Network Services 13,430 17,592
Satellite Services 8,949 11,688
Elimination of intersegment revenue (2,353) (5,488)
----------------- -------------------
Total revenue $ 78,867 129,519
================= ===================
EBITDA (before nonrecurring charges) (a):
Telecom Services $ (17,861) 12,614
Network Services (2,574) 490
Satellite Services 833 2,427
Corporate Services (4,418) (4,384)
Eliminations (954) (697)
----------------- -------------------
Total EBITDA (before nonrecurring charges) $ (24,974) 10,450
================= ===================
Depreciation and amortization (b):
Telecom Services $ 11,730 35,111
Network Services 598 529
Satellite Services - 2,127
Corporate Services 1,203 800
Eliminations 72 464
----------------- -------------------
Total depreciation and amortization $ 13,603 39,031
================= ===================
Interest expense (b):
Telecom Services $ 1,816 -
Network Services 1 3
Satellite Services 48 -
Corporate Services 32,606 47,438
----------------- -------------------
Total interest expense $ 34,471 47,441
================== ==================
Capital expenditures of continuing operations (c):
Telecom Services $ 64,072 103,180
Network Services 147 87
Satellite Services 182 2,718
Corporate Services 2,300 -
Eliminations (953) (268)
----------------- -------------------
Total capital expenditures of continuing operations $ 65,748 105,717
================= ==================
(Continued)
</TABLE>
19
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Business Units (continued)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
--------------------- --------------------
(in thousands)
Total assets:
<S> <C> <C>
Telecom Services (d) $ 1,135,937 1,285,406
Network Services 34,378 35,113
Satellite Services (d) 46,760 45,841
Corporate Services (d) 376,796 545,291
Eliminations (22,689) (34,392)
Net current assets of discontinued operations (e) - -
Net non-current assets of discontinued operations 54,243 -
--------------------- --------------------
Total assets $ 1,625,425 1,877,259
===================== ====================
</TABLE>
(a) EBITDA (before nonrecurring charges) consists of (loss) from
continuing operations before interest, income taxes, depreciation
and amortization, provision for impairment of long-lived assets,
net loss (gain) on disposal of long-lived assets, other expense,
net and accretion and preferred dividends on preferred securities
of subsidiaries, or simply, revenue less operating costs and
selling, general and administrative expenses. EBITDA (before
nonrecurring charges) is presented as the Company's measure of
operating performance because it is a measure commonly used in
the telecommunications industry. EBITDA (before nonrecurring
charges) is presented to enhance an understanding of the
Company's operating results and is not intended to represent cash
flows or results of operations in accordance with generally
accepted accounting principles for the periods indicated. EBITDA
(before nonrecurring charges) is not a measurement under
generally accepted accounting principles and is not necessarily
comparable with similarly titled measures of other companies.
(b) Although not included in EBITDA (before nonrecurring charges),
which represents the measure of operating performance used by
management to evaluate operating results, the Company has
supplementally provided depreciation and amortization and
interest expense for each of the Company's business units and
Corporate Services. Interest expense excludes amounts charged for
interest on outstanding cash advances and expense allocations
among the business units and Corporate Services.
(c) Capital expenditures include assets acquired under capital leases
and excludes payments for construction of the Company's corporate
headquarters and corporate headquarters assets acquired through
the issuance of long-term debt.
(d) Total assets of Telecom Services, Satellite Services and
Corporate Services excludes investments in consolidated
subsidiaries which eliminate in consolidation.
(e) At December 31, 1998, the Company had net current liabilities of
discontinued operations of $23.3 million, and accordingly, such
amount was not included within net current assets of discontinued
operations on that date.
20
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Summarized Financial Information of ICG Holdings, Inc.
The 11 5/8% Senior Discount Notes due 2007 (the "11 5/8% Notes") issued
by Holdings during 1997 are guaranteed by ICG. The 12 1/2% Senior
Discount Notes due 2006 (the "12 1/2% Notes") and the 13 1/2% Senior
Discount Notes due 2005 (the "13 1/2% Notes") issued by Holdings during
1996 and 1995, respectively, are guaranteed by ICG and Holdings-Canada.
The separate complete financial statements of Holdings have not been
included herein because such disclosure is not considered to be
material to the holders of the 11 5/8% Notes, the 12 1/2% Notes and the
13 1/2% Notes. However, summarized combined financial information for
Holdings and its subsidiaries is as follows:
Summarized Consolidated Balance Sheet Information
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
-------------------- ---------------------
(in thousands)
<S> <C> <C>
Current assets $ 277,098 270,315
Property and equipment, net 636,747 650,250
Other non-current assets, net 170,151 140,318
Net non-current assets of discontinued operations 220 -
Current liabilities 81,299 93,027
Net current liabilities of discontinued operations 944 934
Long-term debt, less current portion 1,004,316 1,036,010
Capital lease obligations, less current portion 63,359 63,651
Due to parent 191,889 209,020
Due to ICG Services 137,762 123,368
Redeemable preferred stock 338,311 350,787
Stockholder's deficit (733,664) (815,914)
</TABLE>
Summarized Consolidated Statement of Operations Information
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------------------
1998 1999
--------------------- ---------------------
(in thousands)
<S> <C> <C>
Total revenue $ 79,221 130,922
Total operating costs and expenses 116,471 163,398
Operating loss (37,250) (32,476)
Loss from continuing operations (78,044) (69,637)
Net loss (79,575) (82,250)
</TABLE>
21
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(9) Condensed Financial Information of ICG Holdings (Canada) Co.
Condensed financial information for Holdings-Canada only is as follows:
Condensed Balance Sheet Information
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------------- ------------------
(in thousands)
<S> <C> <C>
Current assets $ 162 162
Advances to subsidiaries 191,889 209,020
Non-current assets, net 2,414 1,810
Current liabilities 73 73
Long-term debt, less current portion 65 65
Due to parent 182,101 199,231
Share of losses of subsidiaries 733,664 815,914
Shareholders' deficit (721,438) (804,291)
</TABLE>
Condensed Statement of Operations Information
<TABLE>
<CAPTION>
Three months ended March 31,
------------------------------------------
1998 1999
------------------- -------------------
<S> <C> <C>
Total revenue $ - -
Total operating costs and expenses 33 603
Operating loss (33) (603)
Losses of subsidiaries (79,575) (82,250)
Net loss attributable to common shareholders (79,608) (82,853)
</TABLE>
(10) Condensed Financial Information of ICG Communications, Inc. (Parent
company)
The primary assets of ICG are its investments in ICG Services, ICG
Funding and Holdings-Canada, including advances to those subsidiaries.
Certain corporate expenses of the parent company are included in ICG's
statement of operations and were approximately $0.5 million for both
the three months ended March 31, 1998 and 1999. ICG has no operations
other than those of ICG Services, ICG Funding and Holdings-Canada and
their subsidiaries.
22
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion includes certain forward-looking statements
which are affected by important factors including, but not limited to,
dependence on increased traffic on the Company's facilities, the successful
implementation of the Company's strategy of offering an integrated
telecommunications package of local, long distance, data and enhanced telephony
and network services, continued development of the Company's network
infrastructure and actions of competitors and regulatory authorities that could
cause actual results to differ materially from the forward-looking statements.
The results of operations for the three months ended March 31, 1998 and 1999
represent the consolidated operating results of the Company. See the unaudited
condensed consolidated financial statements of the Company for the three months
ended March 31, 1999 included elsewhere herein. The Company's consolidated
financial statements reflect the operations of Zycom and NETCOM as discontinued
for all periods presented. The terms "fiscal" and "fiscal year" refer to the
Company's fiscal year ending December 31. All dollar amounts are in U.S.
dollars.
Company Overview
ICG Communications Inc. ("ICG" or the "Company") is one of the nation's
leading competitive integrated communications providers ("ICPs") based on the
industry's 1998 revenue. ICPs seek to provide an alternative to the incumbent
local exchange carriers ("ILECs"), long distance carriers and other
communications service providers for a full range of communications services in
the increasingly deregulated telecommunications industry. The Company's Telecom
Services primarily include its competitive local exchange carrier ("CLEC")
operations, in which the Company operates fiber networks in regional clusters
covering major metropolitan statistical areas in California, Colorado, Ohio,
Texas and the Southeast, offering local, long distance, data and enhanced
telephony services to business end users and ISPs. Additionally, in February
1999, the Company began providing wholesale network services over its nationwide
data network. The Company also provides a wide range of network systems
integration services and maritime and international satellite transmission
services. Network Services consists of information technology services and
selected networking products, focusing on network design, installation,
maintenance and support. Satellite Services consists of satellite voice, data
and video services provided to major cruise lines, the U.S. Navy, the offshore
oil and gas industry and ICPs. As a leading participant in the rapidly growing
competitive local telecommunications industry, the Company has experienced
significant growth, with total revenue increasing from approximately $154.1
million for fiscal 1996 to approximately $448.3 million for the 12-month period
ended March 31, 1999. The Company's rapid growth is the result of the initial
installation, acquisition and subsequent expansion of its fiber optic networks
and the expansion of its communications service offerings.
The Federal Telecommunications Act of 1996 (the "Telecommunications
Act") and pro-competitive state regulatory initiatives have substantially
changed the telecommunications regulatory environment in the United States.
Under the Telecommunications Act, the Company is permitted to offer all
interstate and intrastate telephone services, including competitive local dial
tone. In early 1997, the Company began marketing and selling local dial tone
services in major metropolitan areas in California, Colorado, Ohio and the
Southeast and, in December 1998, began offering services in Texas through an
acquired business. During fiscal 1997, fiscal 1998 and the three months ended
March 31, 1999, the Company sold 178,470, 206,458 and 63,690 local access lines,
respectively, net of cancellations, of which 418,610 were in service at March
31, 1999. In addition, the Company's regional fiber networks have grown from
2,143 fiber route miles at the end of fiscal 1996 to 4,351 fiber route miles at
March 31, 1999. The Company had 29 operating high capacity digital voice
switches and 17 data communications switches at March 31, 1999, and plans to
install additional switches as demand warrants. As a complement to its local
exchange services offered to business end users, the Company markets bundled
service offerings provided over its regional fiber network which include long
distance, enhanced telecommunications services and data services. Additionally,
the Company owns and operates a nationwide data network with 236 points of
presence ("POPs") over which the Company recently began providing wholesale
Internet access and enhanced network services to MindSpring Enterprises, Inc.,
an Internet service provider ("ISP") located in Atlanta, Georgia ("MindSpring"),
and intends to offer similar services to other ISPs and telecommunications
providers in the future.
To better focus its efforts on its core Telecom Services operations,
the Company disposed of certain assets which management believes do not
complement its overall business strategy. Due primarily to the loss of a major
customer, which generated a significant obligation under a volume discount
23
<PAGE>
agreement with its call transport provider, the board of directors of Zycom
Corporation ("Zycom") approved a plan on August 25, 1998 to wind down and
ultimately discontinue Zycom's operations. On October 22, 1998, Zycom completed
the transfer of all customer traffic to other providers and on January 4, 1999,
the Company completed the sale of the remainder of Zycom's long-lived operating
assets to an unrelated third party. On February 17, 1999, the Company sold
certain of the operating assets and liabilities of NETCOM On-Line Communication
Services, Inc. ("NETCOM") to MindSpring for total proceeds of $245.0 million,
and on March 16, 1999, the Company sold all of the capital stock of NETCOM's
international operations in Canada and the United Kingdom to other unrelated
third parties for total proceeds of approximately $41.1 million. During the
three months ended March 31, 1999, the Company recorded a combined gain on the
sales of the operations of NETCOM of approximately $193.0 million, net of income
taxes of approximately $6.4 million. Offsetting the gain on the sales is
approximately $16.6 million of net losses from operations of NETCOM from
November 3, 1998 (the date on which the Company's board of directors adopted the
formal plan to dispose of the operations of NETCOM) through the dates of the
sales. Since the operations sold were acquired by the Company in a transaction
accounted for as a pooling of interests, the gain on the sales of the operations
of NETCOM is classified as an extraordinary item in the Company's consolidated
statement of operations. For fiscal 1996, 1997 and 1998, Zycom and NETCOM
combined reported revenue of $135.4 million, $189.0 million and $181.6 million,
respectively, and EBITDA losses (before nonrecurring charges) of $(30.4)
million, $(12.1) million and $(18.0) million, respectively. The Company's
consolidated financial statements reflect the operations of Zycom and NETCOM as
discontinued for all periods presented. The Company will from time to time
evaluate all of its assets as to their core need and, based on such analysis,
may sell or otherwise dispose of assets which do not complement its overall
business strategy.
In conjunction with the sale to MindSpring, the legal name of the
NETCOM subsidiary was changed to ICG PST, Inc. ("PST"). PST has retained the
domestic Internet backbone assets formerly owned by NETCOM which include 236
POPs serving approximately 700 cities nationwide. PST intends to utilize the
retained network operating assets to provide wholesale Internet access and
enhanced network services to MindSpring and other ISPs and telecommunications
providers. On February 17, 1999, the Company entered into an agreement to lease
to MindSpring for a one-year period the capacity of certain network operating
assets formerly owned by NETCOM and retained by the Company. MindSpring is
utilizing the Company's network capacity to provide Internet access to the
dial-up services customers formerly owned by NETCOM. Over the term of the
one-year agreement, MindSpring is required to pay the Company a minimum of $27.0
million, although such minimum is subject to increase dependent upon network
usage. In addition, the Company is receiving for a one-year period 50% of the
gross revenue earned by MindSpring from the dedicated access customers formerly
owned by NETCOM, estimated to be approximately $10.0 million for the term of the
agreement. Although the Company expects to generate cash operating losses under
this agreement, any such losses will be offset by the periodic recognition of
approximately $26.0 million of the proceeds from the sale of certain of NETCOM's
domestic operating assets and liabilities to MindSpring, which the Company
deferred on February 17, 1999. Accordingly, the Company does not expect to
recognize any revenue, operating costs or selling, general and administrative
expenses from services provided to MindSpring for the term of the agreement. Any
incremental revenue or costs generated by other customers, or by other services
provided to MindSpring, will be recognized in the Company's consolidated
statement of operations as incurred.
Additionally, the Company intends to provide network capacity and
enhanced data services to ISPs and other telecommunications providers, as
required. In December 1998, the Company announced plans to offer several new
network services to its business and ISP customers by utilizing its nationwide
data network and service capabilities to carry out-of-region traffic and enhance
data services provided. One of the services currently being offered is modemless
remote access service ("RAS"). RAS, also known as managed modem service, allows
the Company to provide modem access at its own switch location, thereby
eliminating the need for ISPs to deploy modems physically at each of their POPs.
The benefits to ISPs, including reduced capital expenditures and the shift of
network management responsibility from the ISPs to the Company, will allow the
Company to act as an aggregator of ISP traffic. In offering RAS, the Company
provides radius routing and proxy services at the modem bank connected to the
Company's local switch, which services are the authentication services necessary
to validate and accurately route incoming call traffic to the ISP. The Company
also provides transport services to deliver all Internet protocol ("IP") data
packets either directly to the ISP, if the ISP is not collocated at the
Company's local switch, or directly to the Internet, bypassing the ISP.
Additionally, through its network operations center, the Company monitors the
24
<PAGE>
usage of each port and is responsible for the administration of all network
repair and maintenance. The Company is currently offering Internet RAS services,
or expanded originating services, to MindSpring and expects to extend such
services offerings to other ISPs in the future. In August 1998, the Company
began offering enhanced telephony services via IP technology. The Company
currently offers this service in 230 major cities in the United States, covering
more than 90% of the commercial long distance market. The Company carries the IP
traffic over its nationwide data network and terminates a large portion of the
traffic via its own POPs. The Company also began offering integrated access
service ("IAS") which allows voice and data traffic to be carried on the same
circuit. Through equipment installed by the Company at the customers' premises
and in the Company's central offices, IAS provides expanded bandwidth for small
to medium-sized business customers as an alternative to purchasing additional
circuits. Data traffic, including Internet traffic, from IAS service offerings
will be carried over the Company's nationwide network. The Company's nationwide
network will also be utilized in offering peering services to its ISP customers,
in which service offerings the Company will become the general backbone provider
for its customers. Additionally, the Company intends to provide other enhanced
network services as demand warrants.
The Company will continue to expand its network and service offerings
through construction, leased facilities, strategic alliances and mergers and
acquisitions. For example, on December 31, 1998, the Company purchased from
Central and South West Corporation ("CSW") 100% of the partnership interests in
ICG ChoiceCom, L.P. ("ChoiceCom"), a strategic alliance with CSW formed for the
purpose of developing and marketing telecommunications services in certain
cities in Texas. ChoiceCom is based in Austin, Texas and currently provides
local exchange and long distance services in Austin, Corpus Christi, Dallas,
Houston and San Antonio, Texas. For fiscal 1997 and 1998, ChoiceCom reported
revenue of $0.3 million and $5.8 million, respectively, and EBITDA losses
(before nonrecurring charges) of $(5.5) million and $(13.6) million,
respectively. Additionally, on the acquisition date, ChoiceCom had five
operating high capacity digital voice switches and two data communications
switches and had 19,569 access lines in service, including 15,282 access lines
previously sold by ICG on behalf of ChoiceCom. In March 1999, the Company
entered into an agreement with NorthPoint Communications, Inc., a data CLEC
based in San Francisco, California ("NorthPoint"), which designates NorthPoint
as the Company's preferred digital subscriber line ("DSL") provider through June
1, 2001. A significant portion of the Company's DSL traffic will be routed by
NorthPoint to the Company's asynchronous transfer mode ("ATM") switches and
transported by the Company either to the ISP, via a point to point connection or
via IP technology, or directly to the Internet, as required. The Company expects
to purchase a minimum of 75,000 digital subscriber lines from NorthPoint during
the term of the agreement. In April 1999, the Company signed a nonbinding letter
of intent with a large national ISP which is currently a local exchange customer
of the Company. If the agreement is finalized, the Company will provide Internet
RAS to the ISP for a seven-year period for an estimated $290.0 million over the
term of the agreement. The Company is currently converting the ISP's existing
primary rate interface ("PRI") lines to accommodate RAS service and expects to
convert a total of 60,000 PRI lines in conjunction with the agreement.
Additionally, the letter of intent contains pricing provisions which, if the
agreement is finalized, will reduce the Company's reliance in future periods on
revenue from transport and termination charges generated by local exchange
services provided to customers of the ISP. See "Liquidity Transport and
Termination Charges." Also in April 1999, the Company announced its intention to
expand its RAS and other network service offerings during 1999 to the major U.S.
markets of Boston, New York, Washington D.C., Miami, Chicago and Seattle.
In conjunction with the increase in its service offerings, the Company
has and will continue to need to spend significant amounts on sales, marketing,
customer service, engineering and support personnel prior to the generation of
corresponding revenue. EBITDA, EBITDA (before nonrecurring charges), and
operating and net losses have generally increased immediately preceding and
during periods of relatively rapid network expansion and development of new
services. Since the quarter ended June 30, 1996, EBITDA losses (before
nonrecurring charges) have improved for each consecutive quarter, through and
including the quarter ended March 31, 1999 for which the Company reported
positive EBITDA before nonrecurring charges of $10.5 million. As the Company
provides a greater volume of higher margin services, principally local exchange
services, carries more traffic on its own facilities rather than ILEC facilities
and obtains the right to use unbundled ILEC facilities, while experiencing
decelerating increases in personnel and other selling, general and
administrative expenses supporting its operations, any or all of which may not
occur, the Company anticipates that EBITDA performance will continue to improve
in the near term.
25
<PAGE>
Results of Operations
The following table provides a breakdown of revenue, operating costs
and selling, general and administrative expenses for Telecom Services, Network
Services and Satellite Services, and certain other financial data for the
Company for the periods indicated. The table also shows certain revenue,
expenses, operating loss, EBITDA and EBITDA (before nonrecurring charges) as a
percentage of the Company's total revenue.
<TABLE>
<CAPTION>
Three months ended March 31,
---------------------------------------------------------------------------
1998 1999
---------------------------------- -------------------------------------
$ % $ %
--------------- -------------- -------------------- -------------
(unaudited)
Statement of Operations Data: (in thousands)
Revenue:
<S> <C> <C> <C> <C>
Telecom services 58,487 74 104,331 81
Network services 11,431 15 13,500 10
Satellite services 8,949 11 11,688 9
--------------- --------------- ----------------- ----------------
Total revenue 78,867 100 129,519 100
Operating costs:
Telecom services 45,658 53,649
Network services 10,865 10,303
Satellite services 4,992 6,224
--------------- --------------- ----------------- ----------------
Total operating costs 61,515 78 70,176 54
Selling, general and administrative:
Telecom services 30,964 38,424
Network services 3,818 3,049
Satellite services 3,126 3,036
Corporate services (1) 4,418 4,384
--------------- --------------- ----------------- ----------------
Total selling, general and administrative 42,326 54 48,893 38
Depreciation and amortization 13,603 17 39,031 30
Net loss (gain) on disposal of long-lived
assets 505 1 (908) (1)
--------------- --------------- ----------------- ----------------
Operating loss (39,082) (50) (27,673) (21)
Other Data:
Net cash used by operating activities (6,539) (43,833)
Net cash provided by investing activities 36,681 130,296
Net cash provided (used) by financing
activities 294,197 (521)
EBITDA (2) (25,479) (32) 11,358 9
EBITDA (before nonrecurring charges) (2) (24,974) (32) 10,450 8
Capital expenditures of continuing
operations (3) 65,748 105,717
Capital expenditures of discontinued
operations (3) 6,511 -
(Continued)
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31, March 31,
1998 1998 1998 1998 1999
--------------- ------------- ---------------- -------------- --------------
(unaudited)
Statistical Data (4):
<S> <C> <C> <C> <C> <C>
Full time employees 3,050 3,089 3,251 3,415 2,665
Telecom services:
Access lines in service (5) 186,156 237,458 290,983 354,482 418,610
Buildings connected:
On-net 637 665 684 777 789
Hybrid (6) 3,294 3,733 4,217 4,620 5,337
--------------- -------------- ------------- ------------- --------------
Total buildings connected 3,931 4,398 4,901 5,397 6,126
Operational switches:
Voice 20 20 21 29 29
Data 15 15 15 16 17
--------------- -------------- ------------- ------------- --------------
Total operational switches 35 35 36 45 46
Fiber route miles (7):
Operational 3,194 3,812 3,995 4,255 4,351
Under construction - - - - 533
Fiber strand miles (8):
Operational 118,074 124,642 127,756 134,152 155,788
Under construction - - - - 15,863
Collocations with ILECs 35 45 47 59 111
Satellite services:
C-Band installations (9) 59 66 69 76 78
</TABLE>
(1) Corporate Services consists of the operating activities of ICG
Communications, Inc., ICG Funding, LLC, ICG Canadian Acquisition, Inc.,
ICG Holdings (Canada) Co., ICG Holdings, Inc., ICG Services, Inc. and
ICG Equipment, Inc., which primarily hold securities and provide certain
legal, accounting and finance, personnel and other administrative
support services to the business units.
(2) EBITDA consists of earnings (loss) from continuing operations before
interest, income taxes, depreciation and amortization, other expense,
net and accretion and preferred dividends on preferred securities of
subsidiaries, or simply, operating loss plus depreciation and
amortization. EBITDA (before nonrecurring charges) represents EBITDA
before certain nonrecurring charges such as the net loss (gain) on
disposal of long-lived assets. EBITDA and EBITDA (before nonrecurring
charges) are provided because they are measures commonly used in the
telecommunications industry. EBITDA and EBITDA (before nonrecurring
charges) are presented to enhance an understanding of the Company's
operating results and are not intended to represent cash flows or
results of operations in accordance with generally accepted accounting
principles ("GAAP") for the periods indicated. EBITDA and EBITDA (before
nonrecurring charges) are not measurements under GAAP and are not
necessarily comparable with similarly titled measures of other
companies. Net cash flows from operating, investing and financing
activities of continuing operations as determined using GAAP are also
presented in Other Data.
(3) Capital expenditures include assets acquired under capital leases and
excludes payments for construction of the Company's corporate
headquarters and corporate headquarters assets acquired through the
issuance of long-term debt. Capital expenditures of discontinued
operations includes the capital expenditures of Zycom and NETCOM
combined for all periods presented.
(4) Amounts presented are for three-month periods ended, or as of the end of
the period presented.
(5) Access lines in service at March 31, 1999 includes 331,146 lines which
are provisioned through the Company's switch and 87,464 lines which are
provisioned through resale and other agreements with various local
exchange carriers. Resale lines typically generate lower margins and are
used primarily to obtain customers. Although the Company plans to
migrate lines from resale to higher margin on-switch lines, there is no
assurance that it will be successful in executing this strategy.
(6) Hybrid buildings connected represent buildings connected to the
Company's network via another carrier's facilities.
27
<PAGE>
(7) Fiber route miles refers to the number of miles of fiber optic cable,
including leased fiber. As of March 31, 1999, the Company had 4,351
fiber route miles, of which 48 fiber route miles were leased under
operating leases. Fiber route miles under construction represents fiber
under construction which is expected to be operational within six
months.
(8) 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, 1999, the Company had
15,863 fiber strand miles, of which 856 fiber strand miles were leased
under operating leases. Fiber strand miles under construction represents
fiber under construction which is expected to be operational within six
months.
(9) C-Band installations service cruise ships, U.S. Navy vessels and
offshore oil platform installations.
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998
Revenue. Total revenue for the three months ended March 31, 1999
increased $50.7 million, or 64%, from the three months ended March 31, 1998.
Telecom Services revenue increased 78% to $104.3 million due to an increase in
revenue from local services (dial tone), long distance and special access
services, offset in part by a decline in average unit pricing and in wholesale
switched services revenue. Local services revenue increased from $24.3 million
(42% of Telecom Services revenue) for the three months ended March 31, 1998 to
$67.4 million (65% of Telecom Services revenue) for the three months ended March
31, 1999, primarily due to an increase in local access lines from 186,156 lines
in service at March 31, 1998 to 418,610 lines in service at March 31, 1999. In
addition, local access revenue includes revenue of approximately $8.5 million
and $30.8 million for the three months ended March 31, 1998 and 1999,
respectively, for reciprocal compensation relating to the transport and
termination of local traffic to ISPs from customers of ILECs pursuant to various
interconnection agreements. These agreements are subject to renegotiation over
the next several months. While management believes that these agreements will be
replaced by agreements offering the Company some form of compensation for ISP
traffic, the renegotiated agreements may reflect rates for reciprocal
compensation which are lower than the rates under the current contracts. See
"Liquidity - Transport and Termination Charges." Revenue from long distance
services increased from $3.9 million for the three months ended March 31, 1998
to $5.1 million for the three months ended March 31, 1999. Special access
revenue increased from $16.1 million (28% of Telecom Services revenue) for the
three months ended March 31, 1998 to $22.6 million (22% of Telecom Services
revenue) for the three months ended March 31, 1999. Switched access (terminating
long distance) revenue decreased to $9.2 million for the three months ended
March 31, 1999, compared to $14.2 million for the three months ended March 31,
1998. The Company has raised prices on its wholesale switched services product
in order to improve margins. Revenue from data services did not generate a
material portion of total revenue during either period.
Network Services revenue increased 18% to $13.5 million for the three
months ended March 31, 1999, compared to $11.4 million for the three months
ended March 31, 1998. The increase in Network Services revenue is primarily due
to an increase in the volume of integrated cabling services in addition to an
overall increase in other service installations. In addition, Network Services
provides certain cabling and other service installation on behalf of Telecom
Services, as Telecom Services provisions new customers and services. Due to the
growth of Telecom Services during fiscal 1998 and into 1999, Network Services
has been and will continue to be required to spend increasing management
attention and resources on providing cabling and other service installation for
Telecom Services. Amounts received from Telecom Services for work performed is
eliminated in consolidation.
Satellite Services revenue increased $2.7 million, or 31%, to $11.7
million for the three months ended March 31, 1999. This increase is due to the
operations of Maritime Telecommunications Network, Inc. ("MTN"), which comprised
all of Satellite Services revenue for the three months ended March 31, 1999,
compared to $5.4 million for the same period in 1998. MTN's C-band
installations, which include both military and cruise vessels, increased from 59
at March 31, 1998 to 78 at March 31, 1999, an increase of 32%. The Company sold
the remaining operating subsidiaries of Satellite Services, other than MTN, in
August and November 1998.
Operating costs. Total operating costs for the three months ended March
31, 1999 increased $8.7 million, or 14%, from the three months ended March 31,
28
<PAGE>
1998. Telecom Services operating costs increased from $45.7 million, or 78% of
Telecom Services revenue, for the three months ended March 31, 1998 to $53.6
million, or 51% of Telecom Services revenue, for the three months ended March
31, 1999. Telecom Services operating costs consist of payments to ILECs for the
use of network facilities to support special and switched access services,
network operating costs, right of way fees and other costs. The increase in
operating costs in absolute dollars is attributable to the increase in volume of
local and special access services and the increase in network operating costs
which include engineering and operations personnel dedicated to the development
and launch of local exchange services. The decrease in operating costs as a
percentage of Telecom Services revenue is due primarily to a greater volume of
higher margin services, principally local exchange services. The Company expects
the Telecom Services ratio of operating costs to revenue will further improve as
the Company provides a greater volume of higher margin services, principally
local exchange services, carries more traffic on its own facilities rather than
the ILEC facilities and obtains the right to use unbundled ILEC facilities on
satisfactory terms, any or all of which may not occur.
Network Services operating costs decreased 5% to $10.3 million and
decreased as a percentage of Network Services revenue from 95% for the three
months ended March 31, 1998 to 76% for the three months ended March 31, 1999.
The decrease in operating costs in absolute dollars and as a percentage of
revenue is due to the decrease in cost overruns between the comparative periods
and the decentralization of Network Services in fiscal 1998 which eliminated
certain duplicate costs. Network Services operating costs include the cost of
equipment sold, direct hourly labor and other indirect project costs.
Satellite Services operating costs increased to $6.2 million for the
three months ended March 31, 1999, from $5.0 million for the three months ended
March 31, 1998. Satellite Services operating costs as a percentage of Satellite
Services revenue decreased from 56% for the three months ended March 31, 1998 to
53% for the three months ended March 31, 1999 as a result of the increase in
revenue of MTN which provides relatively higher margins than the other maritime
services operations which the Company sold in August 1998. Satellite Services
operating costs consist primarily of transponder lease costs and the cost of
equipment sold.
Selling, general and administrative expenses. Total selling, general
and administrative ("SG&A") expenses for the three months ended March 31, 1999
increased $6.6 million, or 16%, compared to the three months ended March 31,
1998, and decreased as a percentage of total revenue from 54% for the three
months ended March 31, 1998 to 38% for the three months ended March 31, 1999.
Telecom Services SG&A expense increased from $31.0 million, or 53% of Telecom
Services revenue, for the three months ended March 31, 1998 to $38.4 million, or
37% of Telecom Services revenue, for the three months ended March 31, 1999. The
increase in absolute dollars is principally due to the continued rapid expansion
of the Company's Telecom Services networks and related significant additions to
the Company's management information systems, customer service, marketing and
sales staffs dedicated to the expansion of the Company's networks and
implementation of the Company's expanded services strategy, primarily the
development of local and long distance telephone services. As the Company begins
to benefit from the revenue generated by newly developed services requiring
substantial administrative, selling and marketing expense prior to initial
service offerings, Telecom Services has experienced and expects to continue to
experience declining SG&A expenses as a percentage of Telecom Services revenue.
Network Services SG&A expense decreased $0.8 million, from $3.8
million, or 33% of Network Services revenue, for the three months ended March
31, 1998 to $3.0 million, or 23% of Network Services revenue, for the three
months ended March 31, 1999. This decrease is primarily due to a reduction in
personnel as a result of the decentralization of Network Services during fiscal
1998. In addition, certain long-term operating leases on field offices expired
during fiscal 1998 and were not renewed or replaced.
Satellite Services SG&A expense decreased from $3.1 million for the
three months ended March 31, 1998 to $3.0 million for the three months ended
March 31, 1999. Additionally, SG&A expense decreased as a percentage of
Satellite Services revenue from 35% for the three months ended March 31, 1998 to
26% for the three months ended March 31, 1999 due to the growth of MTN revenue,
without proportional increases in SG&A expenses, and the sales of the remaining
operating subsidiaries of Satellite Services other than MTN, in August and
November 1998, which companies generated higher SG&A expenses in relation to
revenue than MTN.
Corporate Services SG&A expense for both the three months ended March
31, 1998 and 1999 was $4.4 million.
29
<PAGE>
Depreciation and amortization. Depreciation and amortization increased
$25.4 million, or 187%, for the three months ended March 31, 1999, compared to
the three months ended March 31, 1998, primarily due to increased investment in
depreciable assets resulting from the continued expansion of the Company's
networks and services and increased amortization arising from goodwill recorded
in conjunction with three purchase business combinations completed during the
second half of fiscal 1998. The Company expects that depreciation and
amortization will continue to increase as the Company continues to invest in the
expansion and upgrade of its regional fiber and nationwide data networks.
Net loss (gain) on disposal of long-lived assets. Net loss (gain) on
disposal of long-lived assets fluctuated from a net loss of $0.5 million for the
three months ended March 31, 1998 to a net gain of $0.9 million for the three
months ended March 31, 1999. Net loss on disposal of long-lived assets for the
three months ended March 31, 1998 relates to the write-off of certain
installation costs of disconnected special access customers. For the three
months ended March 31, 1999, net gain on disposal of long-lived assets relates
primarily to the sale of certain of the Company's Federal Communications
Commission ("FCC") licenses.
Interest expense. Interest expense increased $12.9 million, from $34.5
million for the three months ended March 31, 1998, to $47.4 million for the
three months ended March 31, 1999, which includes $45.6 million of non-cash
interest. The increase is primarily attributable to an increase in long-term
debt, primarily the 10% Senior Discount Notes due 2008 (the "10% Notes") issued
in February 1998 and the 9 7/8% Senior Discount Notes due 2008 (the "9 7/8%
Notes") issued in April 1998. In addition, the Company's interest expense
increased, and will continue to increase, because the principal amount of its
indebtedness increases until the Company's senior indebtedness begins to pay
interest in cash.
Interest income. Interest income decreased $1.4 million, from $5.5
million for the three months ended March 31, 1998, to $4.1 million for the three
months ended March 31, 1999. The decrease is attributable to the decrease in
cash, cash equivalents and short-term investments as the Company funds operating
losses and continues to invest available cash balances in telecommunications
equipment and other assets.
Other expense, net. Other expense, net increased from $0.3 million for
the three months ended March 31, 1998 to $0.5 million for the three months ended
March 31, 1999. Other expense, net recorded in the three months ended March 31,
1998 consists of litigation settlement costs. For the three months ended March
31, 1999, other expense, net primarily includes litigation settlement costs,
offset by an unrealized gain on the common stock of MindSpring which the Company
received as partial consideration for the sale of the domestic operations of
NETCOM.
Accretion and preferred dividends on preferred securities of
subsidiaries. Accretion and preferred dividends on preferred securities of
subsidiaries increased $1.6 million, from $13.2 million for the three months
ended March 31, 1998 to $14.8 million for the three months ended March 31, 1999.
The increase is due primarily to the periodic payment of dividends on the 14%
Exchangeable Preferred Stock Mandatorily Redeemable 2008 (the "14% Preferred
Stock") and the 14 1/4% Exchangeable Preferred Stock Mandatorily Redeemable 2009
(the "14 1/4% Preferred Stock") in additional shares of 14% Preferred Stock and
14 1/4% of Preferred Stock. Accretion and preferred dividends on preferred
securities of subsidiaries recorded during the three months ended March 31, 1999
consists of the accretion of issuance costs ($0.3 million) and the accrual of
the preferred securities dividends ($14.5 million) associated with the 6 3/4%
Exchangeable Limited Liability Company Preferred Securities Mandatorily
Redeemable 2009 (the "6 3/4% Preferred Securities"), the 14% Preferred Stock and
the 14 1/4% Preferred Stock.
Loss from continuing operations. Loss from continuing operations
increased $4.8 million, or 6%, from $81.6 million for the three months ended
March 31, 1998 to $86.3 million for the three months ended March 31, 1999 due to
the increases in depreciation and amortization and interest expense, offset by
an increase in operating margin, as noted above.
Loss from discontinued operations. For the three months ended March 31,
1998, loss from discontinued operations was $20.2 million, or 20%, of the
Company's net loss and consists of the combined net loss of Zycom and NETCOM for
the three-month period. Zycom terminated its normal operations on October 22,
1998 and, accordingly, the Company reported no loss from discontinued operations
30
<PAGE>
of Zycom for the three months ended March 31, 1999. Since the Company expected
to report a gain on the disposition of NETCOM, the Company deferred the net
losses from operations of NETCOM from November 3, 1998 (the date on which the
Company's board of directors adopted the formal plan to dispose of the
operations of NETCOM) through the dates of the sales and, accordingly, the
Company reported no loss from discontinued operations of NETCOM for the three
months ended March 31, 1999.
Extraordinary gain on sales of operations of NETCOM. The Company
reported an extraordinary gain on the sales of the operations of NETCOM during
the three months ended March 31, 1999 of $193.0 million, net of income taxes of
$6.4 million. Offsetting the gain on the sales is approximately $16.6 million of
net losses of operations of NETCOM from November 3, 1998 through the dates of
the sales and $26.0 million of deferred sales proceeds from the sale of certain
of the domestic operating assets and liabilities of NETCOM to MindSpring. The
deferred proceeds will be recognized on a periodic basis over the term of the
Company's network capacity agreement with MindSpring.
Liquidity and Capital Resources
The Company's growth has been funded through a combination of equity,
debt and lease financing. As of March 31, 1999, the Company had current assets
of $585.6 million, including $338.5 million of cash, cash equivalents,
restricted cash and short-term investments available for sale, which exceeded
current liabilities of $171.3 million, providing working capital of $414.3
million. The Company invests excess funds primarily in short-term,
interest-bearing investment-grade securities until such funds are used to fund
the capital investments and operating needs of the Company's business. The
Company's short term investment objectives are safety, liquidity and yield, in
that order.
Net Cash Used By Operating Activities
The Company's operating activities used $6.5 million and $43.8 million
for the three months ended March 31, 1998 and 1999, respectively. Net cash used
by operating activities is primarily due to losses from continuing operations
and increases in receivables, which are partially offset by changes in working
capital items and non-cash expenses, such as depreciation and amortization,
deferred interest expense and accretion and preferred dividends on subsidiary
preferred securities.
The Company does not anticipate that cash provided by operations will
be sufficient to fund operating activities, the future expansion of existing
networks or the construction and acquisition of new networks in the near term.
As the Company provides a greater volume of higher margin services, principally
local exchange services, carries more traffic on its own facilities rather than
ILEC facilities and obtains the right to use unbundled ILEC facilities, while
experiencing decelerating increases in personnel and other SG&A expenses
supporting its operations, any or all of which may not occur, the Company
anticipates that net cash used by operating activities will improve in the near
term.
Net Cash Provided By Investing Activities
Investing activities provided $36.7 million and $130.3 million in the
three months ended March 31, 1998 and 1999, respectively. Net cash provided by
investing activities includes cash expended for the acquisition of property,
equipment and other assets of $65.7 million and $102.0 million for the three
months ended March 31, 1998 and 1999, respectively. Also included in net cash
provided by investing activities for the three months ended March 31, 1999 is
the purchase of long-term investments of $27.5 million, offset by proceeds from
the sales of the operations of NETCOM of $252.9 million. For the three months
ended March 31, 1998, the Company received net proceeds from the sale of the
Company's corporate headquarters of $26.9 million and proceeds from the sales of
short-term investments available for sale of $83.3 million. The Company will
continue to use cash in 1999 and subsequent periods for the construction of new
networks, the expansion of existing networks and, potentially, for acquisitions.
The Company acquired assets under capital leases of $3.8 million during the
three months ended March 31, 1999.
Net Cash Provided (Used) By Financing Activities
Financing activities provided $294.2 million and used $0.5 million in
the three months ended March 31, 1998 and 1999, respectively. Net cash provided
by financing activities for the three months ended March 31, 1998 includes net
proceeds from the private placement of the 10% Notes in February 1998.
Historically, the funds to finance the Company's business acquisitions, capital
expenditures, working capital requirements and operating losses have been
31
<PAGE>
obtained through public and private offerings of ICG and ICG Holdings (Canada)
Co. ("Holdings-Canada") common shares, convertible subordinated notes,
convertible preferred shares of Holdings-Canada, capital lease financings and
various working capital sources, including credit facilities, in addition to the
private placement of the securities previously mentioned and other securities
offerings. Net cash provided (used) by financing activities for the three months
ended March 31, 1998 and 1999 also include proceeds from the issuance of common
stock in conjunction with the exercise of options and warrants and the Company's
employee stock purchase plan, offset by principal payments on long-term debt and
capital leases and payments of preferred dividends on preferred securities of
subsidiaries.
As of March 31, 1999, the Company had an aggregate of approximately
$76.5 million of capital lease obligations and an aggregate accreted value of
approximately $1.6 billion was outstanding under the 13 1/2% Senior Discount
Notes due 2005 (the "13 1/2 % Notes"), the 12 1/2% Senior Discount Notes due
2006 (the "12 1/2 % Notes"), the 11 5/8% Senior Discount Notes due 2007 (the "11
5/8 % Notes"), the 10% Notes and the 9 7/8% Notes. The 13 1/2% Notes require
payments of interest to be made in cash commencing March 15, 2001 and mature on
September 15, 2005. The 12 1/2% Notes require payments of interest to be made in
cash commencing November 1, 2001 and mature on May 1, 2006. The 11 5/8% Notes
require payments of interest to be made in cash commencing September 15, 2002
and mature on March 15, 2007. The 10% Notes require payments of interest in cash
commencing August 15, 2003 and mature on February 15, 2008. The 9 7/8% Notes
require payments of interest in cash commencing November 1, 2003 and mature on
May 1, 2008. The 6 3/4% Preferred Securities require payments of dividends to be
made in cash through November 15, 2000. In addition, the 14% Preferred Stock and
14 1/4% Preferred Stock require payments of dividends to be made in cash
commencing June 15, 2002 and August 1, 2001, respectively. As of March 31, 1999,
the Company had $33.6 million of other indebtedness outstanding. With respect to
senior indebtedness outstanding on March 31, 1999, the Company has cash interest
payment obligations of approximately $113.3 million in 2001, $158.0 million in
2002, $212.6 million in 2003 and $257.2 million in 2004. With respect to
preferred securities currently outstanding, the Company has cash dividend
obligations of approximately $6.7 million remaining in 1999 and $8.9 million in
2000, for which the Company has restricted cash balances available for such
dividend payments, $10.7 million in 2001 and $35.4 million in 2002 and each year
thereafter through 2007. 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 do so will depend on, among other
things, its financial condition at the time, restrictions in the instruments
governing its indebtedness, and other factors, including market conditions,
beyond the control of the Company. There can be no assurance that the Company
will be able to refinance such indebtedness, including such capital 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 or make payments of cash dividends on,
or the mandatory redemption of, its preferred securities, would be adversely
affected.
Capital Expenditures
The Company's capital expenditures of continuing operations (including
assets acquired under capital leases and excluding payments for construction of
the Company's corporate headquarters) were $65.7 million and $105.7 million for
the three months ended March 31, 1998 and 1999, respectively. The Company
anticipates that the expansion of existing networks, construction of new
networks and further development of the Company's products and services will
require capital expenditures of approximately $345.0 million during the
remainder of 1999, including approximately $40.0 million which the Company
expects to incur under its letter of intent with a large national ISP to provide
Internet RAS. To facilitate the expansion of its services and networks, the
Company has entered into equipment purchase agreements with various vendors
under which the Company has committed to purchase a substantial amount of
equipment and other assets, including a full range of switching systems, fiber
optic cable, network electronics, software and services. If the Company fails to
meet the minimum purchase level in any given year, the vendor may discontinue
certain discounts, allowances and incentives otherwise provided to the Company.
Actual capital expenditures will depend on numerous factors, including certain
factors beyond the Company's control. These factors include the nature of future
expansion and acquisition opportunities, economic conditions, competition,
regulatory developments and the availability of equity, debt and lease
financing.
32
<PAGE>
Other Cash Commitments and Capital Requirements
The Company's operations have required and will continue to require
significant capital expenditures for development, construction, expansion and
acquisition of telecommunications assets. Significant amounts of capital are
required to be invested before revenue is generated, which results in initial
negative cash flows. In addition to the Company's planned capital expenditures,
it has other cash commitments as described in the footnotes to the Company's
unaudited consolidated financial statements for the three months ended March 31,
1999 included elsewhere herein.
In view of the continuing development of the Company's products and
services, the expansion of existing networks and the construction, leasing and
licensing of new networks, the Company will require additional amounts of cash
in the future from outside sources. Management believes that the Company's cash
on hand and amounts expected to be available through asset sales, cash flows
from operations, including the collection of receivables from transport and
termination charges, vendor financing arrangements and credit facilities will
provide sufficient funds necessary for the Company to expand its business as
currently planned and to fund its operations through 2000. Additional sources of
cash may include public and private equity and debt financings, sales of
non-strategic assets, capital leases and other financing arrangements. In the
past, the Company has been able to secure sufficient amounts of financing to
meet its capital needs. There can be no assurance that additional financing will
be available to the Company or, if available, that it can be obtained on terms
acceptable to the Company.
The failure to obtain sufficient amounts of financing could result in
the delay or abandonment of some or all of the Company's development and
expansion plans, which could have a material adverse effect on the Company's
business. In addition, the inability to fund operating deficits with the
proceeds of financings and sales of non-strategic assets until the Company
establishes a sufficient revenue-generating customer base could have a material
adverse effect on the Company's liquidity.
Transport and Termination Charges
The Company has recorded revenue of approximately $4.9 million, $58.3
million and $30.8 million for fiscal 1997, fiscal 1998 and the three months
ended March 31, 1999, respectively, for reciprocal compensation relating to the
transport and termination of local traffic to ISPs from customers of ILECs
pursuant to various interconnection agreements. The ILECs have not paid most of
the bills they have received from the Company and have disputed substantially
all of these charges based on the belief that such calls are not local traffic
as defined by the various agreements and under state and federal laws and public
policies. As a result, the Company expects receivables from transport and
termination charges will continue to increase until these disputes have been
resolved.
The resolution of these disputes will be based on rulings by state
public utility commissions and/or by the FCC. To date, there have been favorable
final rulings from 31 state public utility commissions that ISP traffic is
subject to the payment of reciprocal compensation under current interconnection
agreements. Many of these state commission decisions have been appealed by the
ILECs. On February 25, 1999, the FCC issued a decision that ISP-bound traffic is
largely jurisdictionally interstate traffic. The decision relies on the
long-standing federal policy that ISP traffic, although jurisdictionally
interstate, is treated as though it is local traffic for pricing purposes. The
decision also emphasizes that because there are no federal rules governing
intercarrier compensation for ISP traffic, the determination as to whether such
traffic is subject to reciprocal compensation under the terms of interconnection
agreements properly is made by the state commissions and that carriers are bound
by their interconnection agreements and state commission decisions regarding the
payment of reciprocal compensation for ISP traffic. The FCC has initiated a
rulemaking proceeding regarding the adoption of prospective federal rules for
intercarrier compensation for ISP traffic. In its notice of rulemaking, the FCC
expresses its preference that compensation rates for this traffic continue to be
set by negotiations between carriers, with disputes resolved by arbitrations
conducted by state commissions, pursuant to the Telecommunications Act. Since
the issuance of the FCC's decision on February 25, 1999, nine state utility
commissions have either ruled or reaffirmed that ISP traffic is subject to
reciprocal compensation under current interconnection agreements. On May 5,
1999, the Public Utilities Commission of Ohio ("PUCO") issued a decision
affirming its August 1998 decision that ISP traffic is subject to reciprocal
compensation under the Company's current interconnection agreement with
Ameritech Corporation ("Ameritech"). The PUCO also denied Ameritech's request
for a stay of its obligation to remit payment to the Company and directed
33
<PAGE>
Ameritech to remit the amounts owed to the Company within 45 days of May 5,
1999. The Company expects that Ameritech will seek judicial review of the PUCO
decision and that Ameritech will request the reviewing court to stay the
decision pending appeal. The Company cannot predict how the reviewing court
would rule on Ameritech's stay request, or the final outcome on the merits of
the court appeal. On March 4, 1999, the Alabama Public Service Commission (the
"Alabama PSC") issued a decision that found that reciprocal compensation is owed
for Internet traffic under four CLEC interconnection agreements with BellSouth
Corporation ("BellSouth"), which agreements were at issue in the proceeding.
With respect to the Company's interconnection agreement, which also was at
issue, the state commission interpreted certain language in the Company's
agreement to exempt ISP-bound traffic from reciprocal compensation under certain
conditions. The Company believes that the Alabama PSC failed to consider (i) the
intent of the parties in negotiating and executing the Company's interconnection
agreement, and (ii) the specific language of the Company's interconnection
agreement and the impact of Alabama PSC and FCC policies, and thereby
misinterpreted the agreement. The Company has filed a request with the Alabama
PSC seeking determination that the ruling with respect to the Company's
agreement be reconsidered, and that the Company should be treated the same as
the other CLECs that participated in the proceeding and for which the Alabama
PSC ordered the payment of reciprocal compensation. While the Company intends to
pursue vigorously the petition for reconsideration with the Alabama PSC, and if
the Company deems it necessary, judicial review, the Company cannot predict the
final outcome of this issue.
The Company has also recorded revenue of approximately $19.1 million
and $5.2 million for fiscal 1998 and the three months ended March 31, 1999,
respectively, related to other transport and termination charges to the ILECs,
pursuant to the Company's interconnection agreements with these ILECs. Included
in the Company's trade receivables at December 31, 1998 and March 31, 1999 are
$72.8 million and $105.5 million, respectively, for all receivables related to
transport and termination charges. The receivables balance at March 31, 1999 is
net of an allowance of $8.1 million for disputed amounts.
As the Company's interconnection agreements expire or are extended,
rates for transport and termination charges are being and will continue to be
renegotiated. Some of the Company's agreements are already being affected.
Although the Company's interconnection agreement with BellSouth has expired, the
Company has received written notification from BellSouth that the Company may
continue operating under the expired interconnection agreement, until such
agreement is renegotiated or arbitrated by the relevant state commissions.
Additionally, the Company's interconnection agreement with Ameritech recently
was extended from the June 15, 1999 to February 15, 2000. The Company's
remaining interconnection agreements expire in 1999 and 2000. The Company's
extension of its interconnection agreement with Ameritech includes reduced rates
for transport and termination charges, and the Company expects that its
negotiations with BellSouth will also affect the rates for transport and
termination charges included in its existing interconnection agreement with
BellSouth. While the Company believes that all revenue recorded through March
31, 1999 is collectible and that future revenue from transport and termination
charges billed under the Company's current interconnection agreements will be
realized, there can be no assurance that future regulatory and judicial rulings
will be favorable to the Company, that the Alabama PSC will reconsider its
ruling, or that different pricing plans for transport and termination charges
between carriers will not be adopted when the Company's interconnection
agreements are renegotiated or arbitrated, or as a result of the FCC's
rulemaking proceeding on future compensation methods. In fact, the Company
believes that different pricing plans will be considered and adopted, and
although the Company expects that revenue from transport and termination charges
likely will decrease as a percentage of total revenue from local services in
periods after the expiration of current interconnection agreements, the
Company's local termination services still will be required by the ILECs and
must be provided under the Telecommunications Act, and likely will result in
increasing volume in minutes due to the growth of the Internet and related
services markets. The Company expects to negotiate reasonable compensation and
collection terms for local termination services, although there is no assurance
that such compensation will remain consistent with current levels. Additionally,
the Company expects to supplement its current operations with revenue, and
ultimately EBITDA, from new services offerings such as RAS and DSL services,
however, the Company may or may not be successful in its efforts to deploy such
services profitably.
34
<PAGE>
Year 2000 Compliance
Importance
Many computer systems, software applications and other electronics
currently in use worldwide are programmed to accept only two digits in the
portion of the date field which designates the year. The "Year 2000 problem"
arises because these systems and products cannot properly distinguish between a
year that begins with "20" and the familiar "19." If these systems and products
are not modified or replaced, many will fail, create erroneous results and/or
may cause interfacing systems to fail.
Year 2000 compliance issues are of particular importance to the Company
since its operations rely heavily upon computer systems, software applications
and other electronics containing date-sensitive embedded technology. Some of
these technologies were internally developed and others are standard purchased
systems which may or may not have been customized for the Company's particular
application. The Company also relies heavily upon various vendors and suppliers
that are themselves very reliant on computer systems, software applications and
other electronics containing date-sensitive embedded technology. These vendors
and suppliers include: (i) ILECs and other local and long distance carriers with
which the Company has interconnection or resale agreements; (ii) manufacturers
of the hardware and related operating systems that the Company uses directly in
its operations; (iii) providers that create custom software applications that
the Company uses directly in its operations; and (iv) providers that sell
standard or custom equipment or software which allow the Company to provide
administrative support to its operations.
Strategy
The Company's approach to addressing the potential impact of Year 2000
compliance issues is focused upon ensuring, to the extent reasonably possible,
the continued, normal operation of its business and supporting systems.
Accordingly, the Company has developed a four-phase plan which it is applying to
each functional category of the Company's computer systems and components. Each
of the Company's computer systems, software applications and other electronics
containing date-sensitive embedded technology is included within one of the
following four functional categories:
o Networks and Products, which consists of all components whether
hardware, software or embedded technology used directly in the
Company's operations, including components used by the Company's
voice and data switches and collocation and telecommunications
products;
o IT Systems, which consists of all components used to support the
Company's operations, including provisioning and billing systems;
o Building and Facilities, which consists of all components with
embedded technology used at the Company's corporate headquarters
building and other leased facilities, including security systems,
elevators and internal use telephone systems;
o Office Equipment, which consists of all office equipment with
date-sensitive embedded technology.
For each of the categories described above, the Company will apply the
following four-phase approach to identifying and addressing the potential impact
of Year 2000 compliance issues:
o Phase I - Assessment
During this phase, the Company's technology staff will perform an
inventory of all components currently in use by the Company. Based
upon this inventory, the Company's business executives and
technology staff will jointly classify each component as a "high,"
"medium" or "low" priority item, determined primarily by the
relative importance that the particular component has to the
Company's normal business operations, the number of people
internally and externally which would be affected by any failure
of such component and the interdependence of such component with
other components used by the Company that may be of higher or
lower priority.
35
<PAGE>
Based upon such classifications, the Company's business executives
and information technology staff will jointly set desired levels
of Year 2000 readiness for each component inventoried, using the
following criteria, as defined by the Company:
- Capable, meaning that such computer system or component will
be capable of managing and expressing calendar years in four
digits;
- Compliant, meaning that the Company will be able to use such
component for the purpose for which the Company intended it
by adapting to its ability to manage and express calendar
years in only two digits;
- Certified, meaning that the Company has received testing
results to demonstrate, or the vendor or supplier is subject
to contractual terms which requires, that such component
requires no Year 2000 modifications to manage and express
calendar years in four digits; or
- Non-critical, meaning that the Company expects to be able to
continue to use such component unmodified or has determined
that the estimated costs of modification exceed the
estimated costs associated with its failure.
o Phase II - Remediation
During this phase, the Company will develop and execute a
remediation plan for each component based upon the priorities set
in Phase I. Remediation may include component upgrade,
reprogramming, replacement, receipt of vendor and supplier
certification or other actions as deemed necessary or appropriate.
o Phase III - Testing
During this phase, the Company will perform testing sufficient to
confirm that the component meets the desired state of Year 2000
readiness. This phase will consist of: (i) testing the component
in isolation, or unit testing; (ii) testing the component jointly
with other components, or system testing; and (iii) testing
interdependent systems, or environment testing.
o Phase IV - Implementation
During the last phase, the Company will implement each act of
remediation developed and tested for each component, as well as
implement adequate controls to ensure that future upgrades and
changes to the Company's computer systems, for operational reasons
other than Year 2000 compliance, do not alter the Company's Year
2000 state of readiness.
Current State of Readiness
The Company has commenced certain of the phases within its Year 2000
compliance strategy for each of its functional system categories, as shown by
the table set forth below. The Company does not intend to wait until the
completion of a phase for all functional category components together before
commencing the next phase. Accordingly, the information set forth below
represents only a general description of the phase status for each functional
category.
36
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C><C> <C>
- ------------------------------- ----------------------------------------------------------------------------------------------
Phase
- ------------------------------- ----------------------------------------------------------------------------------------------
I II III IV
System and Level of Priority Assessment Remediation Testing Implementation
- ------------------------------- ----------------------------------------------------------------------------------------------
Networks and Products
- ------------------------------- ----------------------------------------------------------------------------------------------
High Complete In progress In progress In progress
To complete Q2 1999 To complete Q3 1999 To complete Q3 1999
- ------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Medium Complete In progress In progress In progress
To complete Q2 1999 To complete Q3 1999 To complete Q3 1999
- ------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Low Complete Complete Complete Complete
- ------------------------------- ----------------------------------------------------------------------------------------------
IT Systems
- ------------------------------- ----------------------------------------------------------------------------------------------
High Complete In progress In progress In progress
To complete Q2 1999 To complete Q3 1999 To complete Q3 1999
- ------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Medium Complete In progress In progress In progress
To complete Q2 1999 To complete Q3 1999 To complete Q3 1999
- ------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Low Complete Complete In progress In progress
To complete Q3 1999 To complete Q3 1999
- ------------------------------- ----------------------------------------------------------------------------------------------
Building and Facilities
- ------------------------------- ----------------------------------------------------------------------------------------------
High In progress In progress To be determined based on the results of
To complete Q2 1999 To complete Q2 1999 Phase II
- ------------------------------- ---------------------- -----------------------------------------------------------------------
Medium In progress To be determined based on the results of Phase I
To complete Q2 1999
- ------------------------------- ---------------------- -----------------------------------------------------------------------
Low To begin Q2 1999 To be determined based on the results of Phase I
To complete Q3 1999
- ------------------------------- ----------------------------------------------------------------------------------------------
Office Equipment
- ------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
High Complete Complete In progress In progress
To complete Q2 1999 To complete Q2 1999
- ------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Medium Complete Complete Complete Complete
- ------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
Low Complete Complete Complete Complete
- ------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
</TABLE>
Separately, the Company is in the process of reviewing the Company's
material contracts with contractors and vendors/suppliers and considering the
necessity of renegotiating certain existing contracts, to the extent that the
contracts fail to address the allocation of potential Year 2000 liabilities
between parties. Prior to entering into any new material contracts, the Company
will seek to address the allocation of potential Year 2000 liabilities as part
of the initial negotiation.
Costs
The Company expenses all incremental costs to the Company associated
with Year 2000 compliance issues as incurred. Through March 31, 1999, such costs
incurred were approximately $0.6 million, consisting of approximately $0.4 of
replacement hardware and software and approximately $0.2 million of consulting
fees and other miscellaneous costs of Year 2000 compliance reference and
planning materials. The Company has also incurred certain internal costs,
including salaries and benefits for employees dedicating various portions of
their time to Year 2000 compliance issues, of which costs the Company believes
has not exceeded $0.5 million through March 31, 1999. The Company expects that
total future incremental costs of Year 2000 compliance efforts will be
approximately $3.8 million, consisting of $2.3 million in consulting fees, $1.5
million in replacement hardware and software and other miscellaneous costs.
These anticipated costs have been included in the Company's fiscal 1999 budget
and represent approximately 4% of the Company's budgeted expenses for
information technology through fiscal 1999. Such cost estimates are based upon
presently available information and may change as the Company continues with its
Year 2000 compliance plan. The Company intends to use cash on hand for Year 2000
compliance costs, as necessary.
37
<PAGE>
Risk, Contingency Planning and Reasonably Likely Worst Case Scenario
While the Company is heavily reliant upon its computer systems,
software applications and other electronics containing date-sensitive embedded
technology as part of its business operations, such components upon which the
Company primarily relies were developed with current state-of-the-art technology
and, accordingly, the Company has reasonably assumed that its four-phase
approach will demonstrate that many of its high-priority systems do not present
material Year 2000 compliance issues. For computer systems, software
applications and other electronics containing date-sensitive embedded technology
that have met the Company's desired level of Year 2000 readiness, the Company
will use its existing contingency plans to mitigate or eliminate problems it may
experience if an unanticipated system failure were to occur. For components that
have not met the Company's desired level of readiness, the Company will develop
a specific contingency plan to determine the actions the Company would take if
such component failed.
At the present time, the Company is unable to develop a most reasonably
likely worst case scenario for failure to achieve adequate Year 2000 compliance.
The Company will be better able to develop such a scenario once the status of
Year 2000 compliance of the Company's material vendors and suppliers is
complete. The Company will monitor its vendors and suppliers, particularly the
other telecommunications companies upon which the Company relies, to determine
whether they are performing and implementing an adequate Year 2000 compliance
plan in a timely manner.
The Company acknowledges the possibility that the Company may become
subject to potential claims by customers if the Company's operations are
interrupted for an extended period of time. However, it is not possible to
predict either the probability of such potential litigation, the amount that
could be in controversy or upon which party a court would place ultimate
responsibility for any such interruption.
The Company views Year 2000 compliance as a process that is inherently
dynamic and will change in response to changing circumstances. While the Company
believes that through execution and satisfactory completion of its Year 2000
compliance strategy its computer systems, software applications and electronics
will be Year 2000 compliant, there can be no assurance until the Year 2000
occurs that all systems and all interfacing technology when running jointly will
function adequately. Additionally, there can be no assurance that the
assumptions made by the Company within its Year 2000 compliance strategy will
prove to be correct, that the strategy will succeed or that the remedial actions
being implemented will be able to be completed by the time necessary to avoid
system or component failures. In addition, disruptions with respect to the
computer systems of vendors or customers, which systems are outside the control
of the Company, could impair the Company's ability to obtain necessary products
or services to sell to its customers. Disruptions of the Company's computer
systems, or the computer systems of the Company's vendors or customers, as well
as the cost of avoiding such disruption, could have a material adverse effect on
the Company's financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial position and cash flows are subject to a
variety of risks in the normal course of business, which include market risks
associated with movements in interest rates and equity prices. The Company
routinely assesses these risks and has established policies and business
practices to protect against the adverse effects of these and other potential
exposures. The Company does not, in the normal course of business, use
derivative financial instruments for trading or speculative purposes.
Interest Rate Risk
The Company's exposure to market risk associated with changes in
interest rates relates primarily to the Company's investments in marketable
securities and its senior indebtedness.
The Company invests primarily in high grade short-term investments
which consist of money market instruments, commercial paper, certificates of
deposit, government obligations and corporate bonds, all of which are considered
to be available for sale and generally have maturities of one year or less. The
Company's short-term investment objectives are safety, liquidity and yield, in
that order. As of March 31, 1999, the Company had approximately $338.5 million
in cash, cash equivalents, restricted cash and short-term investments available
for sale and approximately $17.5 million in long-term debt securities available
for sale, at a weighted average fixed interest rate of 4.5% for the three months
ended March 31, 1999. A hypothetical 10% fluctuation in market rates of interest
would cause a change in the fair value of the Company's investment in marketable
38
<PAGE>
securities at March 31, 1999 of approximately $0.1 million and, accordingly,
would not cause a material impact on the Company's financial position, results
of operations or cash flows.
At March 31, 1999, the Company's indebtedness included $1.6 billion
under the 13 1/2% Notes, 12 1/2% Notes, 11 5/8% Notes, 10% Notes and 9 7/8%
Notes and $478.9 million under the 14 1/4% Preferred Stock, 14% Preferred Stock
and 6 3/4% Preferred Securities. These instruments contain fixed annual interest
and dividend rates, respectively, and, accordingly, any change in market
interest rates would have no impact on the Company's financial position, results
of operations or cash flows. Future increases in interest rates could increase
the cost of any new borrowings by the Company. The Company does not hedge
against future changes in market rates of interest.
Equity Price Risk
On February 17, 1999, the Company completed the sale of the domestic
operations of NETCOM to MindSpring, in exchange for a combination of cash and
376,116 shares of common stock of MindSpring, valued at approximately $79.76 per
share, or $30.0 million, at the time of the transaction. Through April 16, 1999,
the Company bore some risk of market price fluctuations in its investment in
MindSpring. In order to mitigate the risk associated with a decrease in the
market value of the Company's investment in MindSpring, the Company entered into
a hedging contract. In April 1999, the Company sold its investment in MindSpring
for net proceeds of approximately $30.4 million. The Company recorded an
unrealized gain on its investment in MindSpring of approximately $0.4 million in
its statement of operations for the three months ended March 31, 1999. The
hedging contract was terminated upon the sale of the common stock of MindSpring.
On March 30, 1999, the Company purchased, for approximately $10.0
million in cash, 454,545 shares of NorthPoint Preferred Stock. The NorthPoint
Preferred Stock has no voting rights and is ultimately convertible into a voting
class of common stock of NorthPoint, at an exchange price which represents a
discount, as provided in the relevant documentation, to the initial public
offering price of NorthPoint's common stock. The Company is restricted from
selling the NorthPoint Preferred Stock or securities obtained upon conversion of
the NorthPoint Preferred Stock until March 23, 2000. Accordingly, the Company
will be subject to the effects of fluctuations in the fair value of the common
stock of NorthPoint until such time when the Company is permitted to liquidate
its investment in NorthPoint. Although changes in the fair market value of the
common stock of NorthPoint may affect the fair market value of the Company's
investment in NorthPoint and cause unrealized gains or losses, such gains or
losses will not be realized until the securities are sold.
39
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
-----------------
See Note 6 (e) to the Company's unaudited condensed consolidated
financial statements for the three months ended March 31, 1999
contained elsewhere in this Quarterly Report.
ITEM 2. CHANGES IN SECURITIES
---------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
-----------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
-----------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) Exhibits.
(10) Material Contracts.
10.1: Extension and Amendment to Employment Agreement, dated as
of March 10, 1999, by and between ICG Communications, Inc.
and J. Shelby Bryan.
10.2: Deferred Compensation Agreement, dated as of April 1, 1999,
by and between ICG Communications, Inc. and J. Shelby Bryan.
10.3: Loan Agreement, dated as of January 1, 1999, by and among
TriNet Realty Capital, Inc. and ICG Services, Inc.
10.4: Promissory Note, dated as of January 1, 1999, by and among
TriNet Realty Capital, Inc. and ICG Services, Inc.
10.5: Deed of Trust, Assignment of Rents and Security Agreement,
made as of January 1, 1999, granted by ICG Services, Inc.
for the benefit of TriNet Realty Capital, Inc.
10.6: Purchase Agreement, dated as of January 1, 1999, by and
among TriNet Essential Facilities X, Inc. and ICG Services,
Inc.
(27) Financial Data Schedule.
27.1: Financial Data Schedule of ICG Communications, Inc. for the
Three Months Ended March 31, 1999.
40
<PAGE>
(B) Reports on Form 8-K. The following reports on Form 8-K were filed by
the registrants during the three months ended March 31, 1999:
ICG Communications, Inc.
------------------------
(i) Current Report on Form 8-K dated January 6, 1999, regarding the
announcement of the Company's definitive agreement to sell the
domestic operations of NETCOM On-Line Communication Services,
Inc. to MindSpring Enterprises, Inc.
(ii) Current Report on Form 8-K dated March 4, 1999, regarding the
disposition of NETCOM On-Line Communication Services, Inc.,
including pro forma financial information.
ICG Communications, Inc.
ICG Holdings (Canada) Co.
ICG Holdings, Inc.
-------------------------
(iii)Current Report on Form 8-K dated February 26, 1999, regarding
the announcement of the Company's earnings information and
results of operations for the quarter and year ended December 31,
1998.
<PAGE>
INDEX TO EXHIBITS
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
<PAGE>
INDEX TO EXHIBITS
10.1: Extension and Amendment to Employment Agreement, dated as of March 10,
1999, by and between ICG Communications, Inc. and J. Shelby Bryan.
10.2: Deferred Compensation Agreement, dated as of April 1, 1999, by and
between ICG Communications, Inc. and J. Shelby Bryan.
10.3: Loan Agreement, dated as of January 1, 1999, by and among TriNet
Realty Capital, Inc. and ICG Services, Inc.
10.4: Promissory Note, dated as of January 1, 1999, by and among TriNet
Realty Capital, Inc. and ICG Services, Inc.
10.5: Deed of Trust, Assignment of Rents and Security Agreement, made as of
January 1, 1999, granted by ICG Services, Inc. for the benefit of
TriNet Realty Capital, Inc.
10.6: Purchase Agreement, dated as of January 1, 1999, by and among TriNet
Essential Facilities X, Inc. and ICG Services, Inc.
27.1: Financial Data Schedule of ICG Communications, Inc. for the Three
Months Ended March 31, 1999.
<PAGE>
EXHIBIT 10.1
Extension and Amendment to Employment Agreement, dated as of March 10, 1999, by
and between ICG Communications, Inc. and J. Shelby Bryan.
<PAGE>
EXHIBIT 10.2
Deferred Compensation Agreement, dated as of April 1, 1999, by and between ICG
Communications, Inc. and J. Shelby Bryan.
<PAGE>
EXHIBIT 10.3
Loan Agreement, dated as of January 1, 1999, by and among TriNet Realty
Capital, Inc. and ICG Services, Inc.
<PAGE>
EXHIBIT 10.4
Promissory Note, dated as of January 1, 1999, by and among TriNet Realty
Capital, Inc. and ICG Services, Inc.
<PAGE>
EXHIBIT 10.5
Deed of Trust, Assignment of Rents and Security Agreement, made as of January 1,
1999, granted by ICG Services, Inc. for the benefit of TriNet Realty
Capital, Inc.
<PAGE>
EXHIBIT 10.6
Purchase Agreement, dated as of January 1, 1999, by and among TriNet Essential
Facilities X, Inc. and ICG Services, Inc.
<PAGE>
EXHIBIT 27.1
Financial Data Schedule of ICG Communications, Inc. for the Three Months Ended
March 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on May 14, 1999.
ICG COMMUNICATIONS, INC.
Date: May 14, 1999 By: /s/ Harry R. Herbst
-------------------------------------------
Harry R. Herbst, Executive Vice President and
Chief Financial Officer (Principal Financial
Officer)
Date: May 14, 1999 By: /s/ Richard Bambach
-------------------------------------------
Richard Bambach, Vice President and Corporate
Controller (Principal Accounting Officer)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on May 14, 1999.
ICG HOLDINGS (CANADA) CO.
Date: May 14, 1999 By: /s/ Harry R. Herbst
----------------------------------------------
Harry R. Herbst, Executive Vice President and
Chief Financial Officer (Principal Financial
Officer)
Date: May 14, 1999 By: /s/ Richard Bambach
----------------------------------------------
Richard Bambach, Vice President and Corporate
Controller (Principal Accounting Officer)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on May 14, 1999.
ICG HOLDINGS, INC.
Date: May 14, 1999 By: /s/ Harry R. Herbst
----------------------------------------------
Harry R. Herbst, Executive Vice President and
Chief Financial Officer (Principal Financial
Officer)
Date: May 14, 1999 By: /s/ Richard Bambach
----------------------------------------------
Richard Bambach, Vice President and Corporate
Controller (Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 291,876
<SECURITIES> 46,660
<RECEIVABLES> 216,057
<ALLOWANCES> 18,355
<INVENTORY> 3,223
<CURRENT-ASSETS> 585,597
<PP&E> 1,282,273
<DEPRECIATION> 215,106
<TOTAL-ASSETS> 1,877,259
<CURRENT-LIABILITIES> 171,266
<BONDS> 1,745,181
478,924
0
<COMMON> 468
<OTHER-SE> (518,580)
<TOTAL-LIABILITY-AND-EQUITY> 1,877,259
<SALES> 0
<TOTAL-REVENUES> 129,519
<CGS> 0
<TOTAL-COSTS> 70,176
<OTHER-EXPENSES> 87,016
<LOSS-PROVISION> 3,651
<INTEREST-EXPENSE> 47,441
<INCOME-PRETAX> (71,513)
<INCOME-TAX> 0
<INCOME-CONTINUING> (86,317)
<DISCONTINUED> 0
<EXTRAORDINARY> 193,029
<CHANGES> 0
<NET-INCOME> 106,712
<EPS-PRIMARY> 2.29
<EPS-DILUTED> 0
</TABLE>
EXTENSION AND AMENDMENT TO EMPLOYMENT AGREEMENT
This Extension and Amendment to Employment Agreement (the
"Amendment") is made as of the 10th day of March, 1999, by and between ICG
COMMUNICATIONS, INC., a Delaware corporation (the "Company"), and J.
SHELBY BRYAN (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company and the Employee previously entered into
that certain Employment Agreement, dated as of May 30, 1995, as amended by an
Assignment and Amendment to Employment Agreement and Indemnification Agreement,
dated October 23, 1996, and as further amended by an Amendment to Employment
Agreement, dated as of March 26, 1997 (as amended, the "Employment Agreement");
and
WHEREAS, the parties desire to further amend and modify
certain of the terms and conditions of the Employment Agreement;
NOW, THEREFORE, in consideration of the representations,
warranties and mutual covenants set forth herein, the parties agree as follows:
1. Extension of Term. The Employee hereby agrees to extend the
employment term for an additional two year term commencing June 1, 1999, on the
same terms and conditions as set forth in the Employment Agreement, as hereby
amended, and the Company hereby accepts such indication by the Employee in lieu
of the notice required by the Employee under Section 2 of the Employment
Agreement.
2. Compensation; Benefits. Section 4(a) of the Employment
Agreement is hereby amended, effective for all periods from and after July 1,
1999, to provide that (i) the Employee shall be paid the Salary on a quarterly,
rather than on a monthly, basis and (ii) the components of the Salary (i.e., the
increase in Revenues and the increase in EBITDA) shall be computed on a
quarterly, rather than on a monthly, basis. All other terms of Section 4(a)
shall not be affected by this Amendment and shall remain in full force and
effect as written.
3. Termination by the Employee. Section 8 of the Employment
Agreement is hereby amended to add subsection (f), which shall read in its
entirety as follows:
(f) Termination by the Employee. If at any time during the
Employment Term the Employee resigns from the employ of the Company,
other than for Good Reason (as defined and as provided in Section 8(c))
and other than as set forth in the following sentence, the Company
shall be obligated to pay the Employee severance compensation in the
aggregate amount of the Salary paid to the Employee for the twelve (12)
month period immediately preceding the Termination Date (the
"Continuation Payment"), which shall be payable by the Company in one
lump sum payment on or prior to ninety (90) days following the
Termination Date. Notwithstanding the foregoing sentence, if, following
the Employee's resignation from the employ of the Company, the Employee
becomes employed in any position (other than as a non-executive
director) by, or becomes the direct or indirect owner of five percent
(5%) or more of, an entity in the telecommunications industry which is
in the business of providing "competitive local exchange" ("CLEC")
services (a "Competitor") at such time, the Company shall not be
obligated to make, and the Employee shall not be entitled to receive,
the Continuation Payment.
<PAGE>
4. Termination in Case of Disability or Death. (a) Section
8(d)(i) is hereby amended to delete the last sentence of such subsection and
insert the following in its place:
If the employment of the Employee is terminated pursuant to this
Section 8(d)(i), the Company shall be obligated to pay the Employee or
his representative(s) (x) the Continuation Payment, which shall be
payable by the Company in one lump sum payment on or prior to ninety
(90) days following the Termination Date and (y) any Salary for the
then current year pro rated to the Termination Date.
(b) Section 8(d)(ii) is hereby amended to delete the last
sentence of such subsection and insert the following in its place:
If the employment of the Employee is terminated pursuant to this
Section 8(d)(ii), the Company shall be obligated to pay the Employee's
heir(s), designee(s) or representative(s) (x) the Continuation Payment,
which shall be payable by the Company in one lump sum payment on or
prior to ninety (90) days following the Termination Date and (y) any
Salary for the then current year pro rated to the Termination Date.
5. New Stock Options. Section 7 of the Employment Agreement is
hereby amended to add subsection (c), which shall read in its entirety as
follows:
(c) Effective upon the date hereof, the Employee shall be
granted ten (10) year stock options (the "1999 Option") under the
Company's 1998 Stock Option Plan to purchase up to 200,000 shares of
Common Stock, $.01 par value, of the Company at an exercise price of
$18.8125 per share, which is the closing sale price of a share of
Common Stock of the Company on the Nasdaq National Market on March 10,
1999, all in accordance with the terms and conditions of a stock option
agreement (the "1999 Stock Option Agreement") which shall be signed by
the Employee and an authorized officer of the Company. The 1999 Stock
Option Agreement shall provide, among other things, that (i) the 1999
Option shall vest as to 100,000 shares covered thereby immediately on
the date of grant and as to the remaining 100,000 shares covered
thereby on the first anniversary of the date of grant, (ii) the 1999
Option shall neither be forfeited due to the Employee's voluntary
termination of employment, retirement, disability or death nor be
subject to earlier termination thereof (except in the case of
termination of the Employee's employment by the Company for Cause (as
defined in the Employment Agreement)) and (iii) the option to purchase
the remaining 100,000 shares under the 1999 Option that has not vested
on the date of grant shall vest upon an event of change of control of
the Company.
2
<PAGE>
6. Existing Stock Options. Effective as of the date hereof,
all of the Employee's existing non-qualified stock options (namely, the
Employee's options to purchase (i) 1,550,000 shares of Common Stock at an
exercise price of $7.9375 per share, granted on May 30, 1995 (the "May 1995
Option Agreement") and (ii) 200,000 shares of Common Stock at an exercise price
of $10.00 per share, granted on November 13, 1995 (the "November 1995 Option
Agreement")) (the "Existing Options") shall be amended to provide that the
Existing Options (i) shall expire on the tenth anniversary of the original date
of grant of each such option and (ii) shall neither be forfeited due to the
Employee's voluntary termination of employment, retirement, disability or death
nor be subject to earlier termination thereof as currently provided therein;
provided, however, that, in the case of the November 1995 Option Agreement, if
the Employee's employment is terminated by the Company for Good Cause, as such
term is defined in Section 6(a) of the November 1995 Stock Option Agreement, and
in the case of the May 1995 Option Agreement, if the Employee's employment
terminated by the Company for Cause, as such term is defined in the Employment
Agreement, all outstanding unexercised Existing Options shall be canceled and
all of the Employee's rights under such respective stock option agreement shall
be forfeited. The foregoing modifications to the Existing Options shall be
reflected in and evidenced by written amendments to the May 1995 Option
Agreement and the November 1995 Option Agreement which shall be signed by the
Employee and an authorized officer of the Company.
7. Other Terms and Conditions. All other terms and conditions
of the Employment Agreement shall remain in full force and effect, as if fully
stated herein.
8. Capitalized Terms. Capitalized terms, and other defined
terms, shall have the same meaning as that accorded to them in the Employment
Agreement, unless the context requires otherwise.
9. Conflict. If there are any conflicting terms or conditions
between the terms and conditions of this Amendment and the terms and conditions
of the Employment Agreement, the terms and conditions of this Amendment shall
control.
IN WITNESS WHEREOF, each of the parties hereto has duly
executed this Amendment as of the date first above written.
ICG COMMUNICATIONS, INC.
By:/s/ William J. Laggett
-------------------------
William J. Laggett
Chairman of the Board
/s/ J. Shelby Bryan
----------------------
J. SHELBY BRYAN
3
DEFERRED COMPENSATION AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of
April, 1999 by and between ICG COMMUNICATIONS, INC., a Delaware corporation (the
"Company"), and J. SHELBY BRYAN (the "Employee").
W I T N E S S E T H:
WHEREAS, the Employee is the President and Chief Executive
Officer of the Company;
WHEREAS, the Company desires to recognize the services the
Employee currently performs and has performed for the Company and the value to
the Company of such services;
NOW THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Compensation; Payment Terms.
(a) In addition to, and not in lieu of, any and all compensation and
benefit arrangements currently existing or hereinafter entered into between the
Company and the Employee, the Company shall pay the Employee an aggregate amount
of $5,000,000 in ten annual installment payments of $500,000 each commencing on
the later of (i) January 1, 2001 or (ii) the date of his retirement or
termination (whether by resignation of the Employee or discharge by the Company)
from the position of President and Chief Executive Officer of the Company. If
the Employee should die before the ten annual payments have been made, the
unpaid balance will continue to be paid in installments for the unexpired
portion of such ten year period to his designated beneficiary(ies) in the same
manner as set forth above.
(b) Notwithstanding anything herein contained to the contrary, the
Company shall have the right, in its sole discretion, to vary the manner and
time of making the installment distributions provided in this Agreement and may
make such distributions in lump sum payments or over a shorter period of time
than ten years, as it may find appropriate.
(c) Nothing contained herein shall be deemed to exclude the Employee
from any supplemental compensation, bonus, pension, insurance, severance pay or
other benefit to which otherwise he might be or might become entitled as an
employee of the Company. The deferred compensation payable under this Agreement
shall not be deemed salary or other compensation to the Employee for the purpose
of computing benefits to which he may be entitled under any pension, retirement,
stock, option or other benefit plan or arrangement of the Company for the
benefit of its employees.
<PAGE>
2. "Gross-Up Payment"
(a) In the event any amounts paid or payable to the Employee by the
Company contemplated by this Agreement which are of the type encompassed within
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), are
subject to the tax imposed by Section 4999 of the Code (or any similar tax that
may hereafter be imposed by the Internal Revenue Service), and/or any comparable
or similar tax imposed by any state or local taxing authority, including,
without limitation, any interest or penalties due thereon (collectively, the
"Excise Tax"), the Company shall pay to the Employee in cash an additional
amount (the "Gross-Up Payment") such that the net amount retained by the
Employee after deduction of the Excise Tax on the Gross-Up Payment, as well as
any other taxes (including without limitation Federal, state and local income
taxes) due solely as a result of payment of the Gross-Up Payment, shall be equal
to the full amount of the deferred compensation payments contemplated by this
Agreement.
(b) Nothing in this Section 2 shall be construed to require the Company
to pay any amounts due by the Employee in respect of Federal, state and local
income taxes on the deferred compensation payments contemplated by this
Agreement (other than the Excise Tax and the other taxes, interest and
penalties, if any, described in Section 2(a)).
(c) The Gross-Up Payment shall be made promptly upon the Company's
receipt of notice from the Employee and his tax advisor, which advisor shall be
selected by the Employee and reasonably satisfactory to the Company, of the
reasonable determination that the Excise Tax is due and payable as a result of
the deferred compensation payments contemplated by this Agreement.
3. Binding Agreement; Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
Company, and its successors and assigns, and the Employee and his heirs,
executors, administrators and legal representatives. The Company shall have the
right to assign this Agreement to any corporation or other person or entity that
acquires all or substantially all of the assets of the Company. For purposes of
this Agreement, the "Company" shall include any corporation or other entity
which is the surviving or continuing entity in respect of any merger,
consolidation or form of business combination in which the Company ceases to
exist.
4. Notice.
For purposes of this Agreement, notices and all other communications
provided for in this Agreement shall be in writing and shall be deemed to have
been duly given by a party to the other party via facsimile transmission or when
mailed by United States registered mail, return receipt requested, postage
prepaid and addressed, to the fax number or address, as the case may be, set
forth under such party's name on the signature page of this Agreement.
2
<PAGE>
5. Miscellaneous.
No provision of this Agreement may be modified, waived or discharged
unless such modification, waiver or discharge is agreed to in a writing signed
by the Employee and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or of compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not expressly set forth in this Agreement.
6. Governing Law.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware.
7. Severability.
If any provision of this Agreement is held invalid or unenforceable,
such invalidity or unenforceability shall not affect any other provisions
hereto. If any provision of this Agreement is held invalid or unenforceable
because the fulfillment of such provision would involve exceeding the limit of
validity prescribed by law, then upon such a determination, the obligation to be
fulfilled shall be reduced to the limit of validity prescribed by law. If the
provision of the Agreement which is found to be invalid or unenforceable cannot
be modified so as to be enforceable under existing laws, this Agreement shall be
construed and enforced as if such provision had not been included herein.
8. Counterparts.
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together will constitute one
and the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first written above.
ICG COMMUNICATIONS, INC.
By:/s/ William J. Laggett
------------------------
Name: William J. Laggett
Title: Chairman of the Board
Address: c/o ICG Communications, Inc.
161 Inverness Drive West
Englewood, Colorado 80112
Fax: 303-414-5502
/s/ J. Shelby Bryan
-------------------------
J. SHELBY BRYAN
Address: 721 Fifth Avenue
Apartment 38G
New York, NY 10022
Fax: 212-755-6602
4
LOAN AGREEMENT
Dated as of January 1, 1999,
by and among
TRINET REALTY CAPITAL, INC.,
as Lender,
and
ICG SERVICES, INC.,
as Borrower
1
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions; Certain Terms ............................................... 1
1.1 Definitions ...................................................... 1
1.2 Certain Terms .................................................... 7
2. The Loan; Payment Due on Maturity Date ................................... 8
2.1 Execution of Loan Documents ...................................... 8
2.2 Payment on Maturity .............................................. 8
3. Interest Rate Provisions; Payments ....................................... 8
3.1 Applicable Interest Rate ......................................... 8
3.2 Payments ......................................................... 8
3.3 Computations ..................................................... 9
4. Late Charges; Prepayment ................................................. 9
4.1 Late Charges ..................................................... 9
4.2 Prepayment ....................................................... 9
5. Miscellaneous Lending Provisions .........................................10
5.1 Use of Proceeds ..................................................10
5.2 Manner of Payment ................................................10
6. Conditions ...............................................................10
6.1 Documents ........................................................10
6.2 Other Actions ....................................................11
6.3 Opinions and Assurances ..........................................11
6.4 Representations ..................................................11
6.5 Closing Expenses .................................................11
7. Representations and Warranties ...........................................12
7.1 Due Authorization ................................................12
7.2 Enforceability ...................................................12
7.3 Employees ........................................................12
7.4 No Violation .....................................................12
7.5 Consents .........................................................12
7.6 Solvency .........................................................12
7.7 Delinquent Property Liens ........................................13
7.8 Defenses .........................................................13
7.9 Lien Priority ....................................................13
7.10 Improvements .....................................................13
7.11 Casualty; Condemnation ...........................................14
7.12 Zoning and Other Laws ............................................14
7.13 Leases ...........................................................14
i
<PAGE>
7.14 Litigation .......................................................14
7.15 Brokerage and Other Fees .........................................14
7.16 Investment Company ...............................................14
7.17 Other Agreements .................................................14
8. Affirmative Covenants ....................................................14
8.1 Financial Statements; Other Information ..........................14
8.2 Maintenance of Existence and Property ............................15
8.3 Inspection of Property; Books and Records; Discussions;
Bank Accounts and Funds ..........................................15
8.4 Notices ..........................................................15
8.5 Expenses .........................................................15
8.6 Loan Documents ...................................................16
8.7 Indemnification ..................................................16
8.8 Property Management ..............................................16
8.9 Impositions ......................................................17
8.10 Insurance ........................................................17
9. Negative Covenants .......................................................17
9.1 Intentionally Deleted ............................................17
9.2 Intentionally Deleted ............................................17
9.3 Sale of Assets-Encumbrances ......................................17
9.4 Transactions with Affiliates .....................................17
9.5 Fiscal Year ......................................................17
9.6 Manager ..........................................................18
9.7 Leases ...........................................................18
10. Events of Default .......................................................18
10.1 Payment Default ..................................................18
10.2 Misrepresentation ................................................18
10.3 Negative Covenant Default ........................................18
10.4 Other Loan Defaults ..............................................18
10.5 Bankruptcy, etc. .................................................19
10.6 Judgments ........................................................19
10.7 Tenant Defaults ..................................................19
10.8 Additional Borrower Cure Right ...................................19
10.9 Remedies .........................................................19
11. Miscellaneous Provisions ...............................................20
11.1 Assignment ......................................................20
11.2 Agents ..........................................................20
11.3 Cumulative Rights; No Waiver .....................................20
11.4 Entire Agreement .................................................20
11.5 Survival .........................................................21
11.6 Notices ..........................................................21
ii
<PAGE>
11.7 Headings .........................................................21
11.8 Modifications in Writing .........................................21
11.9 Execution in Counterparts ........................................22
11.10 Severability of Provisions .......................................22
11.11 WAIVER OF JURY TRIAL..............................................22
11.12 Reinstatement; Recapture .........................................22
11.13 Governing Law ....................................................22
11.14 CrossCollateralization; Marshalling, etc. ........................22
iii
<PAGE>
Table of Schedules
Schedule 6.1(iv) UCC Filings
Schedule 7.10 Encroachments
Schedule 7.14 Litigation
Table of Exhibits
Exhibit A Form of Environmental Indemnity
Exhibit B Form of Deed of Trust
Exhibit C Form of Note
iv
<PAGE>
LOAN AGREEMENT
LOAN AGREEMENT, dated as of January 1, 1999, by and between TRINET REALTY
CAPITAL, INC., a Maryland corporation ("Lender"), as lender, and ICG SERVICES,
INC., a Delaware corporation ("Borrower"), as borrower.
RECITALS
A. Borrower has requested that Lender make a Loan to Borrower, the proceeds
of which Borrower shall use to purchase the Property.
B. Lender is willing to make the Loan to Borrower, and Borrower is willing
to accept such Loan, on the terms and conditions set forth herein and in the
other Loan Documents.
AGREEMENT
In consideration of the foregoing and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
Section 1. Definitions; Certain Terms.
1.1 Definitions. For purposes of this Agreement, the terms set forth below
shall have the following meanings:
"Affiliate" shall mean, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control," when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise. The terms "controlling" and "controlled"
have meanings correlative to the foregoing.
"Agreement" shall mean this Loan Agreement, as it may be amended from time
to time in accordance with its terms.
"Borrower" shall have the meaning given such term in the introductory
paragraph of this Agreement.
"Business Day" means any day other than Saturdays, Sundays and days on
which national banks are permitted to be closed in accordance with Federal
banking laws and regulations.
"Closing Date" shall mean the date on which all of the conditions precedent
set forth in Section 6 below shall have been satisfied or waived and the Loan
shall be advanced.
1
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor statute(s).
"Collateral" shall mean the Property and the other "Mortgaged Property," as
defined in the Deed of Trust.
"Deed of Trust" shall mean the Deed of Trust, Assignment of Rents and
Security Agreement dated as of January 1, 1999, among Borrower, as trustor, the
Public Trustee of Arapahoe County, Colorado, as trustee, and Lender, as
beneficiary.
"Default Rate" shall mean a rate of interest equal to five hundred (500)
basis points in excess of the Interest Rate in effect from time to time.
"Effective Date" shall mean January 1, 1999.
"Environmental Indemnity" shall mean a Secured Environmental Indemnity,
dated as of the Effective Date, in the form attached hereto as Exhibit A.
"Environmental Laws" shall mean all laws, ordinances, rules, regulations,
orders and other requirements of any government or public authority now in force
or that may hereafter be in force relating to protection of human health or the
environment, including all requirements pertaining to reporting, licensing,
permitting, investigation and remediation of emissions, discharges, storage,
disposal or releases of Hazardous Substances and all requirements pertaining to
the protection of the health and safety of employees or the public.
"Escrow Company" shall mean Land Title Guarantee Company.
"Event of Default" shall have the meaning given such term in Section 10.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect on the applicable date.
"Governmental Authority" shall mean any federal, state, local or foreign
court, agency, authority, board, bureau, commission, department, office or
instrumentality of any nature whatsoever or any governmental or
quasi-governmental unit, whether now or hereafter in existence, or any officer
or official thereof, having jurisdiction over Borrower or the Property.
"Hazardous Substance" shall mean any hazardous or toxic substance, material
or waste, or any pollutant or contaminant, or words of similar import, that is
or becomes regulated by any Governmental Authority, and includes, but is not
limited to, any material or substance that is, (i) designated as a "hazardous
substance" pursuant to section 311 of the Federal Water Pollution Control Act
(33 U.S.C. section 1317), (ii) defined as a "hazardous waste" pursuant to
section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C.
section 6901 et seq. (42 U.S.C. section 6903), (iii) defined as a "hazardous
substance" pursuant to section 101 of the Comprehensive Environmental Response
Compensation and Liability Act (42 U.S.C. section 9601 et seq.), (iv) asbestos,
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(v) petroleum (including crude oil or any fraction thereof, natural gas, natural
gas liquids, liquefied natural gas, or synthetic gas usable for fuel, or any
mixture thereof), (vi) petroleum products, (vii) polychlorinated biphenyls,
(viii) urea formaldehyde, (ix) radon gas, (x) radioactive matter, (xi) medical
waste, and (xii) chemicals that may cause cancer or reproductive toxicity.
"ICGC" shall mean ICG Communications, Inc., a Delaware corporation.
"ICGC Financial Statements" shall have the meaning set forth in Section
1.19 of the Deed of Trust.
"ICG Parties" shall mean, collectively, Borrower, ICGC and all Significant
Subsidiaries of Borrower and ICGC.
"ICG Lease" shall mean that certain Lease dated as of January 15, 1998,
between TriNet Essential Facilities X, Inc., a Maryland corporation, as
landlord, and Tenant, as tenant.
"Impositions" shall have the meaning set forth in Section 1.8 of the Deed
of Trust.
"Improvements" shall mean all buildings and improvements now or hereafter
located or placed in or on the Land, including the existing office building that
has a gross area of approximately 239,749 square feet, together with any
additions thereto or alterations or replacements thereof.
"Indebtedness" of any Person shall mean, without duplication, (i) any
liability of such Person, to the extent it would appear as a liability on a
balance sheet of such Person prepared in accordance with GAAP, (a) for borrowed
money, (b) evidenced by a bond, note, debenture or similar instrument (including
a purchase money obligation) given in connection with the acquisition of any
businesses, properties or assets of any kind (other than a trade payable or a
current liability arising in the ordinary course of business), (c) for the
payment of money relating to a capitalized lease obligation or (d) evidenced by
a currency agreement or an interest rate agreement; (ii) any liability of such
Person under any reimbursement obligation relating to a letter of credit,
statutory obligation, performance or surety bond; (iii) any liability of others
described in the preceding clauses (i) and (ii) that such Person has guaranteed
or that is otherwise its legal liability or that is secured by a Lien on
property of such Person; and (iv) any amendment, supplement, modification,
deferral, renewal, extension or refunding of any liability of the types referred
to in clauses (i), (ii) and (iii) above.
"Indemnified Parties" shall have the meaning given such term in Section
8.7.
"Insurance Requirements" shall mean all provisions of the insurance
policies covering or applicable to all or any part of the Property or the
ownership, occupancy, right to possession, use, improvement, operation or
maintenance thereof, all requirements of the issuer of any of such insurance
policies and all orders, rules, regulations and other requirements of the
National Board of Fire Underwriters (or any other body exercising similar
functions, including any local board of fire underwriters) that, pursuant to an
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insurance policy, are binding upon Borrower and applicable to the Property.
"Interest Rate" shall have the meaning set forth in Section 3.1.
"Land" shall mean the real property described in Exhibit A to the Deed of
Trust.
"Leases" shall mean all leases, licenses, rental agreements, subleases,
occupancy agreements, licenses and other agreements respecting the occupancy or
use of any part of the Real Property, in effect at any time during the term of
this Agreement.
"Lender" shall have the meaning set forth in the introductory paragraph
to this Agreement.
"Lien" shall mean any lien, mortgage, pledge, security interest or other
encumbrance of any nature upon any property of any Person, including any
mechanic's lien, materialmen's lien, conditional sale or other title retention
agreement or lease in the nature thereof.
"Loan" shall mean the loan evidenced by the Note.
"Loan Documents" shall mean, collectively, this Agreement, the Note, the
Deed of Trust, the Environmental Indemnity, any certificates delivered by
Borrower in connection with the closing of the Loan and any other document,
instrument or agreement executed by Borrower and delivered to Lender and
evidencing, securing or relating to the Note, as any of the same may from time
to time be amended in accordance with their terms and the terms hereof.
"Loan Year" shall mean each twelve-month period during the term of the
Loan, with the first Loan Year commencing on February 1, 1999 and terminating
January 31, 2000, and each subsequent Loan Year commencing on the next day,
February 1, and ending the following January 31.
"Losses" shall have the meaning given such term in Section 8.7.
"Management Agreement" shall mean that certain Agreement, dated as of
January 1, 1999 between Borrower, as owner, and TriNet Property Management,
Inc., a Maryland corporation, as manager, pursuant to which property management
services are being provided for the Real Property, as it may be amended from
time to time in accordance with its terms and the terms hereof.
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, operations, prospects or financial condition of Borrower, (b)
the ability of Borrower to pay the Obligations in accordance with their terms,
(c) the Property or its value or utility, or (d) the Liens of Lender in the
Collateral or the priority of such Liens.
"Maturity Date" shall mean January 31, 2013.
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"Note" shall mean the $33,076,754 Promissory Note dated as of January 1,
1999, executed by Borrower in favor of Lender.
"Obligations" shall mean all loans, advances, debts, liabilities,
obligations, covenants and duties owing to Lender by Borrower of any kind or
nature, present or future, whether or not evidenced by any note, guaranty or
other instrument, arising under this Agreement, the Note or any of the other
Loan Documents, whether or not for the payment of money, arising by reason of an
extension of credit, absolute or contingent, due or to become due, now existing
or hereafter arising, including all principal, interest, charges, expenses,
fees, attorneys' fees and disbursements and any other sum chargeable to Borrower
under this Agreement or any other Loan Document.
"Officer's Certificate" shall mean a certificate of an authorized officer
of Borrower.
"Permitted Exceptions" shall mean (i) the Lien created by the Deed of
Trust, (ii) the ICG Lease, (iii) any future Leases, to the extent permitted
hereunder, that are or can be, without any action other than notice by Borrower,
subordinate to the Deed of Trust, (iv) any covenants, conditions, Liens,
restrictions, rights of way, easements and other matters, whether or not of
public record or identified in the Title Commitment approved in writing by
Lender and (v) other covenants, conditions, restrictions, rights of way,
easements and other matters, excluding mortgages and other similar monetary
encumbrances, to which like properties are commonly subject and that do not
impose any material affirmative obligations on the owner of the Property or
require the removal of any improvements from the Property and that individually
and in the aggregate do not and will not either (a) materially interfere with
the benefits of the security intended to be provided by the Deed of Trust or the
current use of the Property or (b) materially impair the value or marketability
of the Property.
"Person" shall mean any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, or Governmental Authority.
"Personal Property" shall mean all tangible personal property of Borrower
now or at any time hereafter located on or at the Real Property or used or
usable in connection with the intended use of the Real Property or any other
future occupancy or use of the Real Property and any replacements thereof,
including, but without limiting the generality of the foregoing, landscaping,
water treatment, garage and power equipment and supplies, engines, lifting,
cleaning, fire prevention, fire extinguishing, and communications apparatus,
incinerating equipment, shades, awnings, screens, storm doors and windows,
partitions, carpets, rugs, furnishings, televisions, radios, lamps, mirrors,
paintings and other works of art, wall hangings, decorations, and maintenance
equipment; excluding, however, any Personal Property owned by Tenant, by any
tenant under any other Lease or by the Property Manager.
"Potential Default" shall mean an event or condition which, but for the
lapse of time or the giving of notice, or both, would, unless cured or waived,
constitute an Event of Default.
"Property" shall mean, collectively, the Real Property and the Personal
Property.
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"Property Manager" shall mean the manager under the Management Agreement
and its successors and assigns.
"Real Property" shall mean, collectively, the Land and the Improvements.
"Requirements of Law" shall mean, as to any Person, (i) the corporate
charter and by-laws (in the case of a corporation), partnership agreement and
certificate or statement of partnership (in the case of a partnership) or other
organizational or governing documents of such Person, (ii) any legal requirement
including any local, state, federal or foreign statute, law, ordinance, code,
treaty, rule or regulation now or hereafter in effect (including Environmental
Laws and the Americans with Disabilities Act of 1991), or final and binding
determination of an arbitrator, or order, judgment, decree, injunction, permit,
license, authorization, certificate, franchise, approval, notice, demand letter,
direction or determination of any Governmental Authority applicable to or
binding upon such Person or any of its property (or the operation, management,
use or condition of its property) or to which such Person or any of its property
(or the operation, management, use or condition of its property) is subject or
(iii) any recorded deed of restriction, declaration, covenant running with the
land or otherwise, now or hereafter in force (including any such deed,
declaration or covenant that constitutes a Permitted Exception) other than any
such deed, declaration or covenant the noncompliance with which will not have a
material adverse effect on the value, utility or legal compliance of the
Property.
"Significant Subsidiaries" shall mean, as to any Person at any date of
determination, any Subsidiary of such Person that, together with its
Subsidiaries, (i) for the most recent fiscal year of such Person, accounted for
more than ten percent (10%) of the consolidated revenues of such Person and its
Subsidiaries, or (ii) as of the end of such fiscal year, was the owner of more
than ten percent (10%) of the consolidated assets of such Person and its
Subsidiaries, all as set forth on the most recently available consolidated
financial statements of such Person for such fiscal year.
"Subsidiary" shall mean, with respect to any Person, (i) any corporation,
association, or other business entity (other than a partnership) of which more
than fifty percent (50%) of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time of
determination owned or controlled, directly or indirectly, by such Person or one
or more of the other Subsidiaries of such Person or a combination thereof, and
(ii) any partnership, joint venture, limited liability company or similar entity
of which (a) more than fifty percent (50%) of the capital accounts, distribution
rights, total equity and voting interests or general or limited partnership
interests, as applicable, are owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of such Person or a
combination thereof whether in the form of membership, general, special or
limited partnership or otherwise, and (b) such Person or any Subsidiary of such
Person is a general partner or otherwise controls such entity.
"Taking" shall mean a governmental taking described in Section 1.13 of the
Deed of Trust.
"Tenant" shall mean ICG Holdings, Inc., a Colorado corporation.
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"Title Commitment" shall mean Title Commitment No. ABB675698 dated as of
May __, 1999, issued by Title Company.
"Title Company" shall mean Chicago Title Insurance Company.
"Transactions" shall mean the transactions contemplated by the Loan
Documents.
1.2 Certain Terms. Unless the context indicates otherwise, all accounting
terms are used herein as defined under GAAP. All references to Sections,
Schedules, Exhibits, etc. are to Sections, Schedules or Exhibits of or to this
Agreement unless otherwise specified. Any of the terms defined in Section 1.1
may, unless the context otherwise requires, be used in the singular or plural
depending on the reference. "Herein," "hereunder" and words of similar import
refer to this Agreement as an entirety and not to particular Sections of this
Agreement. The word "including" shall be construed to be followed by the words
"without limitation."
Section 2. The Loan; Payment Due on Maturity Date.
2.1 Execution of Loan Documents. On the terms and subject to the conditions
set forth herein, on the Closing Date, Borrower shall execute the Note and all
other Loan Documents.
2.2 Payment on Maturity. On the Maturity Date, Borrower shall pay to Lender
an amount equal to the then outstanding principal balance of the Note, plus
interest accrued and unpaid thereon and any other amounts due and unpaid under
the Loan Documents. Upon payment in full of all amounts described in the
preceding sentence, Lender, at the request of Borrower, shall execute and
deliver or cause to be executed and delivered such documents as may be required
to release the Lien of the Deed of Trust, including a "Request for Release of
Deed of Trust," and tender to Borrower the original Note marked "canceled and
paid in full."
Section 3. Interest Rate Provisions; Payments.
3.1 Applicable Interest Rate. Except when the Default Rate is in effect as
provided in Section 4.1, the principal amount outstanding under the Note shall
bear interest from and after the Effective Date to and including the date of
payment in full at the following rates of interest (the Interest Rate"): for the
period January 1, 1999 through and including January 31, 1999 only, at the rate
of fourteen and three thousand three hundred eighty-four ten thousandths percent
(14.3384%); during the first Loan Year, at the rate of fourteen and seven
thousand six hundred eighty-six ten thousandths percent (14.7686%) per annum;
and during the second Loan Year and each Loan Year thereafter, at a rate of
interest equal to one hundred three percent (103%) of the Interest Rate in
effect for the immediately preceding Loan Year. For example, the Interest Rate
during the second Loan Year shall be fifteen and two thousand one hundred
seventeen ten thousandths percent (15.2117%) per annum, and the Interest Rate
during the third Loan Year shall be fifteen and six thousand six hundred
eighty-one ten thousandths percent (15.6681%) per annum.
3.2 Payments. On the first day of each calendar month during the term of
the Loan, Borrower shall pay, in advance, all interest, at the Interest Rate,
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that will accrue during such month against the principal sum of the Loan, as
provided in the Note. So long as no Event of Default has occurred, each monthly
installment paid under the Note shall be applied to accrued interest accruing
during the applicable month.
3.3 Computations. All computations of interest payable hereunder shall be
on the basis of a 360-day year of twelve 30-day months and actual days elapsed.
Section 4. Late Charges; Prepayment.
4.1 Late Charges. If any installment under the Note is not paid on the date
due, such installment shall bear interest at the lesser of five hundred basis
points (500) in excess of the prime or reference rate announced from time to
time by Bank of America NT&SA or twelve percent (12%) per annum, from the due
date until such installment is paid. In addition, Borrower shall pay to Lender a
late charge equal to six percent (6%) of the amount of any installment under the
Note that is not paid within five (5) Business Days of the date due. As long as
an Event of Default under this Agreement, the Note or any other Loan Document
exists, and from and after maturity of the Loan, whether or not resulting from
acceleration, the entire unpaid balance of the principal sum of the Note shall
bear interest at the Default Rate.
4.2 Prepayment. Except as expressly provided to the contrary in this
Agreement, Borrower shall have no right, at any time, to prepay the Note in
whole or in part. Borrower agrees that every payment of any portion of the
unpaid balance of the principal sum of the Note before the Maturity Date shall
constitute a prepayment under the Note, whether such payment occurs voluntarily,
involuntarily, or by acceleration of the maturity of the indebtedness evidenced
by the Note by Lender. Borrower further agrees that, upon any such payment of
the Note before the Maturity Date, Borrower shall, with such payment, pay to
Lender a prepayment charge determined in accordance with this Section 4.2.
Without limiting the foregoing, following any acceleration of the maturity of
the indebtedness evidenced by the Note, such prepayment charge shall be included
in the total amount due to Lender at any foreclosure sale under the Deed of
Trust and any tender of payment of the indebtedness evidenced by the Note
before, at or after any foreclosure sale under the Deed of Trust shall include
such prepayment charge. The prepayment charge shall be equal to five percent
(5%) of the entire unpaid balance of the principal sum of the Note as of the
prepayment date. Borrower agrees that material individual weight to the
consideration in this transaction has been given for the foregoing waiver and
agreement, and Borrower shall be estopped from claiming hereafter that
Borrower's agreement to pay such prepayment charge in accordance with this
Agreement is invalid or unenforceable in any respect for any reason.
Section 4.3 Permitted Prepayment. Notwithstanding anything to the contrary
contained herein, Borrower may prepay all, but not less than all, of the
principal and interest outstanding under the Note prior to the Maturity Date
without paying the prepayment charge upon the occurrence of a lease termination
pursuant to Section 16.1 of the Lease dated January 15, 1998 between Tenant and
Borrower's predecessor, following a condemnation or exercise of eminent domain
power.
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Section 5. Miscellaneous Lending Provisions.
5.1 Use of Proceeds. The proceeds of the Note shall be utilized by Borrower
to purchase the Property.
5.2 Manner of Payment. All payments made hereunder shall be made in
accordance with the provisions hereof without setoff or counterclaim as against
Lender, in lawful money of the United States of America, free and clear of and
without deduction for any taxes, fees or other charges of any nature whatsoever
imposed by any taxing authority.
Section 6. Conditions. Lender's obligation to enter into the transactions
described herein and to perform any other obligation of Lender herein
contemplated to be performed on or after the Closing Date is subject to the
following conditions:
6.1 Documents. Borrower shall have delivered or shall have caused to be
delivered as of the Closing Date to Lender each of the following, in form and
substance satisfactory to Lender:
(i) A duly executed original of this Agreement;
(ii) A duly executed and acknowledged original of the Deed of Trust, in the
form of Exhibit B to this Agreement;
(iii) A duly executed original of the Note, in the form of Exhibit C to
this Agreement;
(iv) A duly executed original of each of the UCC financing statements and
fixture filings described in Schedule 6.1(iv);
(v) A duly executed original of the Environmental Indemnity Agreement;
(vi) Appropriate organizational and authorization documents for Borrower
authorizing the execution and delivery of all Loan Documents, which documents
shall include (a) the articles or certificates of incorporation of Borrower,
certified by the appropriate Governmental Authority, (b) the by-laws of
Borrower, and (c) authorizing resolutions of Borrower with respect to the Loan
Documents;
(vii) Good-standing certificates or other evidence of qualification to do
business for Borrower, certifying that such entity is duly qualified to do
business and is in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification;
(viii) A legal opinion of counsel to Borrower dated as of the Closing Date,
covering such matters as Lender may reasonably request, including without
limitation, the enforceability of the Loan Documents;
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(ix) Certificates evidencing insurance for the Real Property in amount and
scope and with loss payment provisions as required by the Deed of Trust;
(x) An Officer's Certificate dated the Closing Date, to the effect that on
and as of the Closing Date: (i) the representations and warranties of Borrower
contained in the Loan Documents shall be accurate and complete in all material
respects and (ii) there shall not exist an Event of Default or Potential
Default; and
(xi) An original Management Agreement duly executed by Borrower.
6.2 Other Actions. All acts and conditions and things (including the
obtaining of any necessary approvals of Governmental Authorities and the making
of any required filings, recordings or registrations) required to be done and
performed by Borrower and to have happened prior to or simultaneously with the
execution, delivery and performance of the Loan Documents and to constitute the
same legal, valid and binding obligations of Borrower, enforceable in accordance
with their respective terms, shall have been done and performed and shall have
happened in compliance with all applicable Requirements of Law.
6.3 Opinions and Assurances. All opinions, certificates and other
instruments required hereunder or by any other Loan Document, and all
proceedings in connection with the Transactions, shall be reasonably
satisfactory in form and substance to Lender. Lender shall have received copies
of all instruments and other evidence as Lender may reasonably require, in form
and substance reasonably satisfactory to it, with respect to the Transactions
and the taking of all corporate proceedings in connection therewith.
6.4 Representations. On and as of the Closing Date: (i) the representations
and warranties of Borrower contained in the Loan Documents shall be accurate and
complete in all material respects and (ii) there shall not exist, after giving
effect to the execution and delivery of the Loan Documen ts, an Event of Default
or Potential Default.
6.5 Closing Expenses. Borrower shall have paid or caused to be paid to the
Escrow Company amounts sufficient to pay all transfer taxes and recording
charges required to be paid in connection with the Transactions and other
reasonable escrow charges. Borrower shall have paid the attorneys' fees and
expenses of Lender's counsel incurred in connection with the preparation and
negotiation of the Loan Documents.
Section 7. Representations and Warranties. As an inducement to Lender to
enter into the Loan Documents and to make the Loan as provided herein, Borrower
represents and warrants to Lender that as of the Closing Date each of the
following statements shall be true and correct:
7.1 Due Authorization. Borrower is a corporation duly organized and validly
existing under the laws of the State of Delaware, with the requisite corporate
power and authority to own its properties, enter into the Loan Documents and
consummate the Transactions; and Borrower is qualified to do business in
Colorado and each other jurisdiction in which its properties are located or
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where its ownership, leasing or operation of its property or the conduct of its
business requires such qualification.
7.2 Enforceability. The Loan Documents executed on or before the Closing
Date by Borrower have been duly authorized, executed and delivered on behalf of
Borrower and constitute the legal, valid and binding obligations of Borrower
enforceable against it in accordance with their respective terms, subject to the
effect of applicable bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting the rights of creditors generally.
7.3 Employees. Borrower has no employees.
7.4 No Violation. Neither the execution, delivery or performance of any
Loan Document nor the consummation of any of the Transactions violates or will
violate the charter or by-laws of Borrower or violates, conflicts with or
constitutes a default under any agreement to which Borrower is a party or by
which Borrower or the Property is bound, violates any Requirements of Law to
which Borrower or the Property is subject or will result in the imposition of a
Lien on the Property other than Permitted Exceptions. None of the Transactions
will result in a violation of Section 7 of the Securities Exchange Act of 1934,
as amended, or any regulations issued pursuant thereto, including Regulations G,
T, U, and X of the Board of Governors of the Federal Reserve System, 12 C.F.R.,
Chapter II.
7.5 Consents. No consents, approvals, filings, permits or notices of, from,
with or to any Person are required on the part of Borrower that have not been
duly obtained, made or given, as the case may be (a) for the due execution and
delivery of each of the Loan Documents, or (b) for the performance of the Loan
Documents in accordance with their terms (except for obtaining approvals or
permits from any Governmental Authority to construct tenant improvements or
other construction work at or about the Real Property or for other future
actions consent to which are contemplated or required by the Loan Documents) and
consummation of, or otherwise in connection with, any of the Transactions.
7.6 Solvency. None of the Transactions will be or have been made with an
actual intent to hinder, delay or defraud any present or future creditors of
Borrower, Borrower is not, and will not be, rendered insolvent by the
Transactions, and Borrower has received fair consideration and reasonably
equivalent value in good faith for the grant of the Lien created by the Deed of
Trust. Borrower is able to pay its debts as they become due, including
contingent obligations likely to become due.
7.7 Delinquent Property Liens. Except for claims that are being contested
in accordance with the Deed of Trust or that are not material in amount or
that constitute or will constitute Permitted Exceptions, to the best of
Borrower's knowledge there is no delinquent Imposition, sewer rent, water
charge, assessment or other outstanding charge against the Real Property; and,
except as shown in the Title Commitment, to the best of Borrower's knowledge
there are no mechanics' or similar Liens or, to the best of Borrower's
knowledge, claims for overdue payment for labor or material affecting the Real
Property that are or could become Liens prior to, or equal with, the Lien of the
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Deed of Trust and there are no mechanics' or similar Liens or, to the best of
Borrower's knowledge, claims affecting the Real Property.
7.8 Defenses. Except for the effect of applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or similar laws affecting the rights of
creditors generally, the Loan Documents are not subject to any valid right of
rescission, setoff, abatement, diminution, counterclaim or defense as against
Lender and its successors and assigns in interest, including the defense of
usury, and the operation of any of the terms of the Loan Documents, or the
proper exercise of any right thereunder, will not render the Loan unenforceable,
in whole or in part, or subject to any right of rescission, setoff, abatement,
diminution, counterclaim or defense, including the defense of usury, and
Borrower has not taken any action that would give rise to the assertion of any
of the foregoing and no such right of rescission, setoff, abatement, diminution,
counterclaim or defense, including the defense of usury, has been asserted with
respect thereto.
7.9 Lien Priority. Upon recording, the Deed of Trust shall constitute a
valid and enforceable first Lien and perfected security interest on the Property
granted by Borrower in favor of Lender, including all buildings and fixtures
that constitute part of the Property under applicable law, and all additions,
alterations and replacements made at any time with respect to the foregoing,
subject only to Permitted Exceptions.
7.10 Improvements. To the best of Borrower's knowledge, except as disclosed
in the Title Commitment, all improvements comprising a portion of the Real
Property lie wholly within the boundary and building restriction lines of the
Land and no improvements on adjoining properties encroach upon any of the Land
in any respect except as shown in the Title Commitment, on the survey or in
Schedule 7.10.
7.11 Casualty; Condemnation. The Real Property is free of waste and of any
damage involving loss or destruction with a repair cost in excess of two hundred
fifty thousand dollars ($250,000), and there is no proceeding pending or, to the
best of Borrower's knowledge, threatened, for the Taking of any of the Real
Property.
7.12 Zoning and Other Laws. To the best of Borrower's knowledge, the use
and operation of the Real Property, separate and apart from any other
properties, constitutes a legal use under applicable zoning regulations and
complies in all material respects with all applicable Requirements of Law and
all applicable Insurance Requirements.
7.13 Leases. The ICG Lease is in full force, and the landlord is not in
default thereunder. The ICG Lease is the only lease, sublease or other occupancy
agreement encumbering the Property, and Tenant is the only tenant, subtenant or
occupant of the Property. To the best of Borrower's knowledge, Tenant is not in
default under the ICG Lease.
7.14 Litigation. Except as set forth on Schedule 7.14, no material
litigation, investigation or proceeding before any court, arbitrator or
Governmental Authority, agency or subdivision is pending or, to Borrower's best
knowledge, threatened, against Borrower or to the best of Borrower's knowledge,
relating to any of the Real Property.
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7.15 Brokerage and Other Fees. No brokerage or other fee, commission or
compensation is or will become due and payable by Borrower in connection with
the Transactions.
7.16 Investment Company. Borrower is not now required nor will it (by
reason of this Agreement) be required to register under the Investment Company
Act of 1940, as amended.
7.17 Other Agreements. To the best of Borrower's knowledge, no party to any
deed, restriction, covenant or similar instrument that constitutes a Permitted
Exception in respect of the Real Property is in default of its obligations
thereunder except for such defaults that in the aggregate (if such defaults
remained uncured) do not or will not have a Material Adverse Effect.
Section 8. Affirmative Covenants. Borrower hereby covenants and agrees
that, so long as the Loan remains unpaid or any other amount is owing to Lender
under any of the Loan Documents or the Real Property remains subject to the Lien
of the Deed of Trust:
8.1 Financial Statements; Other Information. Borrower shall furnish or
cause to be furnished to Lender:
(a) As and when required to be delivered pursuant to the Deed of Trust, the
financial reports and statements described in Section 1.19 of the Deed of Trust;
and
(b) promptly, such additional financial and other information, including
information regarding the Property and the occupancy thereof (including an
updated rent roll), as Lender may from time to time reasonably request.
8.2 Maintenance of Existence and Property. Borrower shall preserve and
maintain its existence and all rights, privileges and franchises necessary in
the normal conduct of its business. In all dealings with the public, Borrower
shall identify itself under its own name and as a separate and distinct entity.
8.3 Inspection of Property; Books and Records; Discussions; Bank Accounts
and Funds. Borrower shall (i) keep its own separate and proper books of record
and account in which full, true and correct entries in conformity with GAAP or
as otherwise required under any Loan Document and under all Requirements of Law
shall be made of all dealings and transactions in relation to its business and
activities, and (ii) upon reasonable notice, permit representatives of Lender
and its agents and regulatory authorities to visit and inspect the Real Property
and examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be desired by Lender and to
discuss the business, operations, properties and financial and other conditions
of Borrower and ICGC with any of their officers. Borrower shall maintain its own
bank accounts and keep its funds or other assets separate from the funds or
other assets of all other Persons.
8.4 Notices. Borrower shall give prompt written notice to Lender of (i) any
claims, proceedings or disputes (whether or not purportedly on behalf of
Borrower) against, or to Borrower's knowledge, threatened or affecting, Borrower
13
<PAGE>
or the Property that, if adversely determined, could reasonably be expected to
have a Material Adverse Effect or that involve in the aggregate monetary amounts
in excess of one million dollars ($1,000,000), (ii) any proposal of which
Borrower has knowledge or has received notification by any Governmental
Authority to acquire any of the Real Property or any portion thereof or as to
any notice or the discovery of any material violation or material alleged
violation of any Requirement of Law, (iii) the occurrence of any Potential
Default or Event of Default hereunder or (iv) any Material Adverse Effect. Such
notice shall be in the form of an Officer's Certificate specifying the nature
and details of any of the foregoing matters and the actions taken and proposed
to be taken by Borrower in response thereto.
8.5 Expenses. Borrower shall pay, indemnify and save harmless Lender with
respect to all Impositions (other than income or franchise taxes of Lender or
taxes caused by actions or elections of Lender) and all reasonable charges, fees
and out-of-pocket expenses (including reasonable fees and disbursements of
counsel of Lender) incident to the enforcement (including any foreclosure of the
Liens held by Lender) and administration (out-of-pocket expenses only) of the
Loan Documents and the preparation, negotiation, enforcement and administration
(out-of-pocket expenses only) of any amendments, waivers and renewals relating
to any thereof and the protection of the rights of Lender under the Loan
Documents whether by judicial proceedings or otherwise, including in connection
with bankruptcy, insolvency, liquidation, reorganization, moratorium or other
similar proceedings involving Borrower or a "workout" of the Loan. The Loan
shall not be considered to have been paid in full unless all obligations under
this Section 8.5 shall have been fully performed, are fully covered by insurance
or security satisfactory to Lender has been provided therefor (except for
contingent indemnification obligations for which no claim has actually been made
in good faith pursuant to this Agreement).
8.6 Loan Documents. Borrower shall comply with and observe all terms and
conditions of the Loan Documents. Until released in accordance with this
Agreement, Borrower warrants that the Deed of Trust will at all times constitute
a valid, subsisting and enforceable first Lien and perfected security interest
on the Property granted by Borrower in favor of Lender, including all buildings
and fixtures that constitute part of the Property under applicable law, and all
additions, alterations and replacements made at any time with respect to the
foregoing, subject only to Permitted Exceptions.
8.7 Indemnification. Borrower shall indemnify and hold harmless Lender and
its directors, officers, shareholders, partners, employees, attorneys, agents,
representatives, successors and assigns (the "Indemnified Parties"), from and
against all damages as a result of liabilities, claims, actions, penalties and
fines (collectively and severally, "Losses") assessed against any of them
resulting from the claims of any party relating to the matters set forth in
Section 1.22 of the Deed of Trust, except for Losses otherwise covered under the
provisions of Section 8.5 and Losses directly caused by the gross negligence or
willful misconduct of the Indemnified Party seeking recovery hereunder; and
Borrower shall reimburse each Indemnified Party for any expenses (including the
fees and disbursements of legal counsel) incurred in connection with the
investigation of, preparation for or defense of any actual or threatened claim,
action or proceeding arising therefrom (including any such costs of responding
to discovery requests or subpoenas), regardless of whether Lender or such other
Indemnified Person is a party thereto. The provisions of Section 1.22 the Deed
of Trust are incorporated herein by reference. The Loan shall not be considered
14
<PAGE>
to have been paid in full unless all obligations of Borrower under this Section
8.7 shall have been fully performed, are fully covered by insurance or security
satisfactory to Lender has been provided therefor (except for contingent
indemnification obligations for which no claim has actually been made in good
faith pursuant to this Agreement).
8.8 Property Management. Borrower shall cause the Property to be managed on
terms substantially similar to the terms and conditions of the Management
Agreement by the Property Manager; provided, however, that if the Management
Agreement is terminated pursuant to its terms, Borrower may replace Property
Manager with another property manager reasonably acceptable to Lender.
8.9 Impositions. Borrower shall promptly pay or cause to be paid all
Impositions pursuant to the provisions of Section 1.8 of the Deed of Trust,
subject to Borrower's right to contest such Impositions as provided in Section
1.8 of the Deed of Trust.
8.10 Insurance. Borrower shall maintain insurance with respect to the
Property as required under the Deed of Trust.
Section 9. Negative Covenants. Borrower hereby agrees that, so long as the
Loan remains unpaid or any other amount is owing to Lender under any of the Loan
Documents and any Property remains subject to the Lien of the Deed of Trust,
Borrower shall not, directly or indirectly:
9.1 Intentionally Deleted.
9.2 Intentionally Deleted.
9.3 Sale of Assets-Encumbrances. Subject to Borrower's rights under section
1.15 of the Deed of Trust, suffer to exist any Lien with respect to any
Collateral other than Permitted Exceptions or sell, transfer, lease, assign,
exchange, contribute, encumber, abandon or create any Lien with respect to, or
otherwise dispose of, directly or indirectly, any Collateral or any interest
therein.
9.4 Transactions with Affiliates. Purchase, acquire or lease any property
from, or sell, transfer or lease any property to, or lend or advance any money
to, or borrow any money from, or guarantee any obligation of, or acquire any
stock, obligations or securities of, or enter into any merger or consolidation
agreement, or any management or similar agreement with, any Affiliate of
Borrower, or enter into any other transaction or arrangement or make any payment
to (including on account of any management fees, service fees, office charges,
consulting fees, technical services charges or tax sharing charges) or otherwise
deal with, in the ordinary course of business or otherwise, any Affiliate of
Borrower on terms other than arm's-length commercially reasonable terms, except
for any of the following: (i) transactions relating to the sharing of
facilities, equipment, office space and actual overhead expenses, including
managerial, payroll and accounting and legal expenses, for which charges
assessed against Borrower is not greater than would be incurred by Borrower in
similar arm's-length transactions with non-Affiliates, and (ii) the ICG Lease.
15
<PAGE>
9.5 Fiscal Year. Change its fiscal year.
9.6 Manager. Replace the Property Manager without Lender's prior written
consent, which shall not be unreasonably withheld, or terminate or amend the
Management Agreement.
9.7 Leases. Except as specifically permitted in Section 1.16 of the Deed of
Trust, Borrower shall not: (a) enter into any Lease; (b) amend, modify or revise
the ICG Lease or any other Lease; or (c) cancel, terminate or permit the
termination of, accept the surrender of any or all of the space demised under,
or waive any right or remedy under, the ICG Lease or any other Lease.
Section 10. Events of Default. The occurrence of any of the following
events shall constitute an "Event of Default" hereunder:
10.1 Payment Default. Borrower shall fail to make or cause to be made (i)
any payment of principal or interest under the Note or this Agreement within
five (5) days after the date due, or (ii) any other payment due hereunder or
under any other Loan Document within ten (10) days after demand therefor shall
have been made; or
10.2 Misrepresentation. Any representation, warranty or certification made
by Borrower under any Loan Document, or in any Officer's Certificate or
financial statement furnished by Borrower in connection with any Loan Document,
shall be materially inaccurate or incomplete as of the date made; provided,
however, if such inaccuracy or incompleteness is susceptible to cure, no Event
of Default shall occur if Borrower cures or causes to be cured the same within
thirty (30) days after written notice thereof from Lender, or if such matter is
susceptible of cure but cannot, with due diligence, be cured within thirty (30)
days, then no Event of Default shall occur if such cure is commenced within that
thirty (30) day period and diligently prosecuted to completion within such
longer period of time (but in no event to exceed ninety (90) days from the date
Borrower received notice of such breach); or
10.3 Negative Covenant Default. Borrower shall fail to perform or
observe the terms, provisions, covenants, obligations or agreements contained
in any of Sections 9.1 through 9.7; or
10.4 Other Loan Defaults. Borrower shall fail to perform or observe in any
material respect any of the covenants, obligations or agreements contained in
the Loan Documents (other than those referred to in Section 10.1, 10.2 or 10.3
above) and such failure shall, in each such case, continue for thirty (30) days
after written notice thereof from Lender, or if such cure cannot, with due
diligence, occur within thirty (30) days, such longer period of time (not to
exceed ninety (90) days from the date Borrower received notice of such breach)
as is reasonably required for such cure, provided Borrower is diligently
attempting to cure such failure; or
10.5 Bankruptcy, etc. (i) Any ICG Party shall commence any case, proceeding
or other action (a) under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, seeking to have an order for relief entered with respect to
it, or seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
16
<PAGE>
composition or other relief with respect to it or its debts, or (b) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or substantially all of its assets, or any ICG Party shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against any ICG Party any case, proceeding or other action of a nature
referred to in clause (i) above that (a) results in the entry of any order for
relief or any such adjudication or appointment, and (b) remains undismissed,
undischarged or unbonded for a period of ninety (90) days; or (iii) there shall
be commenced against any ICG Party any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or substantially all of its assets that results in the entry of an
order for any such relief that shall not have been vacated, discharged, stayed,
satisfied or bonded pending appeal within ninety (90) days from the entry
thereof; or (iv) any ICG Party shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due;
10.6 Judgments. One or more judgments or decrees (not covered by insurance)
in an aggregate amount exceeding five million dollars ($5,000,000) shall be
entered against Borrower or any Significant Subsidiary of Borrower and all such
judgments or decrees shall not have been vacated, discharged, stayed, satisfied
or bonded pending appeal within sixty (60) days from the entry thereof.
10.7 Tenant Defaults. Any "Event of Default" (as defined in the ICG Lease)
occurs and is not waived by Borrower or cured by Tenant within thirty (30) days
after the occurrence of the breach giving rise to such "Event of Default."
10.8 Additional Borrower Cure Right. Borrower shall have the right to
effectuate a cure of an Event of Default described in Section 10.6 of this
Agreement by posting a clean, irrevocable and unconditional letter of credit in
the full, outstanding principal amount of the Loan for the benefit of Lender in
form and substance reasonably satisfactory to Lender.
10.9 Remedies. Automatically upon the occurrence of an Event of Default
under Section 10.5, or at the option of Lender upon the occurrence of any other
Event of Default, the principal balance of the Loan and interest and other
charges accrued but unpaid thereon shall become immediately due and payable and
the Maturity Date shall be deemed to have occurred; and Lender may exercise all
rights and remedies available to it hereunder, under the other Loan Documents,
at law or in equity. Notwithstanding the foregoing, Lender agrees that Borrower
shall not be liable to Lender for compensatory money damages as a result of
Borrower's unknowing breach of any representation, warranty or certification
referred to in Section 10.2 (but Lender shall have all other remedies hereunder
and at law or in equity, including acceleration of the principal balance of the
Loan and accrued but unpaid interest and other charges, and collection of
interest on unpaid amounts at the Default Rate).
Section 11. Miscellaneous Provisions.
11.1 Assignment. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Nothing expressed herein is intended or shall be construed to give any Person
other than the Persons referred to in the preceding sentence any legal or
17
<PAGE>
equitable right, remedy or claim under or in respect of this Agreement. Lender,
in its sole and absolute discretion and without notice to Borrower, may sell
participations, assign its rights or interest, or both, in all or any part of
this Agreement or the other Loan Documents. Borrower may not assign its rights
or interest or delegate its duties hereunder or under the other Loan Documents.
11.2 Agents. Lender may use one or more agents or mortgage servicers to
administer the Loan Documents or perform its obligations hereunder or under the
other Loan Documents.
11.3 Cumulative Rights; No Waiver. The rights, powers and remedies of
Lender hereunder are cumulative and in addition to all rights, powers and remedi
es provided under any and all agreements by Borrower or any ICG Party with or
for the benefit of Lender under the Loan Documents or incident to the
Transactions, at law, in equity or otherwise. Any delay or failure by Lender to
exercise any right, power or remedy shall not constitute a waiver thereof by
Lender, and no single or partial exercise by Lender of any right, power or
remedy shall preclude other or further exercise thereof or any exercise of any
other rights, powers or remedies. No delay or omission of Lender to exercise any
right or remedy accruing upon any Event of Default shall impair any such right
or remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Agreement or the other Loan
Documents or by law to Lender may be exercised from time to time, and as often
as may be deemed expedient by Lender.
11.4 Entire Agreement. This Agreement and the other Loan Documents embody
the entire agreement and understanding between the parties hereto with respect
to the Loan and supersede all prior agreements and understandings relating to
the subject matter hereof and thereof.
11.5 Survival. All representations and warranties, covenants and agreements
herein contained on the part of Borrower shall survive the closing and funding
of the Loan.
11.6 Notices. All approvals, consents, notices and other communications
under this Agreement shall be properly given only if made in writing and mailed
by certified mail, return receipt requested, postage prepaid, or delivered by
hand (including messenger or recognized delivery, courier or air express
service) to the party at the address set forth in this Agreement or such other
address as such party may designate by notice to the other party. Such
approvals, consents, notices and other communications shall be effective on the
date of receipt (evidenced by the certified mail receipt) if mailed or on the
date of such hand delivery if hand delivered. If any such approval, consent,
notice or other communication is not received or cannot be delivered due to a
change in the address of the receiving party of which notice was not previously
given to the sending party or due to a refusal to accept by the receiving party,
such approval, consent, notice or other communication shall be effective on the
date delivery is attempted. Any approval, consent, notice or other communication
under this Agreement may be given on behalf of a party by the attorney for such
party.
(a) The address of Lender is: One Embarcadero Center, 33rd Floor, San
Francisco, California 94111, attention: Capital Markets, with additional copies
to Pillsbury Madison & Sutro, 235 Montgomery Street, San Francisco, California
94104, Attention: Glenn Q. Snyder, Esq.
18
<PAGE>
(b) The address of Borrower is: 161 Inverness Drive West, Englewood,
Colorado 80112, Attention: Director of Real Estate, Facilities and Corporate
Services, with an additional copy to 161 Inverness Drive West, Englewood,
Colorado 80112, Attention: Assistant General Counsel.
11.7 Headings. The Section headings used in this Agreement are for
convenience of reference only and shall not affect the construction of this
Agreement.
11.8 Modifications in Writing. No amendment, modification, supplement,
termination or waiver of or to any provision of this Agreement or any other Loan
Document to which Lender is a party, or consent to any departure by Borrower
therefrom, shall be effective unless in writing and signed by Lender and
Borrower. Any amendment, modification or supplement of or to any provision of
this Agreement or any such other Loan Document, any waiver of any provision
thereof, and any consent to any departure by Borrower from the terms of any
provision thereof shall be effective only in the specific instance and for the
specific purpose for which made or given. Borrower shall not amend in any
material respect any of the Loan Documents to which Lender is not a party, and
no purported amendment thereof shall be effective, unless Lender shall have
given its prior written consent thereto.
11.9 Execution in Counterparts. This Agreement and any amendments, waivers,
consents or supplements hereto may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original, but all such
counterparts shall constitute one and the same agreement.
11.10 Severability of Provisions. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
11.11 WAIVER OF JURY TRIAL. BORROWER AND EACH OTHER PARTY HERETO HEREBY
WAIVES ANY RIGHTS TO A TRIAL BY JURY OF ANY MATTER OR CAUSE RELATING TO THIS
AGREEMENT.
11.12 Reinstatement; Recapture. To the extent Lender receives any payment
by or on behalf of Borrower, which payment or any part thereof is subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to such party or its estate, trustee, receiver, custodian or any other
party under any bankruptcy law, state or federal law, common law or equitable
cause, then to the extent of such payment or repayment, the obligation or part
thereof that has been paid, reduced or satisfied by the amount so repaid shall
be reinstated by the amount so repaid and shall be included within the
liabilities of Borrower to Lender as of the date such initial payment, reduction
or satisfaction occurred.
11.13 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF COLORADO.
19
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11.14 Cross Collateralization; Marshalling, etc. Borrower represents,
warrants and covenants that in the case of an Event of Default that is
continuing (i) Lender shall have the right to pursue all of its rights and
remedies in one proceeding, or separately and independently in separate
proceedings from time to time, as Lender, in its sole and absolute discretion,
shall determine from time to time, (ii) Lender is not required to either
marshall assets, sell Collateral in any inverse order of alienation or be
subject to any "election of remedies" law or rule, (iii) the exercise by Lender
of any remedies against any one item of Collateral will not impede Lender from
subsequently or simultaneously exercising remedies against any other item of
Collateral, and (iv) all Liens and other rights, remedies or privileges provided
to Lender shall remain in full force and effect until Lender has exhausted all
of its remedies against the Collateral and all Collateral has been foreclosed,
sold and/or otherwise realized upon in satisfaction of the Loan or until the
Secured Obligations (as defined in the Deed of Trust) have been fully satisfied.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
LENDER:
TRINET REALTY CAPITAL, INC., a Maryland
corporation
By /s/ Kevin Deeble
-------------------------------------
Its Vice President of Capital Markets
---------------------------------
BORROWER:
ICG SERVICES, INC., a Delaware corporation
By /s/ H. Don Teague
----------------------------
Its Executive Vice President
------------------------
20
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SCHEDULE 6.1(iv)
UCC FILINGS
None.
1
<PAGE>
SCHEDULE 7.10
ENCROACHMENTS
None.
1
<PAGE>
SCHEDULE 7.14
LITIGATION
None.
1
<PAGE>
EXHIBIT A
ENVIRONMENTAL INDEMNITY
1
<PAGE>
EXHIBIT B
DEED OF TRUST
1
<PAGE>
EXHIBIT C
FORM OF NOTE
1
PROMISSORY NOTE
$33,076,754 As of January 1, 1999
FOR VALUE RECEIVED, ICG SERVICES, INC. a Delaware corporation (the
"Borrower"), promises to pay to the order of TRINET REALTY CAPITAL, INC., a
Maryland corporation (the "Lender"), at One Embarcadero Center, 33rd Floor, San
Francisco, CA 94111, Attention: Capital Markets, or at such other place as the
holder of this Note may from time to time designate in writing, the principal
sum of thirty-three million seventy-six thousand seven hundred fifty-four
dollars ($33,076,754), with interest on the principal sum from the date of
disbursement of the principal sum at the rate per annum set forth in that
certain Loan Agreement dated as of the date hereof, between Lender and Borrower
(the "Loan Agreement"), to be paid as set forth in this Note. This Note is made
by the Borrower and delivered to the Lender pursuant the Loan Agreement, the
terms and conditions of which are hereby incorporated herein by reference.
The Borrower shall pay the principal sum of this Note and interest thereon
as follows: The Borrower shall pay monthly installments of interest only in
advance commencing on January 1, 1999, and continuing on the first day of each
successive month thereafter until January 1, 2013, inclusive. The Borrower shall
pay the entire unpaid balance of the principal sum and all accrued but unpaid
interest thereon on January 31, 2013 (the "maturity date").
All sums payable under this Note shall be paid in immediately available
funds, by wire transfer if requested by the holder of this Note, no later than 4
p.m. (Pacific time) on the due date, in lawful money of the United States of
America that is legal tender for public and private debts at the time of
payment. If the date on which any payment of interest or principal is due occurs
on a Saturday or a Sunday or on a day on which banks in the State of California
or the State of Colorado are closed, such payment shall be due and payable on
the next business day on which such banks are open. All payments made on this
Note shall be credited, first, to any charge, fee, cost, expense or amount
(other than principal or interest on this Note) payable by the Borrower under
this Note, the Loan Agreement or the Deed of Trust (as hereinafter defined),
second, to accrued interest on the principal sum, and, third, to the reduction
of the principal sum, and interest shall thereupon cease on the principal so
credited.
The Borrower shall have no right to prepay the principal sum of this Note,
or any part thereof, or any interest thereon, except as expressly provided to
the contrary in the Loan Agreement.
If any installment under this Note is not paid when due, such installment
shall bear interest at a rate of interest equal to the lesser of five hundred
(500) basis points in excess of the prime or reference rate announced from time
to time by Bank of America NT&SA or twelve percent (12%) per annum, from the due
date until such installment is paid. In addition, if any installment is not paid
within five (5) business days of the date due, then the Borrower shall be
1
<PAGE>
obligated to pay a late charge as provided in Section 4.1 of the Loan Agreement.
As long as any Event of Default (as defined in the Loan Agreement) exists, and
from and after maturity, whether or not resulting from acceleration, the entire
unpaid balance of the principal sum of this Note shall bear interest at the
Default Rate (as defined in the Loan Agreement.
Notwithstanding anything to the contrary in this Note, the total liability
of the Borrower for payments in the nature of interest shall not exceed the
limits applicable to this Note, if any, imposed by the usury laws, if any, of
the United States of America or the State of Colorado. If any payment in the
nature of interest made by the Borrower or received by the holder of this Note
is determined to be in excess of any limit applicable to this Note imposed by
such usury laws, then the amount of such excess shall constitute and be
considered a payment of principal, not interest, and such amount shall be
applied to reduce the principal sum so that the total liability of the Borrower
for payments in the nature of interest does not exceed the applicable limits, if
any, imposed by such usury laws.
This Note is secured by a Deed of Trust, Assignment of Rents and Security
Agreement (the "Deed of Trust") of even date herewith from the Borrower, as
trustor, to the Public Trustee of Arapahoe County, Colorado, as trustee, for the
benefit of the Lender, as beneficiary, encumbering certain real property (the
"Real Property") in Arapahoe County, Colorado. Reference is made to the Deed of
Trust for a description of the nature and extent of the security afforded
thereby, the rights of the holder of this Note in respect of such security, and
the terms and conditions upon which this Note is secured. The holder of this
Note is entitled to the benefits of the Deed of Trust, the Loan Agreement and
all other instruments executed by the Borrower in connection with the
indebtedness evidenced by this Note, and the holder of this Note may enforce the
agreements of the Borrower contained therein and exercise the remedies provided
therein or otherwise in respect thereof, all in accordance with the Deed of
Trust, the Loan Agreement and such other instruments.
If an Event of Default occurs, then, and in any such event, the holder of
this Note shall have the right, at the election of the holder of this Note, to
declare the entire unpaid balance of the principal sum and all accrued but
unpaid interest thereon immediately due and payable and the same shall thereupon
become immediately due and payable, without notice. Time is of the essence of
this Note.
The Borrower promises to pay the holder of this Note all costs and expenses
of collection of this Note and to pay all reasonable attorneys' fees and
expenses incurred in such collection or in any suit or action to collect this
Note or in any appeal thereof. The Borrower waives diligence, demand,
presentment for payment, protest, notice of protest, notice of dishonor and
notice of nonpayment.
The Borrower consents to any extension of time for the payment of this
Note. Any such extension may be made without notice to the Borrower or any party
liable for the payment of this Note and shall not discharge the liability of the
Borrower or any party liable for the payment of this Note. Failure to accelerate
the maturity of the indebtedness evidenced by this Note upon default by the
Borrower, or acceptance of any past due installment, or failure to demand strict
performance by the Borrower of the provisions of this Note shall not constitute
a waiver of any provision of this Note by the holder of this Note.
2
<PAGE>
There are no oral agreements between the Lender and the Borrower relating
to this Note. If any provision of this Note is held to be invalid or
unenforceable, it shall not affect the validity and enforceability of the other
provisions of this Note. If more than one borrower executes this Note, all
obligations of the Borrower under this Note shall be the joint and several
obligations of each such signatory. As used in this Note, the singular shall
include the plural. This Note shall be governed by and construed in accordance
with the laws of the State of Colorado.
IN WITNESS WHEREOF, the Borrower has executed this Note as of the date
first hereinabove written.
ICG SERVICES, INC., a Delaware corporation
By /s/ H. Don Teague
------------------------
Its Executive Vice President
------------------------
3
Recorded at Request of:
Land Title Guarantee Company
When Recorded Mail to:
Laura E. Hannusch, Esq.
Pillsbury Madison & Sutro LLP
Post Office Box 7880
San Francisco, CA 94120-7880
DEED OF TRUST
ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
THIS DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT ("Deed of
Trust"), made as of January 1, 1999, is granted by ICG SERVICES, INC., a
Delaware corporation ("Trustor"), to the PUBLIC TRUSTEE OF ARAPAHOE COUNTY,
COLORADO ("Trustee"), for the benefit of TRINET REALTY CAPITAL, INC., a Maryland
corporation ("Beneficiary"),
W I T N E S S E T H:
For valuable consideration, receipt of which is acknowledged, Trustor
hereby irrevocably grants, transfers and assigns to Trustee, IN TRUST, WITH
POWER OF SALE, for the benefit and security of Beneficiary, all of the real
property in the County of Arapahoe, State of Colorado, described in Exhibit A
attached hereto and made a part hereof (the "Property"), known and numbered as
161 Inverness Drive West, Englewood, Colorado 80112;
TOGETHER WITH all rents, issues, profits, royalties, bonuses, income and
other benefits derived from or produced by the Property (subject, however, to
the assignment of rents and profits to Beneficiary herein);
TOGETHER WITH all right, title, estate and interest of Trustor in, to and
under all leases (including, without limitation, the Lease dated as of January
15, 1998 (the "Lease"), between ICG Holdings, Inc. ("Tenant"), as tenant, and
TriNet Essential Facilities X, Inc. ("TEFX"), as landlord) or subleases of the
Property or any part thereof now or hereafter in effect, including all security
or other deposits, advance or prepaid rents, and deposits or payments of similar
nature;
TOGETHER WITH all right, title, estate and interest of Trustor in and to
all options to purchase or lease the Property or any part thereof or interest
therein, and any greater estate in the Property now owned or hereafter acquired
by Trustor;
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TOGETHER WITH all right, title, estate and interest of every kind and
nature, at law or in equity, that Trustor now has or may hereafter acquire in
the Property;
TOGETHER WITH all easements, rights of way and rights appurtenant thereto,
and all tenements, hereditaments and appurtenances thereof and thereto;
TOGETHER WITH all water rights and conditional water rights that are
appurtenant to or that have been used or are intended for use in connection with
such land, including but not limited to (i) ditch, well, pipeline, spring and
reservoir rights, whether or not adjudicated or evidenced by any well or other
permit, (ii) all rights with respect to nontributary groundwater (and other
groundwater that is subject to the provisions of Colorado Revised Statutes
Section 37-90-137(4) or the corresponding provisions of any successor statute)
underlying said land, (iii) any permit to construct any water well, water from
which is intended to be used in connection with such land, and (iv) all of
Trustor's right, title and interest under any decreed or pending plan of
augmentation or water exchange plan;
TOGETHER WITH all right, title, estate and interest of Trustor, now owned
or hereafter acquired, in and to any land lying within the right of way of any
street, open or proposed, adjoining the Property, and any and all sidewalks,
alleys, and strips and gores of land adjacent to or used in connection with the
Property;
TOGETHER WITH all buildings, structures and improvements now or hereafter
located on the Property, including all fixtures, attachments, appliances,
equipment, machinery, and other articles now or hereafter affixed or attached to
such buildings, structures or improvements (all of which shall, to the full
extent under applicable law, constitute real property) (the "Improvements");
TOGETHER WITH all minerals, crops, timber, trees, shrubs, flowers and
landscaping features now or hereafter located on, under or above the Property;
TOGETHER WITH all development rights associated with the Property, whether
previously or subsequently transferred to the Property from other real property
or now or hereafter susceptible of transfer from the Property to other real
property;
TOGETHER WITH all furniture, furnishings, fixtures, equipment, appliances,
machinery, attachments, goods, accounts receivable, general intangibles and
other tangible and intangible personal property (to the extent any of which
constitute personal property under applicable law) (the "Personal Property"),
and all replacements, additions, substitutions and proceeds thereof or thereto,
now or hereafter owned by Trustor or in which Trustor now or hereafter has any
rights and that is now or hereafter located on or at, or affixed or attached to,
or used in connection with the ownership, operation, management, maintenance or
repair of the Property or the Improvements, including, but without limiting the
generality of the foregoing, landscaping, water treatment, garage and power
equipment and supplies, engines, lifting, cleaning, fire prevention, fire
extinguishing, and communications apparatus, incinerating equipment, shades,
awnings, screens, storm doors and windows, partitions, carpets, rugs,
furnishings, televisions, radios, lamps, mirrors, paintings and other works of
art, wall hangings, decorations, and maintenance equipment; and
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TOGETHER WITH all other claims and demands that Trustor now has or may
hereafter acquire in the Property, the Improvements or the Personal Property,
including all claims or demands to all proceeds of all insurance now or
hereafter in effect with respect to the Property, the Improvements or the
Personal Property, all awards made for the taking by condemnation or the power
of eminent domain, or by any proceeding or purchase in lieu thereof, of the
Property, the Improvements or the Personal Property, or any part thereof, or any
damage or injury thereto, all awards resulting from a change of grade of
streets, and all awards for severance damages.
The entire Property, Improvements and Personal Property and all right,
title, estate and interest described above and hereby conveyed to Trustee may
hereafter be referred to collectively as the "Mortgaged Property."
FOR THE PURPOSE OF SECURING THE FOLLOWING (collectively, the "Secured
Obligations"):
1. Payment of the entire indebtedness, in the principal sum of thirty-three
million seventy-six thousand seven hundred fifty-four dollars ($33,076,754),
with interest thereon, evidenced by the promissory note (the "Note") of even
date herewith executed by Trustor and payable to the order of Beneficiary, and
performance of each covenant and agreement of Trustor in the Note, and all
modifications, amendments, replacements, extensions and renewals thereof and
substitutions therefor, due and payable in full, unless accelerated, January 31,
2013.
2. Performance of all obligations of Trustor under the loan agreement (the
"Loan Agreement") of even date herewith between Trustor and Beneficiary relating
to the loan evidenced by the Note and performance of each covenant and agreement
of Trustor in the Loan Agreement, and all modifications, amendments,
replacements, extensions and renewals thereof and substitutions therefor.
3. Performance of all obligations of Trustor under this Deed of Trust and
performance of each covenant and agreement of Trustor in this Deed of Trust, and
all modifications, amendments, replacements, extensions and renewals thereof and
substitutions therefor.
4. Payment of all sums advanced by Beneficiary to protect the security of
this Deed of Trust or the Mortgaged Property, with interest thereon at the
Interest Rate (as defined in the Note).
5. Payment of all other sums, with interest thereon, which may hereafter be
loaned to Trustor, or its successors or assigns, by Beneficiary, when evidenced
by a promissory note or promissory notes reciting that they are secured by this
Deed of Trust.
This Deed of Trust, the Note, the Loan Agreement and any other instrument
given to evidence or further secure the payment and performance of any
indebtedness or obligation secured hereby may hereafter be referred to
collectively as the "Loan Documents."
TO PROTECT THE SECURITY OF THIS DEED OF TRUST, TRUSTOR HEREBY COVENANTS AND
AGREES AS FOLLOWS:
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ARTICLE 1
Covenants and Agreements of Trustor
1.1 Payment of Secured Obligations. Trustor shall pay when due the Secured
Obligations, including, without limitation, the principal sum of, and all
interest on, the indebtedness evidenced by the Note, all prepayment charges and
late charges provided in the Note, and all other charges, fees and other sums as
provided in the Loan Documents, and the principal of, and interest on, any
future advances secured by this Deed of Trust.
1.2 Care of Mortgaged Property. Trustor shall keep and maintain the
Mortgaged Property and all abutting grounds, sidewalks, roads, parking areas and
landscape areas in good condition and repair; not remove, demolish or
substantially alter (except such alterations as may be required by applicable
law) any of the Improvements without Beneficiary's prior written consent, which
consent shall not be unreasonably withheld, except that Beneficiary's consent
shall not be required with respect to alterations that cost less than fifty
thousand dollars ($50,000) total and that do not affect in any way the
structural, exterior or roof elements of the Mortgaged Property or the
mechanical, electrical, plumbing, utility or life safety systems of the
Mortgaged Property; complete promptly and in a good and workmanlike manner any
building or other improvement that may be constructed on the Property, and
promptly restore and repair, in like manner, to the equivalent of its original
condition any building or other improvement that may be damaged or destroyed
thereon, and, except as expressly provided herein to the contrary, pay when due
all claims for labor performed and materials furnished therefor; comply with all
laws, ordinances, regulations and requirements of any governmental authority and
all covenants, conditions and restrictions now or hereafter applicable to the
Mortgaged Property or any part thereof; not commit or permit any waste or
deterioration of the Mortgaged Property; and not commit, suffer or permit any
act to be done in or upon the Mortgaged Property in violation of any law,
ordinance, regulation or requirement of governmental authority or any covenants,
conditions or restrictions now or hereafter applicable to the Mortgaged Property
or any part thereof. Unless required by applicable law or permitted by the
express terms of the Lease, Trustor shall not allow changes in the use of the
Mortgaged Property, or any part thereof, from the use being made as of the date
of this Deed of Trust. Trustor shall not initiate or acquiesce in any change in
the zoning classification of the Property without Beneficiary's prior written
consent. Trustor shall do all things and perform all acts, in a timely and
proper manner, that from the character or use of the Mortgaged Property are
reasonably necessary or prudent to protect and preserve the value and condition
of the Mortgaged Property.
1.3 Required Insurance. Trustor, at Trustor's sole expense, shall at all
times provide, maintain and keep in force the following policies of insurance:
(a) insurance against loss or damage to the Mortgaged Property by fire and
all other risks of physical loss covered by insurance of the type now known as
"all risk," with difference in conditions coverage, in an amount not less than
the full replacement cost of the Mortgaged Property (without deduction for
depreciation), including the cost of debris removal, and such endorsements as
Beneficiary may reasonably require, including the "Replacement Cost
Endorsement"; boiler and machinery insurance covering pressure vessels, air
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tanks, boilers, machinery, pressure piping, heating, ventilation and air
conditioning equipment, and elevator and escalator equipment, provided the
Mortgaged Property contains equipment of such nature and insurance against loss
of occupancy or use arising from any breakdown of any such items, in such
amounts as Beneficiary may reasonably determine; and plate glass insurance in
such amounts as Beneficiary may reasonably determine if the Mortgaged Property
contains plate glass.
(b) commercial general liability insurance against claims for personal
injury, bodily injury, death or property damage occurring upon, in or about the
Mortgaged Property, such insurance (i) to be on the so-called "occurrence" form
with a combined single limit of not less than five million dollars ($5,000,000);
(ii) to continue this limit until required to be changed by Beneficiary in
writing by reason of changed economic conditions making this protection
inadequate; and (iii) to cover at least the following hazards: premises and
operations; products and completed operations on an "if any" basis; independent
contractors; blanket contractual liability for all written and oral contracts;
and contractual liability covering the indemnities contained in this Deed of
Trust to the extent available.
(c) at all times during which Trustor has any employees, workers' compe
nsation insurance, subject to the statutory limits of the State of Colorado, and
employer's liability insurance with a limit of at least one million dollars
($1,000,000) per accident and per disease per employee, and one million dollars
($1,000,000) for disease aggregate in respect of any work or operations on or
about the Mortgaged Property or in connection with the Mortgaged Property or its
operations (if applicable).
(d) such other insurance as may from time to time be reasonably required by
Beneficiary against other insurable hazards, including, but not limited to,
vandalism, earthquake, sinkhole and mine subsidence.
1.4 Delivery of Policies, Payment of Premiums.
(a) All insurance policies shall be issued by insurance companies
authorized to do business in the State of Colorado and be approved by
Beneficiary. The insurance companies must have a general policy rating of A- or
better and a financial class of X or better by A.M. Best Company, Inc.
(b) All insurance policies shall be issued and maintained in amounts, with
deductibles, and in form satisfactory to Beneficiary in Beneficiary's reasonable
judgment, and shall require not less than sixty (60) days' prior written notice
to Beneficiary of any cancellation or change of coverage. All insurance policies
maintained, or caused to be maintained, by Trustor with respect to the Mortgaged
Property, except for public liability insurance, shall provide that each such
policy shall be primary without right of contribution from any other insurance
that may be carried by Trustor or Beneficiary and that all of the provisions
thereof, except the limits of liability, shall operate in the same manner as if
there were a separate policy covering each insured. If any insurer that has
issued a policy of title, hazard, liability or other insurance required pursuant
to this Deed of Trust or any other Loan Document to which Trustor is a party
becomes insolvent or the subject of any bankruptcy, receivership or similar
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proceeding, or if in Beneficiary's reasonable opinion the financial
responsibility of such insurer is or becomes inadequate, Trustor shall, in each
instance promptly upon the request of Beneficiary and at Trustor's expense,
obtain and deliver to Beneficiary a like policy (or, if and to the extent
permitted by Beneficiary, a certificate of insurance) issued by another insurer,
which insurer and policy meet the requirements of this Deed of Trust or such
other Loan Document, as the case may be.
(c) Without limiting the discretion of Beneficiary with respect to required
endorsements to insurance policies, all such policies for loss of or damage to
the Mortgaged Property shall contain a standard mortgagee clause (without
contribution) naming Beneficiary as mortgagee with loss proceeds payable to
Beneficiary notwithstanding (i) any act, failure to act or negligence of or
violation of any warranty, declaration or condition contained in any such policy
by any named insured; (ii) the occupation or use of the Mortgaged Property for
purposes more hazardous than permitted by the terms of any such policy; (iii)
any foreclosure or other action by Beneficiary under the Loan Documents; or (iv)
any change in title to or ownership of the Mortgaged Property or any portion
thereof, such proceeds to be held for application as provided in the Loan
Documents.
(d) The original of each initial insurance policy or a copy of the original
policy and a certificate of insurance shall be delivered to Beneficiary at the
time of execution of this Deed of Trust, with premiums fully paid, and each
renewal or substitute policy (or certificate) shall be delivered to Beneficiary,
with premiums fully paid, at least ten (10) days before the termination of the
policy it renews or replaces. Trustor shall pay all premiums on policies
required hereunder as they become due and payable and promptly deliver to
Beneficiary evidence satisfactory to Beneficiary of the timely payment thereof.
If any loss occurs at any time when Trustor has failed to perform Trustor's
covenants and agreements in this paragraph, Beneficiary shall nevertheless be
entitled to the benefit of all insurance covering the loss and held by or for
Trustor, to the same extent as if it had been made payable to Beneficiary.
(e) Upon any foreclosure hereof or transfer of title to the Mortgaged
Property in extinguishment of the whole or any part of the Secured Obligations,
all of Trustor's right, title and interest in and to the insurance policies
referred to in this Section (including unearned premiums) and all proceeds
payable thereunder shall thereupon vest in the purchaser at foreclosure or other
such transferee, to the extent permissible under such policies.
1.5 Insurance Proceeds. If the Mortgaged Property or any part thereof is
damaged or destroyed by any casualty, Trustor shall give prompt notice thereof
to Beneficiary. Provided that Tenant shall have unconditionally ratified in
writing its repair and restoration obligations pursuant to its Lease with
respect to such casualty, Trustor and Tenant shall have the right to participate
in the adjustment of any insurance claim arising from such casualty and shall
have the right to approve any settlement or adjustment, which approval shall not
unreasonably be withheld or delayed. Provided there is no Event of Default under
this Deed of Trust (and no event has occurred which, with the passage of time,
the giving of notice, or both, would constitute an Event of Default), and
provided Trustor has (i) delivered to Beneficiary plans and specifications and a
budget for such repair and restoration (all of which Beneficiary shall have
approved in its reasonable judgment), and (ii) deposited with Beneficiary cash
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in the sum equal to the excess, if any, of the total cost set forth in such
approved budget over the amount of insurance proceeds received on account of
such casualty, then Beneficiary shall make available to Trustor all insurance
proceeds actually received by Beneficiary on account of such casualty, after
deduction of Beneficiary's reasonable costs and expenses, including reasonable
attorneys' fees, incurred in connection with settling such insurance claim, for
application to the costs of such approved repair and restoration, as follows:
(a) No more frequently than once per calendar month, Trustor may request
that Beneficiary reimburse Trustor for costs incurred by Trustor for work in
place to repair and restore the Mortgaged Property. Trustor's request shall
certify that all work for which reimbursement is requested was performed in
compliance with the plans and specifications approved by Beneficiary and all
applicable laws, and shall include reasonably satisfactory evidence of the costs
incurred by Trustor and unconditional lien releases in form and substance
reasonably required by Beneficiary executed by all mechanic's, materialmen,
laborers, suppliers and contractors who performed any portion of the repair work
or supplied materials.
(b) Within fifteen (15) days after receiving Trustor's request, Beneficiary
shall approve or disapprove Trustor's request, which approval shall not be
unreasonably withheld, by written notice to Trustor. If Beneficiary approves all
or any portion of a request and Beneficiary has received (and not previously
disbursed) insurance proceeds, then Beneficiary's approval shall include a check
in the amount approved by Beneficiary. If Beneficiary disapproves all or any
portion of a request, then Beneficiary's notice shall state the reasons for that
disapproval. Beneficiary's failure to deliver a notice approving or disapproving
a request shall be conclusively deemed Beneficiary's disapproval of the request.
In addition, Beneficiary shall have the right to impose other conditions upon
disbursement so long as they are consistent with customary construction loan
disbursement practices. Beneficiary shall maintain in an interest-bearing
account any proceeds of insurance held by Beneficiary and any sums deposited
with Beneficiary by Trustor pursuant to this section 1.5, and so long as no
Event of Default by Trustor under this Deed of Trust has occurred, interest
earned on such account shall be disbursed to Trustor upon completion of such
repair and restoration, except to the extent such interest has been applied to
the costs of such repair and restoration.
Except to the extent that such insurance proceeds are received by
Beneficiary and applied to the indebtedness secured hereby, nothing herein shall
excuse Trustor from repairing or maintaining the Mortgaged Property in
accordance with section 1.2 hereof or restoring all damage to or destruction of
the Mortgaged Property, regardless of whether or not there are such insurance
proceeds available or whether any such insurance proceeds are sufficient in
amount, and the application or release by Beneficiary of any such insurance
proceeds shall not cure or waive any default or notice of default under this
Deed of Trust or invalidate any act done pursuant to any such notice.
1.6 Assignment of Policies Upon Foreclosure. In the event of foreclosure of
this Deed of Trust or other transfer of title or assignment of the Mortgaged
Property in extinguishment, in whole or in part, of the indebtedness secured
hereby, all right, title and interest of Trustor in and to all policies of
insurance required by this Deed of Trust shall inure to the benefit of and pass
to the successor in interest to Trustor, or the purchaser or grantee of the
Mortgaged Property.
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1.7 Environmental Audit.
If any event of default occurs under this Deed of Trust, Beneficiary shall
have the right, but no obligation, at the expense of Trustor, to conduct
reasonable environmental testing of the Mortgaged Property, including (if
Beneficiary determines it is reasonably necessary or appropriate) a
comprehensive environmental assessment of the Mortgaged Property and soil and
groundwater sampling, in scope satisfactory to Beneficiary, prepared by an
engineer selected by Beneficiary, in order to ascertain whether any Hazardous
Substances are present or any Release or threatened Release of any Hazardous
Substances has occurred in, on or under the Mortgaged Property (or any nearby
real property that could migrate to the Mortgaged Property) or any violation of
any Environmental Laws exists at the Mortgaged Property. Trustor shall, on
demand, pay to Beneficiary all sums expended by Beneficiary in connection with
any such comprehensive environmental assessment, together with interest thereon
from the date of expenditure until paid at the Interest Rate.
1.8 Taxes, Assessments and Impositions.
(a) Trustor agrees to pay, at least ten (10) days prior to delinquency, all
real property taxes and assessments, general and special, and all other taxes,
assessments, fees, levies and charges of every kind or nature whatsoever,
including all non-governmental levies or assessments such as maintenance
charges, owner association dues or charges, or assessments, fees, levies or
charges resulting from covenants, conditions or restrictions affecting the
Mortgaged Property, that are assessed against or imposed upon the Mortgaged
Property, or become due and payable with respect thereto, or that create, may
create, appear to create or are secured by a lien upon the Mortgaged Property,
or any part thereof (all of which taxes, assessments, fees, levies and charges
are hereinafter referred to as "Impositions"); provided, however, that if, by
law, any such Imposition is payable, or may at the option of Trustor be paid, in
installments, Trustor may pay such installment s together with any accrued
interest on the unpaid balance of such Imposition in installments as such
installments become due and before any fine, penalty, interest or cost may be
added thereto for the nonpayment of any such installment and interest. If
Trustor fails to pay any Impositions as required by this Deed of Trust,
Beneficiary may pay such Impositions, and Trustor shall, on demand, pay to
Beneficiary the amount of all such Impositions incurred by Beneficiary, together
with interest thereon from the date of expenditure until paid at the Interest
Rate.
(b) If at any time after the date hereof there shall be assessed or imposed
any tax, assessment, levy or fee on Beneficiary and measured by or based in
whole or in part on this Deed of Trust or upon the amount of the outstanding
indebtedness or obligations secured hereby, then all such taxes, assessments,
levies and fees shall be deemed to be included within the term "Impositions" as
defined in this section 1.8 and Trustor shall pay and discharge the same as
herein provided with respect to the payment of Impositions. If it is unlawful
for Trustor to pay any such tax, assessment, levy or fee, at the option of
Beneficiary, all indebtedness and obligations secured hereby, together with all
accrued interest thereon, shall immediately become due and payable; provided,
however, that Beneficiary shall not accelerate the Secured Obligations if such
taxes, assessments or fees total one hundred thousand dollars ($100,000) or less
in the aggregate.
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(c) Trustor shall furnish Beneficiary, within thirty (30) days after the
date upon which any Imposition is due and payable, official receipts of the
appropriate taxing authority, or other proof reasonably satisfactory to
Beneficiary, evidencing the payment thereof.
(d) In the event that Trustor reasonably and in good faith disputes the
validity or amount of any Impositions, then Trustor shall have the right to
defer payment thereof, provided that (i) Trustor shall have given Beneficiary
written notice of such contest and the nature thereof and Trustor shall
thereafter diligently and continuously prosecute such contest to completion or
compromise, (ii) no such deferral of payment shall result in any fines or
penalties being assessed against Trustor, Beneficiary or the Mortgaged Property
or any lien foreclosure rights against the Mortgaged Property being commenced,
(iii) Trustor shall promptly pay any amounts (including any interest, fines or
penalties) finally determined to be owing, and (iv) at Beneficiary's reasonable
request, Trustor shall provide such bond or other security as may be necessary
to protect Beneficiary and the Mortgaged Property against any loss or liability.
(e) At the request of Beneficiary, Trustor shall deposit with either the
property manager of the Property or to Beneficiary, at Beneficiary's election,
in monthly installments in advance on the first day of each month, an amount
sufficient, as reasonably estimated by Beneficiary, to pay all Impositions next
due on the Mortgaged Property. In such event Beneficiary elects to collect such
payment, Trustor further agrees, upon Beneficiary's request, to cause all bills,
statements or other documents relating to Impositions to be sent or mailed
directly to Beneficiary. Upon receipt of such bills, statements or other
documents, and provided Trustor has deposited sufficient funds with Beneficiary
pursuant to this section 1.8, Beneficiary shall pay such amounts as may be due
thereunder out of the funds so deposited with Beneficiary. If at any time and
for any reason the funds deposited with Beneficiary are or will be insufficient
to pay such Impositions as may then or subsequently be due, Beneficiary may
notify Trustor and Trustor shall immediately deposit an amount equal to the
deficiency with Beneficiary. If at any time the funds deposited with Beneficiary
exceed the amount deemed necessary by Beneficiary to pay such Impositions as may
then or subsequently be due, such excess shall be credited to Trustor on the
next monthly installment or installments of such funds. Upon payment and
performance in full of all indebtedness and obligations secured by this Deed of
Trust, Beneficiary shall promptly refund to Trustor any such funds held by
Beneficiary. Trustor grants to Beneficiary a security interest in all funds
deposited with Beneficiary, and such funds are pledged by Trustor to
Beneficiary, for the purpose of securing all indebtedness and obligations
secured by this Deed of Trust. Nothing herein shall cause Beneficiary to be
deemed a trustee of such funds or to be obligated to pay any amounts in excess
of the amount of funds deposited with Beneficiary pursuant to this section 1.8.
Beneficiary may commingle such deposits with its own funds and Trustor shall not
be entitled to any interest thereon.
(f) Trustor agrees not to suffer, permit or initiate the joint assessment
of any real and personal property, or any other procedure whereby the lien of
the real property taxes and the lien of the personal property taxes shall be
assessed, levied or charged to the Mortgaged Property as a single lien.
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(g) If requested by Beneficiary, Trustor shall, at the expense of Trustor,
furnish to Beneficiary a tax reporting service covering the Mortgaged Property
of the type and duration and with a company required by Beneficiary.
1.9 Utilities. Trustor shall pay when due all utility assessments and
charges for gas, electricity, fuel, water, steam, sewer, drainage, refuse
disposal, telephone and other services furnished to or for the benefit of the
Mortgaged Property and all other assessments or charges of a similar nature,
whether public or private, affecting the Mortgaged Property or any portion
thereof, whether or not such assessments or charges are liens on the Mortgaged
Property, subject to Trustor's right to contest Impositions as provided in
Section 1.8(d) of this Deed of Trust.
1.10 Actions Affecting Mortgaged Property. Trustor shall appear in, contest
and defend any action or proceeding purporting to affect the Mortgaged Property,
the security of this Deed of Trust or the rights or powers of Beneficiary under
this Deed of Trust. Trustor shall pay all costs and expenses, including cost of
evidence of title and attorneys' fees, in any such action or proceeding in which
Beneficiary may appear.
1.11 Actions by Trustee or Beneficiary To Preserve Mortgaged Property. If
Trustor fails to make any payment or to do any other act as and in the manner
provided in any of the Loan Documents, Beneficiary, without obligation so to do
and without notice to or demand upon Trustor and without releasing Trustor from
any obligation, may make or do the same in such manner and to such extent as
either may deem reasonably necessary to protect the security of this Deed of
Trust. In connection therewith (without limiting its general powers),
Beneficiary shall have and is hereby given the right, but not the obligation:
(a) to enter upon and take possession of the Mortgaged Property; (b) to make
additions, alterations, repairs and improvements to the Mortgaged Property that
they or either of them may reasonably consider necessary or proper to keep the
Mortgaged Property in good condition and repair; (c) to appear and participate
in any action or proceeding affecting or that may affect the Mortgaged Property,
the security of this Deed of Trust, or the rights or powers of Beneficiary or
Trustee under this Deed of Trust; (d) to perform the obligations of Trustor as
landlord under any Leases encumbering the Mortgaged Property; (e) to pay,
purchase, contest or compromise any encumbrance, claim, charge, lien or debt
that in the judgment of either may affect or appears to affect the security of
this Deed of Trust or may be prior or superior hereto, subject to Trustor's
right to contest certain Liens as provided in Section 1.15 of this Deed of
Trust; and (f) in exercising such powers, to pay necessary expenses, including
employment of attorneys or necessary or desirable consultants. Trustor shall, on
demand, pay to Beneficiary all amounts paid by Beneficiary and all reasonable
costs and expenses incurred by Beneficiary in connection with the exercise by
Beneficiary of the foregoing rights, including costs of evidence of title, court
costs, appraisals, surveys and attorneys' fees, together with interest thereon
from the date of expenditure until paid at the Interest Rate.
1.12 Title. Trustor represents and warrants to Beneficiary that (a) Trustor
has good and marketable fee simple absolute title to the Mortgaged Property,
free and clear of all liens, encumbrances, leases, easements, restrictions,
rights, covenants and conditions, subject only to the matters approved in
writing by Beneficiary and shown as exceptions in the policy of title insurance
issued to Beneficiary insuring this Deed of Trust, (b) this Deed of Trust is a
valid and enforceable lien on the Mortgaged Property subject only to such
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approved exceptions, (c) Trustor shall maintain and preserve the lien of this
Deed of Trust until all indebtedness and obligations secured by this Deed of
Trust have been fully paid and performed, and (d) Trustor has full legal right,
power and authority to execute and deliver this Deed of Trust and to convey the
Mortgaged Property as provided in this Deed of Trust. Trustor shall forever
warrant and defend title to the Mortgaged Property as aforesaid against all
claims and demands whatsoever.
1.13 Eminent Domain. If the Mortgaged Property, or any part thereof or
interest therein, is taken or damaged by reason of any public improvement or
condemnation proceeding, or by exercise of the power of eminent domain, or in
any other manner, or if Trustor receives any notice or other information
regarding any such proceeding, Trustor shall give prompt notice thereof to
Beneficiary.
(a) Except as expressly provided herein to the contrary, Beneficiary shall
have the right to receive all proceeds, compensation, awards, damages and other
payments on account of any such taking or damage, but no prepayment premium
shall be payable with respect to such amounts so received by Beneficiary.
Beneficiary shall have the right to commence, appear in and prosecute in its own
name any action or proceeding and to make any compromise or settlement in
connection with any such taking or damage. Trustor hereby absolutely and
irrevocably assigns all such proceeds, compensation, awards, damages and other
payments to Beneficiary, and Trustor agrees to execute such further assignments
of any such proceeds as Beneficiary may require. Beneficiary shall not be
responsible for any failure to collect any such proceeds, regardless of the
cause of such failure.
(b) In the event the Mortgaged Property, or any part thereof or interest
therein, is so taken or damaged, Beneficiary shall have the right, in its sole
and complete discretion except as expressly provided herein to the contrary,
regardless of any impairment of security or lack thereof, to apply all or any
part of such proceeds, without prepayment premium, after deducting therefrom all
reasonable costs and expenses, including reasonable attorneys' fees, incurred by
Beneficiary in connection with such proceeds, (i) to any indebtedness secured
hereby and in such order as Beneficiary may determine, or (ii) to the
restoration of the Mortgaged Property, or (iii) to Trustor.
(c) In the event of any taking other than a taking of all or a substantial
portion of the Mortgaged Property such that the remaining portion is not
suitable for Trustor's purposes, Trustor shall restore the Mortgaged Property to
an integrated architectural unit. Provided there is no Event of Default under
this Deed of Trust (and no event has occurred that, with the passage of time,
the giving of notice, or both, would constitute an Event of Default), and
provided Trustor has (i) delivered to Beneficiary plans and specifications and a
budget for such repair and restoration (all of which Beneficiary shall have
approved in its reasonable judgment), and (ii) deposited with Beneficiary cash
in the sum equal to the excess, if any, of the total cost set forth in such
approved budget over the amount of condemnation award proceeds received on
account of such taking, after deducting therefrom all reasonable costs and
expenses, including reasonable attorneys' fees, incurred by Beneficiary in
connection with such proceeds, then Beneficiary shall make available to Trustor
all condemnation award proceeds actually received by Beneficiary on account of
such taking, for application to the costs of such approved repair and
restoration, as follows:
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(A) No more frequently than once per calendar month, Trustor may request
that Beneficiary reimburse Trustor for costs incurred by Trustor for work
in place to repair and restore the Mortgaged Property. Trustor's request
shall certify that all work for which reimbursement is requested was
performed in compliance with the plans and specifications approved by
Beneficiary and all applicable laws, and shall include reasonably
satisfactory evidence of the costs incurred by Trustor and unconditional
lien releases in form and substance reasonably required by Beneficiary
executed by all mechanic's, materialmen, laborers, suppliers and
contractors who performed any portion of the repair work or supplied
materials.
(B) Within fifteen (15) days after receiving Trustor's request, Beneficiary
shall approve or disapprove Trustor's request, which approval shall not be
unreasonably withheld, by written notice to Trustor. If Beneficiary
approves all or any portion of a request and Beneficiary has received (and
not previously disbursed) condemnation award proceeds, then Beneficiary's
approval shall include a check in the amount approved by Beneficiary. If
Beneficiary disapproves all or any portion of a request, then Beneficiary's
notice shall state the reasons for that disapproval. Beneficiary's failure
to deliver a notice approving or disapproving a request shall be
conclusively deemed Beneficiary's disapproval of the request. In addition,
Beneficiary shall have the right to impose other conditions upon
disbursement so long as they are consistent with customary construction
loan disbursement practices. Beneficiary shall maintain in an
interest-bearing account any condemnation award held by Beneficiary and any
sums deposited with Beneficiary by Trustor pursuant to this section 1.13,
and so long as no Event of Default under this Deed of Trust has occurred,
interest earned on such account shall be disbursed to Trustor upon
completion of such repair and restoration, except to the extent such
interest has been applied to the costs of such repair and restoration.
(d) Except to the extent that such proceeds are received by Beneficiary and
applied to the indebtedness secured hereby, nothing herein shall excuse Trustor
from repairing or maintaining the Mortgaged Property in accordance with section
1.2 hereof or restoring all damage to or destruction of the Mortgaged Property,
regardless of whether or not there are such proceeds available or whether any
such proceeds are sufficient in amount, and the application or release by
Beneficiary of any such proceeds shall not cure or waive any default or notice
of default under this Deed of Trust or invalidate any act done pursuant to any
such notice.
1.14 Inspections. Beneficiary, and its agents or representatives, are
authorized to enter at any reasonable time, with reasonable prior notice (except
that prior notice shall not be required in the event of an emergency), upon or
in any part of the Mortgaged Property for the purpose of inspecting the same,
for the purpose of ascertaining Trustor's compliance with this Deed of Trust,
and for the purpose of performing any of the acts Beneficiary is authorized to
perform under any of the Loan Documents.
1.15 Liens. Trustor shall pay and discharge, at Trustor's cost and expense,
as and when payment is due, all liens, encumbrances, claims, charges and
indebtedness upon the Mortgaged Property, or any part thereof or interest
therein, or affecting the security of this Deed of Trust, including any
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mechanics', laborer's, materialmen's, supplier's or vendor's lien, whether
inferior or superior to this Deed of Trust. If Trustor reasonably and in good
faith disputes the validity of any such lien, encumbrance, claim, charge or
indebtedness, then Trustor shall have the right to defer payment thereof,
provided that (a) Trustor shall have given Beneficiary written notice of such
contest and the nature thereof and Trustor shall thereafter diligently and
continuously prosecute such contest to completion or compromise, (b) no such
deferral of payment shall result in any fines or penalties being assessed
against Trustor, Beneficiary or the Mortgaged Property or any lien foreclosure
rights against the Mortgaged Property being commenced, (c) Trustor shall
promptly pay any amounts (including any interest, fines or penalties) finally
determined to be owing, and (d) at Beneficiary's reasonably request, Trustor
shall provide such bond or other security as may be necessary to protect
Beneficiary and the Mortgaged Property against any loss or liability.
1.16 Leases. Trustor shall pay, perform and discharge, as and when payment,
performance and discharge are due, all obligations of Trustor as landlord under
all leases (individually a "Lease" and collectively the "Leases") of the
Mortgaged Property or any part thereof. Trustor shall give Beneficiary prompt
notice of any default by Trustor claimed by any tenant under any Lease, together
with a copy of any notice of default given by any such tenant to Trustor.
Trustor diligently shall enforce all covenants and agreements of each tenant
under the Leases and shall not waive or release any obligation or liability of
any tenant under the Leases. Trustor shall not, without the prior consent of
Beneficiary, which may be given or withheld in Beneficiary's absolute
discretion, execute any new Lease, or renew or extend the term of any Lease, or
amend or modify any Lease, or cancel, terminate or accept the surrender of any
Lease. Trustor shall not accept prepayment of any rent under the Leases more
than one (1) month in advance. Trustor shall not create any lien or security
interest that would be superior to the Leases or would, upon foreclosure,
extinguish the Leases. Trustor shall, at Trustor's expense, appear in and defend
any action or proceeding arising from or connected with any of the Leases, or
any obligation or liability of Trustor as landlord thereunder, or any obligation
or liability of any tenant or any guarantor of any tenant thereunder. Trustor
shall, at any time and from time to time upon request by Beneficiary, execute,
acknowledge and deliver to Beneficiary an assignment of the Leases, in form and
substance satisfactory to Beneficiary, to transfer and assign Trustor's interest
in the Leases to Beneficiary. Trustor shall furnish to Beneficiary copies of all
Leases requested by Beneficiary.
1.17 Intentionally Deleted.
1.18 Beneficiary's Powers. Without affecting the liability of any other
person liable for the payment or performance of any indebtedness or obligation
secured hereby, and without affecting the lien of this Deed of Trust upon any
portion of the Mortgaged Property not then or theretofore released as security
for the indebtedness and obligations secured hereby, Beneficiary may, from time
to time and without notice, (a) release any person so liable, (b) extend the
maturity or alter any of the terms of any indebtedness or obligation secured
hereby, (c) grant other indulgences, (d) release or reconvey, or cause to be
released or reconveyed, any parcel, portion or all of the Mortgaged Property,
(e) take or release any other or additional security for any indebtedness or
obligation secured hereby, (f) make compositions or other arrangements with
debtors in relation to any indebtedness or obligation secured hereby, or (g)
advance additional funds to protect the security of this Deed of Trust and pay
or discharge the obligations of Trustor hereunder or under the Loan Documents,
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and Trustor shall, on demand, pay to Beneficiary all amounts so advanced,
together with interest thereon from the date of expenditure until paid at the
Interest Rate.
1.19 Financial Statements. Trustor shall deliver to Beneficiary as soon as
practicable, but in any event within one hundred five (105) days after the close
of each fiscal year of Trustor, an income statement, balance sheet and statement
of cash flows of Trustor as at the end of such fiscal year, all certified as to
accuracy by an independent certified public accountant or representative of
Trustor acceptable to Beneficiary; provided, however, that so long as the
Management Agreement (as defined in the Loan Agreement) remains in effect, the
financial statements described in this sentence need not be certified by
independent accountants. All such financial statements shall be prepared in
accordance with generally accepted accounting principles consistently applied.
Such operating statement also shall show, in comparative form, the figures for
the previous fiscal year and shall be in form and detail satisfactory to
Beneficiary. Trustor shall furnish to Beneficiary, together with the foregoing
financial statements and at any other time upon request of Beneficiary, a rent
schedule for the Mortgaged Property, certified as to accuracy by Trustor,
showing the name of each tenant and, for each tenant, the space occupied, the
lease expiration date, the rent payable and the rent paid. Trustor shall prepare
and maintain at all times at Trustor's address set forth in this Deed of Trust,
or such other place as Beneficiary may approve in writing, proper, complete and
accurate books of account and records adequate to reflect correctly the results
of the operation of the Mortgaged Property and all items of income and expense
in connection therewith and copies of all written contracts, leases and other
documents that affect the Mortgaged Property. Beneficiary, and its agents and
representatives, shall have the right at any reasonable time to examine and copy
all such books of account, records, contracts, leases and other documents. In
addition, Trustor shall deliver to Beneficiary: within forty-five (45) days
after the end of each fiscal quarter, unaudited income statements, balance
sheets and statements of cash flow of ICG Communications, Inc., a Delaware
corporation ("ICGC"), and its consolidated subsidiaries, for such quarter; and
no later than one hundred five (105) days after the end of each fiscal year,
audited financial statements of ICGC and its consolidated subsidiaries ("ICGC
Financial Statements") for such fiscal year, which ICGC Financial Statements
shall include an audited consolidated income statement, balance sheet and
statement of cash flow of ICGC and its consolidated subsidiaries as at the end
of such fiscal year, a consolidated statement of operations of ICGC and its
consolidated subsidiaries for such fiscal year, and a certificate of ICGC's
auditor (which shall be a recognized national independent accounting firm) to
the effect that such ICGC Financial Statements were prepared in accordance with
generally accepted accounting principals consistently applied and fairly present
the financial condition and operations of ICGC and its consolidated subsidiaries
for and as at the end of such fiscal year.
1.20 Trade Names. At the request of Beneficiary, Trustor shall execute a
certificate in form satisfactory to Beneficiary listing the trade names under
which Trustor intends to operate the Mortgaged Property, and representing and
warranting that Trustor does business under no other trade names with respect to
the Mortgaged Property. Trustor shall immediately notify Beneficiary in writing
of any change in such trade names and shall, upon request of Beneficiary,
execute any additional certificates revised to reflect the change in trade name.
1.21 Acceleration on Transfer. If Trustor, or any successor or assign,
sells, conveys, alienates, leases (other than to tenants approved by
Beneficiary), assigns, transfers or encumbers, or contracts to sell, convey,
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alienate, lease (other than to tenants approved by Beneficiary), assign,
transfer or encumber, all or any part of the Mortgaged Property or any interest
in the Mortgaged Property, or if there is any change in the control or ownership
of Trustor (other than due to a transfer of a partnership interest or control of
a partner that, pursuant to Trustor's Limited Partnership Agreement, is
permitted without the consent of any other partner), whether any of the
foregoing events occurs in any manner, directly or indirectly, whether
voluntary, involuntary or by operation of law, without the prior consent of
Beneficiary, then, and in any such event, the entire unpaid balance of the
principal sum of the Note and all accrued but unpaid interest thereon, and all
other indebtedness secured by this Deed of Trust, shall become immediately due
and payable at the election of Beneficiary, without notice. Trustor shall give
reasonable notice to Beneficiary of any transaction or occurrence that may
constitute a transfer of the Mortgaged Property or other event described in this
section 1.21 prior to any such transfer or event. Trustor shall furnish in
writing to Beneficiary all reasonable information concerning any proposed
transfer of the Mortgaged Property or other such event that is requested by
Beneficiary, including the name and address of the proposed transferee,
financial statements of the proposed transferee, a full description of the
business of the proposed transferee, the complete terms of the proposed
transfer, and copies of all proposed transfer documents.
1.22 Indemnification and Waivers.
(a) If Beneficiary is made a party to any litigation or proceeding
concerning this Deed of Trust or the Mortgaged Property or any part thereof or
interest therein, or the use or occupancy thereof, then Trustor shall indemnify
and defend Beneficiary against and hold Beneficiary harmless from all claims,
demands, liabilities, losses, damages, costs and expenses, including reasonable
attorneys' fees and expenses, incurred by Beneficiary in any such litigation or
proceeding, whether or not any such litigation or proceeding is prosecuted to
judgment. If Beneficiary commences an action against Trustor to enforce this
Deed of Trust or because of the breach by Trustor of this Deed of Trust, or for
the recovery of any sum secured hereby, Trustor shall pay to Beneficiary
reasonable attorneys' fees and expenses, and the right to such attorneys' fees
and expenses shall be deemed to have accrued on the commencement of such action,
and shall be enforceable whether or not such action is prosecuted to judgment.
If Trustor breaches any covenant or agreement in this Deed of Trust, Beneficiary
may employ an attorney or attorneys to protect its rights hereunder and, in the
event of such employment following any breach by Trustor, Trustor shall, on
demand, pay to Beneficiary reasonable attorneys' fees and expenses incurred by
Beneficiary, together with interest thereon from the date of expenditure until
paid at the Interest Rate, whether or not an action is actually commenced
against Trustor by reason of such breach.
(b) Trustor waives any and all right to claim or recover against
Beneficiary, its directors, officers, employees, agents and representatives, for
loss of or damage to Trustor, the Mortgaged Property, Trustor's property or the
property of others under Trustor's control from any cause insured against or
required to be insured against by this Deed of Trust.
(c) All sums payable by Trustor hereunder shall be paid without notice,
demand, counterclaim, setoff, deduction or defense and without abatement,
suspension, deferment, diminution or reduction, and the obligations and
liabilities of Trustor hereunder shall in no way be released, discharged or
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otherwise affected (except as expressly provided herein) by reason of: (i) any
damage to or destruction or any condemnation or similar taking of the Mortgaged
Property or any part thereof; (ii) any restriction or prevention of or
interference with any use of the Mortgaged Property or any part thereof; (iii)
any title defect or encumbrance or any eviction from the Property or the
Improvements or any part thereof by title paramount or otherwise; (iv) any
bankruptcy, insolvency, reorganization, composition, adjustment, dissolution,
liquidation or other like proceeding relating to Trustor or Beneficiary, or any
action taken with respect to this Deed of Trust by any trustee or receiver of
Trustor or Beneficiary, or by any court, in any such proceeding; (v) any claim
that Trustor has or might have against Beneficiary; (vi) any default or failure
on the part of Beneficiary to perform or comply with any of the terms hereof or
of any other agreement with Trustor; or (vii) any other occurrence whatsoever,
whether similar or dissimilar to the foregoing, whether or not Trustor shall
have notice or knowledge of any of the foregoing. Except as expressly provided
herein, Trustor waives all rights now or hereafter conferred by statute or
otherwise to any abatement, suspension, deferment, diminution or reduction of
any sum secured hereby and payable by Trustor.
ARTICLE 2
Assignment of Rents and Profits
2.1 Assignment of Rents. Trustor hereby absolutely, unconditionally and
irrevocably assigns and transfers to Beneficiary all rents, issues, profits,
royalties, bonuses, income and other benefits derived from or produced by the
Mortgaged Property (the "rents and profits"). Trustor hereby gives to and
confers upon Beneficiary the right, power and authority to collect the rents and
profits. Trustor irrevocably appoints Beneficiary its true and lawful attorney
in fact, at the option of Beneficiary at any time and from time to time, either
with or without taking possession of the Mortgaged Property, to demand, receive
and enforce payment, to give receipts, releases and satisfactions, and to sue,
in the name of Trustor or Beneficiary, for all of the rents and profits and
apply the same to the indebtedness secured hereby. Trustor shall, nevertheless,
have a revocable license to collect the rents and profits as they become due and
payable (but not more than one (1) month in advance) but only before the
occurrence of an event of default under this Deed of Trust and as long as no
such event of default exists. The assignment of the rents and profits of the
Mortgaged Property in this Deed of Trust is intended to be a present and
absolute assignment from Trustor to Beneficiary and not merely the creation of a
security interest. Beneficiary's right to collect the rents and profits is not
contingent upon Beneficiary's taking possession of the Mortgaged Property.
2.2 Collection Upon Default. Upon the occurrence of an event of default
under this Deed of Trust, and as long as any such event of default exists,
Trustor's license to collect the rents and profits shall terminate, and
Beneficiary shall have the right, at any time without notice, either in person,
by agent or by a receiver appointed by a court, and without regard to the value
of the Mortgaged Property or the adequacy of the security for the indebtedness
or obligations secured hereby, to enter upon and take possession of the
Mortgaged Property, or any part thereof, in its own name sue for or otherwise
collect the rents and profits, including those past due and unpaid, and apply
the same, less costs and expenses of operation and collection, including
attorneys' fees, upon any indebtedness secured hereby, and in such order as
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Beneficiary may determine. The collection of the rents and profits, or the
entering upon and taking possession of the Mortgaged Property, or the
application thereof as aforesaid, shall not cure or waive any default or notice
of default hereunder or invalidate any act done in response to such default or
pursuant to such notice of default.
ARTICLE 3
Security Agreement
3.1 Creation of Security Interest. Trustor hereby grants to Beneficiary a
security interest in the Personal Property and in all amounts of money now or at
any time hereafter deposited with or in the possession of Beneficiary for the
purpose of securing the indebtedness and obligations secured by this Deed of
Trust.
3.2 Warranties, Representations and Covenants of Trustor. Trustor
hereby warrants, represents and covenants as follows:
(a) Except for the security interest granted hereby, Trustor is, and as to
portions of the Personal Property to be acquired after the date hereof will be,
the sole owner of the Personal Property, free from any lien, security interest,
encumbrance or adverse claim thereon of any kind whatsoever. Trustor shall
notify Beneficiary of, and shall indemnify and defend Beneficiary and the
Personal Property against, all claims and demands of all persons at any time
claiming the Personal Property or any part thereof or any interest therein.
(b) Trustor shall not lease, sell, convey or in any manner transfer the
Personal Property without the prior consent of Beneficiary.
(c) The Personal Property is not, and shall not be, used or bought for
personal, family or household purposes.
(d) The Personal Property shall be kept on or at the Property and Trustor
shall not remove the Personal Property from the Property without the prior
consent of Beneficiary, except for such portions or items of Personal Property
as are consumed or worn out in ordinary usage, all of which Trustor shall
promptly replace with new items of equal or better quality.
(e) Trustor maintains a place of business in the State of Colorado at the
address set forth in this Deed of Trust and Trustor shall immediately notify
Beneficiary in writing of any change in its place of business.
(f) At the request of Beneficiary, Trustor shall join Beneficiary in
executing one or more financing statements and continuations and amendments
thereof pursuant to the Uniform Commercial Code of Colorado in form satisfactory
to Beneficiary, and Trustor shall pay the cost of filing the same in all public
offices wherever filing is deemed by Beneficiary to be necessary or desirable.
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(g) All covenants and agreements of Trustor in this Deed of Trust relating
to the Mortgaged Property shall be deemed to apply to the Personal Property
whether or not expressly referred to herein.
(h) This Deed of Trust constitutes a security agreement as that term is
used in the Uniform Commercial Code of Colorado. This Deed of Trust is also a
financing statement (fixture filing), covers goods that are or are to become
fixtures, and is to be recorded in the real estate records. Trustor is the
record owner of the Property. For purposes of the fixture filing, Trustor is the
Debtor and Beneficiary is the Secured Party. Trustor's Federal Tax
Identification Number is 84-1448147.
ARTICLE 4
Remedies Upon Default
4.1 Events of Default. The occurrence of any of the following events shall
be an "Event of Default" under this Deed of Trust:
(a) an "Event of Default" (as defined in the Loan Agreement) occurs
under the Loan Agreement; or
(b) Failure to perform when due any covenant or agreement of Trustor in
this Deed of Trust or any other obligation secured hereby, where such failure
continues for more than ten (10) days after notice to Trustor of such failure
with respect to any monetary default (other than the failure to pay principal or
interest under the Note) or for more than thirty (30) days with respect to any
non-monetary default; provided, however, that it shall not be an Event of
Default hereunder if, with respect only to non-monetary defaults not capable of
cure within such thirty (30) day period, Trustor commences the cure within such
thirty (30) day period and completes such cure within ninety (90) days of its
receipt of the notice of such failure; or
(c) Any other default under or breach of any of the Loan Documents occurs,
and such default continues (i) beyond any grace or cure period specified in such
loan document for such default, or (ii) if no grace or cure period is specified,
for more than ten (10) days after notice to Trustor with respect to any monetary
default (other than the failure to pay principal or interest under the Note) or
for more than thirty (30) days with respect to any non-monetary default;
provided, however, that it shall not be an Event of Default hereunder if, with
respect only to non-monetary defaults not capable of cure within such thirty
(30) day period, Trustor commences the cure within such thirty (30) day period
and completes such cure within ninety (90) days of its receipt of the notice of
such default.
4.2 Acceleration and Certain Remedies. If any event of default under this
Deed of Trust occurs, and as long as any such event of default exists,
Beneficiary shall have the right to declare all indebtedness secured hereby to
be immediately due and payable, and all such indebtedness shall thereupon become
immediately due and payable, without any presentment, demand, protest or notice
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of any kind, all of which are expressly waived by Trustor, and Beneficiary shall
have the following remedies:
(a) Beneficiary shall have the right, either in person or by agent, with or
without bringing any action or proceeding, or by a receiver appointed by a court
and without regard to the adequacy of the security, to enter upon and take
possession of the Mortgaged Property, or any part thereof, in its own name and
do any acts that Beneficiary deems necessary or desirable to preserve the value,
marketability or rentability of the Mortgaged Property or increase the income
therefrom or protect the security hereof, and, with or without taking possession
of the Mortgaged Property, to sue for or otherwise collect the rents and profits
of the Mortgaged Property, including those past due and unpaid, and apply the
same, less costs and expenses of operation and collection, including attorneys'
fees, upon any indebtedness secured hereby, all in such order as Beneficiary may
determine. The entering upon and taking possession of the Mortgaged Property,
the collection of the rents and profits, and the application thereof as
aforesaid shall not cure or waive any default or notice of default hereunder or
invalidate any act done in response to such default or pursuant to such notice
of default and, notwithstanding the continuance in possession of the Mortgaged
Property or the collection, receipt and application of the rents and profits,
Trustee or Beneficiary shall be entitled to exercise every right or remedy
provided for in any of the Loan Documents or by law upon the occurrence of any
event of default under this Deed of Trust, including the right to exercise the
power of sale.
(b) Beneficiary shall have the right to commence an action to foreclose
this Deed of Trust as a mortgage, appoint a receiver, or specifically enforce
any of the covenants hereof.
(c) Beneficiary shall have the right to exercise and enforce any or all of
the rights and remedies available to a secured party under the Uniform
Commercial Code of Colorado, including the right to:
(i) Either personally or by means of a court appointed receiver, take
possession of all or any part of the Personal Property and exclude
therefrom Trustor and all others claiming under Trustor, and thereafter
hold, store, use, operate, manage, maintain and control, make repairs,
replacements, alterations, additions and improvements to, and exercise all
rights and powers of Trustor in respect of the Personal Property or any
part thereof, and Trustor agrees upon demand to turn over and deliver
complete possession of the Personal Property to Beneficiary;
(ii) Without notice to or demand upon Trustor, make such payments and do
such acts as Beneficiary may deem necessary to protect its security
interest in the Personal Property, including paying, purchasing, contesting
or compromising any encumbrance, charge or lien that is prior or superior
to the security interest granted hereunder, and, in exercising any such
powers or authority, to pay all expenses incurred in connection therewith;
(iii) Require Trustor to assemble the Personal Property or any portion
thereof, at a place designated by Beneficiary and reasonably convenient to
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Trustor and Beneficiary, and Trustor shall deliver the Personal Property to
Beneficiary, or an agent or representative designated by Beneficiary, and
Beneficiary, and its agents and representatives, shall have the right to
enter upon any or all of Trustor's premises and property to exercise
Beneficiary's rights hereunder; or
(iv) Sell, lease or otherwise dispose of the Personal Property at public or
private sale, with or without having the Personal Property at the place of
sale, and upon such terms and in such manner as Beneficiary may determine.
Beneficiary may be a purchaser at any such sale. Unless the Personal
Property is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, Beneficiary shall give
Trustor at least ten (10) days' prior written notice of the time and place
of any public or private sale of the Personal Property or other intended
disposition thereof. Such notice may be mailed to Trustor at the address
set forth at the beginning of this Deed of Trust.
(d) Beneficiary shall have the right to deliver to Trustee a written
declaration of default and demand for sale pursuant to the power of sale in this
Deed of Trust.
4.3 Foreclosure by Power of Sale. If Beneficiary elects to foreclose this
Deed of Trust by exercise of the power of sale in this Deed of Trust,
Beneficiary shall notify Trustee and shall deposit with Trustee such written
notice of default and election to sell and such receipts or evidence of
expenditures made and secured hereby as Trustee may require.
(a) Beneficiary may foreclose this Deed of Trust, insofar as it encumbers
the Property and Improvements, either by judicial action or through Trustee.
Foreclosure through Trustee will be initiated by Beneficiary's filing of its
notice of election and demand for sale with Trustee. Upon the filing of such
notice of election and demand for sale, Trustee shall promptly comply with all
notice and other requirements of the laws of Colorado then in force with respect
to such sales, and shall give four (4) weeks' public notice of the time and
place of such sale by advertisement weekly in some newspaper of general
circulation then published in the County or City and County in which the
Property is located. Any sale conducted by Trustee pursuant to this section
shall be held at the front door of the county courthouse for such County or City
and County, or on the Property, or at such other place as similar sales are then
customarily held in such County or City and County, provided that the actual
place of sale shall be specified in the notice of sale. The proceeds of any sale
under this section shall be applied first to the fees and expenses of the
officer conducting the sale, and then to the reduction or discharge of the
Secured Obligations in such order as Beneficiary may elect; any surplus
remaining shall be paid over to Trustor or to such other person or persons as
may be lawfully entitled to such surplus. At the conclusion of any foreclosure
sale, the officer conducting the sale shall execute and deliver to the purchaser
at the sale a certificate of purchase, which shall describe the property sold to
such purchaser and shall state that upon the expiration of the applicable
periods for redemption, the holder of such certificate will be entitled to a
deed to the property described in the certificate. After the expiration of all
applicable periods of redemption, unless the property sold has been redeemed by
Trustor, the officer who conducted such sale shall, upon request, execute and
deliver an appropriate deed to the holder of the certificate of purchase or the
last certificate of redemption, as the case may be, and such deed shall operate
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to divest Trustor and all persons claiming under Trustor of all right, title and
interest, whether legal or equitable, in the property described in the deed.
Nothing in this section dealing with foreclosure procedures or specifying
particular actions to be taken by Beneficiary or by Trustee or any similar
officer shall be deemed to contradict or add to the requirements and procedures
now or hereafter specified by Colorado law, and any such inconsistency shall be
resolved in favor of Colorado law applicable at the time of foreclosure.
(b) After deducting all costs, fees and expenses of Trustee and of this
trust, including costs of evidence of title in connection with the sale, Trustee
shall apply the proceeds of sale to payment of: all sums expended under this
Deed of Trust, not then repaid, with interest thereon from the date of
expenditure until paid at the Interest Rate or the Default Rate (as defined in
the Note), as applicable; all indebtedness and other obligations secured hereby;
and the remainder, if any, to the person or persons legally entitled thereto.
(c) Trustee may postpone sale of all or any portion of the Mortgaged
Property by public announcement at the time and place of sale, and from time to
time thereafter may postpone such sale by public announcement at the time and
place fixed by the preceding postponement or subsequently noticed sale, and
without further notice make such sale at the time and place fixed by the last
postponement, or may, in its discretion, give a new notice of sale.
(d) The power of sale under this Deed of Trust shall not be exhausted by
any one or more sales (or attempts to sell) as to all or any portion of the
Mortgaged Property remaining unsold, but shall continue unimpaired until all of
the Mortgaged Property has been sold by exercise of the power of sale in this
Deed of Trust and all indebtedness and obligations secured by this Deed of Trust
have been paid and discharged in full.
4.4 Appointment of Receiver. If an event of default under this Deed of
Trust occurs, and as long as any such event of default exists, Beneficiary, as a
matter of right and without notice to Trustor or anyone claiming under Trustor,
and without regard to the adequacy of the security or the then value of the
Mortgaged Property or the interest of Trustor therein, shall have the right to
have a receiver or receivers of the Mortgaged Property appointed by any court
having jurisdiction, and Trustor hereby irrevocably consents to such
appointment. It is Trustor's express intention and agreement pursuant to the
provisions of Colorado Revised Statutes § 38-38-602(3) that Beneficiary
shall have the right and be absolutely entitled to the appointment of a receiver
as provided herein. Any such receiver or receivers shall have all the usual
powers and duties of receivers in like or similar cases and all the powers of
Beneficiary in case of entry as provided in section 4.2 hereof and shall
continue as such and exercise all such powers until the date of confirmation of
sale of the Mortgaged Property unless such receivership is sooner terminated.
4.5 Right to Sue. With or without accelerating the maturity of the Secured
Obligations, Beneficiary may sue from time to time for any payment due under any
of the Loan Documents, or for money damages resulting from Trustor's default
under any of the Loan Documents.
4.6 Remedies Not Exclusive. Every right, power and remedy granted to
Trustee or Beneficiary in this Deed of Trust shall be cumulative and not
exclusive, and in addition to all rights, powers and remedies granted at law or
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in equity or by statute, and each such right, power and remedy may be exercised
from time to time and as often and in such order as may be deemed expedient by
Trustee or Beneficiary, and the exercise of any such right, power or remedy
shall not be deemed a waiver of the right to exercise, at the same time or
thereafter, any other right, power or remedy.
4.7 Additional Security. If Beneficiary at any time holds additional
security for any of the indebtedness or obligations secured hereby, Beneficiary
may enforce the sale thereof or otherwise realize upon the same, at its option,
either before or concurrently herewith or after a sale is made hereunder.
ARTICLE 5
Miscellaneous
5.1 Governing Law. This Deed of Trust shall be governed by and construed in
accordance with the laws of the State of Colorado.
5.2 Trustor Waiver of Rights. Trustor hereby waives the right to assert any
statute of limitations as a bar to the enforcement of this Deed of Trust or to
any action brought to enforce the Note or any indebtedness or obligation secured
by this Deed of Trust. Notwithstanding the existence of any other liens or
security interests in the Mortgaged Property held by Beneficiary or by any other
party, Beneficiary shall have the right to determine the order in which any or
all of the Mortgaged Property shall be subjected to the remedies provided
herein. Beneficiary shall have the right to determine the order in which the
indebtedness secured hereby is satisfied from the proceeds realized upon the
exercise of the remedies provided herein. Trustor, any party who consents to
this Deed of Trust, and any party who now or hereafter acquires a lien or
security interest in the Mortgaged Property and who has actual or constructive
notice of this Deed of Trust hereby expressly waives and relinquishes any and
all rights to demand or require the marshaling of liens or the marshaling of
assets by Beneficiary in connection with the exercise of any of the remedies
provided herein or permitted by applicable law. Trustor expressly waives and
relinquishes any and all rights and remedies Trustor may have or be able to
assert by reason of laws relating to the rights and remedies of sureties or
guarantors.
5.3 Offset Statements, Tenant Estoppel Certificates. Trustor, within ten
(10) days after notice, shall furnish to Beneficiary a written statement stating
the unpaid principal of and interest on the Note and any other indebtedness
secured by this Deed of Trust and stating whether any offset or defense exists
against such principal, interest or indebtedness. In addition, at any time and
from time to time, Trustor shall, within fifteen (15) days after written request
by Beneficiary, deliver to Beneficiary a certificate executed and acknowledged
by Tenant, in the form attached to Tenant's Lease, or such other form as
reasonably may be requested, certifying: (i) that Tenant's Lease is unmodified
and in full force and effect (or, if there have been modifications, that
Tenant's Lease is in full force and effect as modified, and stating the date and
nature of each modification); (ii) the "Commencement Date" and the "Expiration
Date" determined in accordance with Tenant's Lease and the date, if any, to
which all rent and other sums payable thereunder have been paid; (iii) that no
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notice has been received by Tenant of any default by Tenant thereunder that has
not been cured, except as to defaults specified in such certificate; (iv) that
Trustor is not in default under Tenant's Lease, except as to defaults specified
in such certificate; and (v) such other matters as may be reasonably requested
by Beneficiary. Any such certificate may be relied upon by Beneficiary.
5.4 Reconveyance by Trustee. Upon payment and performance in full of all of
the Secured Obligations, Beneficiary will execute and deliver to Trustor such
documents as may be required to release this Deed of Trust of record, including
the original Note marked "cancelled and paid in full" and a "Request for Release
of Deed of Trust."
5.5 Notices. All approvals, consents, notices and other communications
under this Deed of Trust shall be properly given only if made in writing and
mailed by certified mail, return receipt requested, postage prepaid, or
delivered by hand (including messenger or recognized delivery, courier or air
express service) to the party at the address set forth in this Deed of Trust or
such other address as such party may designate by notice to the other party.
Such approvals, consents, notices and other communications shall be effective on
the date of receipt (evidenced by the certified mail receipt) if mailed or on
the date of such hand delivery if hand delivered. If any such approval, consent,
notice or other communication is not received or cannot be delivered due to a
change in the address of the receiving party of which notice was not previously
given to the sending party or due to a refusal to accept by the receiving party,
such approval, consent, notice or other communication shall be effective on the
date delivery is attempted. Any approval, consent, notice or other communication
under this Deed of Trust may be given on behalf of a party by the attorney for
such party.
(a) The address of Trustor is 161 Inverness Drive West, Englewood,
Colorado 80112, attention: Director of Real Estate, Facilities and Corporate
Services, with a copy to Assistant General Counsel at the same address.
(b) The address of Beneficiary is One Embarcadero Center, 33rd Floor, San
Francisco, California 94111, attention: Capital Markets.
5.6 Beneficiary Statements. Trustor agrees to pay Beneficiary for each
statement of Beneficiary requested by or on behalf of Trustor regarding the
obligations secured hereby the maximum fee allowed by law or, if there is no
maximum fee, such reasonable fee as is then charged by Beneficiary for such
statement.
5.7 Reimbursements. In cases where Beneficiary advances funds on behalf of
Trustor or is otherwise entitled to reimbursement from Trustor, Beneficiary
shall promptly notify Trustor of the amount for which Beneficiary is demanding
reimbursement.
5.8 Intentionally Deleted.
5.9 Successors and Assigns. This Deed of Trust applies to, inures to the
benefit of and binds all parties hereto, their personal representatives, heirs,
successors and assigns. The term "Trustor" includes both the original Trustor
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and any subsequent owner of the Mortgaged Property or any part thereof. The term
"Beneficiary" shall mean the owner and holder of the Note, whether or not named
as Beneficiary herein.
5.10 Interpretation. The captions or headings at the beginning of each
Article or section hereof are for the convenience of the parties and are not a
part of this Deed of Trust. Whenever the context requires, the singular number
includes the plural, and vice versa, and each gender includes each other gender.
The words "include," "includes" and "including" shall be deemed to be followed
by the phrase "without limitation." The words "approval," "consent" and "notice"
shall be deemed to be preceded by the word "written."
5.11 Invalidity of Certain Provisions. If the lien of this Deed of Trust is
invalid or unenforceable as to any part of the indebtedness or obligations
secured hereby, or if such lien is invalid or unenforceable as to any part of
the Mortgaged Property, the unsecured or partially secured portion of such
indebtedness and obligations shall be completely paid prior to the payment of
the remaining and secured or partially secured portion, and all payments made,
whether voluntary or under foreclosure or other enforcement action or procedure,
shall be considered to have been first paid on and applied to the full payment
of that portion of such indebtedness and obligations that is not secured or not
fully secured by the lien of this Deed of Trust. The invalidity of any provision
of this Deed of Trust shall not affect the remaining provisions of this Deed of
Trust or any part thereof and this Deed of Trust shall be construed as if such
invalid provision, if any, had not been inserted herein.
5.12 Subrogation. To the extent that proceeds of the Note or advances under
this Deed of Trust are used to pay any outstanding lien, charge or prior
encumbrance against the Mortgaged Property, such proceeds or advances have been
or will be advanced by Beneficiary at Trustor's request and Beneficiary shall be
subrogated to any and all rights and liens held by any owner or holder of such
outstanding liens, charges and prior encumbrances, irrespective of whether such
liens, charges or encumbrances are released.
5.13 Non-waiver. The acceptance by Beneficiary of any sum after the same is
due shall not constitute a waiver of the right either to require prompt payment,
when due, of all other sums hereby secured or to declare a default as herein
provided. To the extent permitted by law, the acceptance by Beneficiary of any
sum in an amount less than the sum then due shall be deemed an acceptance on
account only and upon condition that it shall not constitute a waiver of the
obligation of Trustor to pay the entire sum then due, and Trustor's failure to
pay such entire sum then due shall be and continue to be a default
notwithstanding such acceptance of such amount on account, as aforesaid, and
Beneficiary or Trustee shall, at all times thereafter and until the entire sum
then due has been paid, and notwithstanding the acceptance by Beneficiary
thereafter of further sums on account, or otherwise, be entitled to exercise all
rights in this Deed of Trust conferred upon them, or either of them, upon the
occurrence of a default, and the right to proceed with a sale under any notice
of default, and election to sell, shall in no way be impaired, whether any of
such amounts are received prior or subsequent to such notice. Consent or
approval by Beneficiary to any transaction or action of Trustor which is subject
to consent or approval of Beneficiary hereunder shall not be deemed a waiver of
the right to require such consent or approval to future or successive
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transactions or actions. This Deed of Trust cannot be waived, amended, modified,
changed, discharged or terminated orally, but only by an instrument in writing
signed by Trustor and Beneficiary.
IN WITNESS WHEREOF, Trustor has executed this Deed of Trust as of the date
first hereinabove written.
ICG SERVICES, INC., a
Delaware corporation
By /s/ H. Don Teague
------------------------
Its Executive Vice President
------------------------
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EXHIBIT A
DEED OF TRUST, ASSIGNMENT OF RENTS
AND SECURITY AGREEMENT
All of the real property in the County of Arapahoe, State of Colorado,
described as follows:
LOT 1, INVERNESS SUBDIVISION FILING NO. 22, COUNTY OF ARAPAHOE, STATE OF
COLORADO
PURCHASE AGREEMENT
between
TRINET ESSENTIAL FACILITIES X, INC., Seller
and
ICG SERVICES, INC., Buyer
As of January 1, 1999
ICG Holdings Headquarters
Englewood, CO
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 Purchase and Sale.............................................1
1.1 The Property..................................................1
1.2 Condition of the Property.....................................2
1.3 Title.........................................................2
ARTICLE 2 Purchase Price................................................2
2.1 Amount and Payment............................................2
ARTICLE 3 Completion of Sale............................................2
3.1 Place and Date................................................2
ARTICLE 4 Title and Condition...........................................3
4.1 Title to the Property.........................................3
ARTICLE 5 Representations and Warranties................................3
5.1 Seller........................................................3
5.2 Buyer.........................................................4
ARTICLE 6 Covenants.....................................................5
6.1 Seller........................................................5
6.2 Buyer.........................................................5
ARTICLE 7 Conditions Precedent..........................................6
7.1 Seller........................................................6
7.2 Buyer.........................................................7
ARTICLE 8 Closing.......................................................8
8.1 Procedure.....................................................8
8.2 Possession....................................................8
8.3 Closing Costs.................................................9
8.4 Prorations....................................................9
ARTICLE 9 General.......................................................9
9.1 Notices.......................................................9
9.2 Attorneys' Fees..............................................10
9.3 Governing Law................................................10
9.4 Construction.................................................10
9.5 Terms Generally..............................................11
9.6 Further Assurances...........................................11
9.7 Partial Invalidity...........................................11
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9.8 Waivers......................................................11
9.9 Miscellaneous................................................11
Exhibit A Title Commitment
Exhibit B Personal Property
Exhibit C Contracts
Exhibit D Permits
Exhibit E Promissory Note
Exhibit F Special Warranty Deed
Exhibit G Assignment of Leases
Exhibit H Bill of Sale
Exhibit I Assignment of Contracts
Exhibit J Assignment of Permits
Exhibit K Seller's Closing Certificate
Exhibit L Buyer's Closing Certificate
Exhibit M Lease Amendment
Exhibit N Property Management Agreement
Exhibit O Right of First Refusal Agreement
Exhibit P Certificate of Nonforeign Status
ii
<PAGE>
PURCHASE AGREEMENT
THIS AGREEMENT, made as of January 1, 1999 (the "Effective Date"), by and
between TRINET ESSENTIAL FACILITIES X, INC., a Maryland corporation ("Seller"),
and ICG SERVICES, INC., a Delaware corporation ("Buyer"),
W I T N E S S E T H:
In consideration of the covenants in this Agreement, Seller and Buyer agree
as follows:
ARTICLE 1
Purchase and Sale
1.1 The Property. Seller agrees to sell to Buyer, and Buyer agrees to
purchase from Seller, in accordance with this Agreement, all of the following
property (collectively, the "Property") effective as of the Effective Date:
(a) The real property in the City of Englewood, County of Arapahoe, State
of Colorado, commonly known as 161 Inverness Drive West, Englewood, Colorado, as
described in Title Commitment No. ABB675698 dated as of May 4, 1999 (the "Title
Commitment"), prepared by Land Title Guarantee Company (the "Title Company"),
attached hereto as Exhibit A, together with all buildings, structures and
improvements now or hereafter located on such real property, and all Seller's
right, title and interest in and to all machinery, fixtures and equipment
affixed or attached to such real property and all easements and rights
appurtenant to such real property (all such real property, buildings, str
uctures, improvements, machinery, fixtures, equipment, easements and rights are
collectively the "Real Property");
(b) All Seller's interest in that certain Lease, dated as of January 15,
1998, between ICG Holdings, Inc., a Colorado corporation ("Tenant"), as tenant,
and Seller, as landlord, together with all amendments, guarantees and ancillary
agreements thereto (the "Lease");
(c) All Seller's right, title and interest in and to all tangible and
intangible personal property (the "Personal Property") described in Exhibit B
attached hereto;
(d) Seller's interest in all contracts, agreements, warranties and
guaranties (the "Contracts") described in Exhibit C attached hereto; and
(e) Seller's interest in all building permits, certificates of occupancy,
and other certificates, permits, licenses and approvals relating to the Property
(the "Permits"), including those described in Exhibit D attached hereto.
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1.2 Condition of the Property. Except for the express representations and
warranties of Seller set forth in section 5.1 hereof, Buyer is acquiring the
Property "as is," without any covenant, representation or warranty of any kind
or nature whatsoever, express or implied, and Buyer is relying solely on Buyer's
own investigation of the Property.
1.3 Title. Buyer shall accept title to the Real Property subject to the
following (collectively, the "Permitted Exceptions"): (a) the items listed as
Exception Nos. 4 (modified as noted in Schedule B-Section 1 of the Title
Commitment), 6 (modified as noted in Schedule B-Section 1 of the Title
Commitment) and 10 through 30 in the Title Commitment, (b) any matter which
would be disclosed by a current ALTA/ACSM survey or a physical inspection of the
Property and (c) any other matters created, permitted or approved (or deemed
approved) by Buyer, including the Loan Documents (as defined in that certain
Deed of Trust, Assignment of Rents and Security Agreement, made as of January 1,
1999, granted by Buyer, as trustor, to the Public Trustee of Arapahoe County,
Colorado, as trustee, for the benefit of TriNet Realty Capital, Inc., a Maryland
corporation, as beneficiary).
ARTICLE 2
Purchase Price
2.1 Amount and Payment. The total purchase price for the Property shall be
forty-three million, six hundred seventy-seven thousand, seven hundred
sixty-four dollars ($43,677,764). At the Closing (as hereinafter defined) on the
Closing Date (as hereinafter defined), Buyer shall pay the total purchase price
for the Property to Seller as follows:
(a) ten million six hundred one thousand ten dollars ($10,601,010) in
cash in immediately available funds; and
(b) thirty-three million seventy-six thousand seven hundred fifty-four
dollars ($33,076,754) by delivery of the Promissory Note of Buyer to the order
of TriNet Realty Capital, Inc., a Maryland corporation ("Lender") in the form
attached hereto as Exhibit E (the "Note").
ARTICLE 3
Completion of Sale
3.1 Place and Date. The purchase and sale of the Property shall be
completed in accordance with Article 8 hereof (the "Closing"). The Closing shall
occur through escrow No. AC18929A with the Title Company at 3033 E. 1st Ave.
#600, Denver, Colorado 80206 on May __, 1999 (the "Closing Date"), or at such
other place or on such other date as Seller and Buyer agree in writing. Prior to
the Closing Date, Seller and Buyer each shall give appropriate written escrow
instructions, consistent with this Agreement, to the Title Company for the
Closing in accordance with this Agreement.
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<PAGE>
ARTICLE 4
Title and Condition
4.1 Title to the Property.
(a) Real Property. Seller shall convey to Buyer fee title to the Real
Property, by a duly executed and acknowledged Special Warranty Deed (the
"Special Warranty Deed") in the form of Exhibit F attached hereto, subject to
the Permitted Exceptions.
(b) Lease. Seller shall assign all of Seller's interest in the Lease to
Buyer, by a duly executed Assignment of Leases (the "Assignment of Leases") in
the form of Exhibit G attached hereto.
(c) Personal Property. Seller shall transfer good title to the Personal
Property to Buyer, by a duly executed Bill of Sale (the "Bill of Sale") in the
form of Exhibit H attached hereto.
(d) Contracts. Seller shall assign good title to Seller's interest in all
of the Contracts to Buyer, by a duly executed Assignment of Contracts (the
"Assignment of Contracts") in the form of Exhibit I attached hereto.
(e) Permits. Seller shall assign all of Seller's right, title and interest
in, to and under the Permits to Buyer, by a duly executed Assignment of Permits
(the "Assignment of Permits") in the form of Exhibit J attached hereto.
ARTICLE 5
Representations and Warranties
5.1 Seller. The representations and warranties of Seller in this section
5.1 and in Seller's Closing Certificate (as hereinafter defined) are a material
inducement for Buyer to enter into this Agreement. Buyer would not purchase the
Property from Seller without such representations and warranties of Seller. Such
representations and warranties shall survive the Closing for only one hundred
eighty (180) days after the Closing Date, at which time such representations and
warranties shall terminate. Seller represents and warrants to Buyer as of the
date of this Agreement as follows:
(a) Seller is a corporation duly incorporated and organized and validly
existing and in good standing under the laws of the State of Maryland. Seller is
duly qualified to do business and is in good standing in the State of Colorado.
Seller has full corporate power and authority to enter into this Agreement and
to perform this Agreement. The execution, delivery and performance of this
Agreement by Seller have been duly and validly authorized by all necessary
action on the part of Seller and all required consents or approvals have been
duly obtained. This Agreement is a legal, valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms, subject to the
effect of applicable bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws affecting the rights of creditors generally.
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(b) The copy of the Lease delivered by Seller to Buyer is a complete and
accurate copy, and there are no amendments thereto other than amendments of
which Seller has provided Buyer with a complete and accurate copy. Except as
disclosed to Seller in writing, to the current actual knowledge of Seller,
Seller is not materially in default in the performance of any material covenant
to be performed by the landlord under the Lease and the Tenant under the Lease
has no material claims or offsets against Seller pursuant to the Lease.
(c) Seller is not a "foreign person" as defined in section 1445 of the
Internal Revenue Code of 1986, as amended, and the Income Tax Regulations
thereunder.
(d) Seller has not dealt with any real estate broker or finder in
connection with the sale of the Property to Buyer or this Agreement.
5.2 Buyer. The representations and warranties of Buyer in this section 5.2
and in Buyer's Closing Certificate (as hereinafter defined) are a material
inducement for Seller to enter into this Agreement. Seller would not sell the
Property to Buyer without such representations and warranties of Buyer. Such
representations and warranties shall survive the Closing for only one hundred
eighty (180) days after the Closing Date, at which time such representations and
warranties shall terminate. Buyer represents and warrants to Seller as of the
date of this Agreement as follows:
(a) Buyer is a corporation duly organized and validly existing and in good
standing under the laws of the State of Delaware. Buyer is duly qualified to do
business and is in good standing in the State of Colorado. Buyer has full power
and authority to enter into this Agreement and to perform this Agreement. The
execution, delivery and performance of this Agreement by Buyer have been duly
and validly authorized by all necessary action on the part of Buyer and all
required consents or approvals have been duly obtained. This Agreement is a
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, subject to the effect of applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
affecting the rights of creditors generally.
(b) Buyer has not dealt with any real estate broker or finder in connection
with the purchase of the Property from Seller or this Agreement.
ARTICLE 6
Covenants
6.1 Seller. Seller covenants and agrees with Buyer as follows:
(a) Seller shall use reasonable efforts, in good faith and with diligence,
to cause all of the representations and warranties made by Seller in section 5.1
hereof to be true and correct on and as of the Closing Date. At the Closing on
the Closing Date, Seller shall execute and deliver to Buyer a Seller's Closing
Certificate ("Seller's Closing Certificate") in the form of Exhibit K attached
hereto, certifying to Buyer that all such representations and warranties are
4
<PAGE>
true and correct on and as of the Closing Date, with only such exceptions
therein as are necessary to reflect facts or circumstances arising between the
date of this Agreement and the Closing Date which would make any such
representation or warranty untrue or incorrect on and as of the Closing Date.
(b) Seller shall indemnify and defend Buyer against and hold Buyer harmless
from all claims, demands, liabilities, losses, damages, costs and expenses,
including reasonable attorneys' fees and disbursements, that may be suffered or
incurred by Buyer if any representation or warranty made by Seller in section
5.1 hereof or in Seller's Closing Certificate was untrue or incorrect in any
respect when made or that may be caused by any breach by Seller of any such
representation or warranty.
6.2 Buyer. Buyer covenants and agrees with Seller as follows:
(a) Buyer shall use reasonable efforts, in good faith and with diligence,
to cause all of the representations and warranties made by Buyer in section 5.2
hereof to be true and correct on and as of the Closing Date. At the Closing on
the Closing Date, Buyer shall execute and deliver to Seller a Buyer's Closing
Certificate ("Buyer's Closing Certificate") in the form of Exhibit L attached
hereto, certifying to Seller that all such representations and warranties are
true and correct on and as of the Closing Date, with only such exceptions
therein as are necessary to reflect facts or circumstances arising between the
date of this Agreement and the Closing Date which would make any such
representation or warranty untrue or incorrect on and as of the Closing Date.
(b) Buyer shall indemnify and defend Seller against and hold Seller
harmless from all claims, demands, liabilities, losses, damages, costs and
expenses, including reasonable attorneys' fees and disbursements, that may be
suffered or incurred by Seller if any representation or warranty made by Buyer
in section 5.2 hereof or in Buyer's Closing Certificate was untrue or incorrect
in any respect when made or that may be caused by any breach by Buyer of any
such representation or warranty.
ARTICLE 7
Conditions Precedent
7.1 Seller. The obligations of Seller under this Agreement are subject to
satisfaction of all of the conditions set forth in this section 7.1. Seller may
waive any or all of such conditions in whole or in part but any such waiver
shall be effective only if made in writing. After the Closing, any such
condition that has not been satisfied shall be treated as having been waived in
writing. No such waiver shall constitute a waiver by Seller of any of its rights
or remedies if Buyer defaults in the performance of any covenant or agreement to
be performed by Buyer under this Agreement or if Buyer breaches any
representation or warranty made by Buyer in section 5.2 hereof or in Buyer's
Closing Certificate. If any condition set forth in this section 7.1 is not fully
satisfied or waived in writing by Seller, this Agreement shall terminate, but
without releasing Buyer from liability if Buyer defaults in the performance of
any such covenant or agreement to be performed by Buyer or if Buyer breaches any
such representation or warranty made by Buyer before such termination.
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<PAGE>
(a) On the Closing Date, Buyer shall not be materially in default in the
performance of any material covenant to be performed by Buyer under this
Agreement.
(b) On the Closing Date, all representations and warranties made by Buyer
in section 5.2 hereof shall be true and correct in all material respects as if
made on and as of the Closing Date and Seller shall have received Buyer's
Closing Certificate, executed by Buyer, in which Buyer certifies to Seller that
all representations and warranties made by Buyer in section 5.2 hereof are true
and correct on and as of the Closing Date, without material adverse exceptions.
(c) On or before the Closing Date, all of the conditions precedent set
forth in Section 6 of the Loan Agreement dated as of January 1, 1999 (the "Loan
Agreement") between Lender and Buyer, described in the Note, shall have been
satisfied.
(d) On the Closing Date, Tenant shall have executed and delivered to Seller
the First Amendment to Lease dated as of January 1, 1999 (the "Lease Amendment")
in the form attached hereto as Exhibit M.
(e) On the Closing Date, Buyer and TriNet Property Management, Inc., a
Maryland corporation ("Manager"), shall have executed and delivered to each
other the Property Management Agreement dated as of January 1, 1999 (the
"Property Management Agreement") in the form attached hereto as Exhibit N.
(f) On the Closing Date, Buyer shall have executed and delivered to Seller
the Right of First Refusal Agreement dated as of January 1, 1999 (the "Right of
First Refusal Agreement") in the form attached hereto as Exhibit O.
7.2 Buyer. The obligations of Buyer under this Agreement are subject to
satisfaction of all of the conditions set forth in this section 7.2. Buyer may
waive any or all of such conditions in whole or in part but any such waiver
shall be effective only if made in writing. After the Closing, any such
condition that has not been satisfied shall be treated as having been waived in
writing. No such waiver shall constitute a waiver by Buyer of any of its rights
or remedies if Seller defaults in the performance of any covenant or agreement
to be performed by Seller under this Agreement or if Seller breaches any
representation or warranty made by Seller in section 5.1 hereof or in Seller's
Closing Certificate. If any condition set forth in this section 7.2 is not fully
satisfied or waived in writing by Buyer, this Agreement shall terminate, but
without releasing Seller from liability if Seller defaults in the performance of
any such covenant or agreement to be performed by Seller or if Seller breaches
any such representation or warranty made by Seller before such termination.
(a) On the Closing Date, Seller shall not be materially in default in the
performance of any material covenant to be performed by Seller under this
Agreement.
(b) On the Closing Date, all representations and warranties made by Seller
in section 5.1 hereof shall be true and correct in all material respects as if
made on and as of the Closing Date and Buyer shall have received Seller's
Closing Certificate, executed by Seller, in which Seller certifies to Buyer that
6
<PAGE>
all representations and warranties made by Seller in section 5.1 hereof are true
and correct on and as of the Closing Date, without material adverse exceptions.
(c) On the Closing Date, the Title Company shall be prepared to issue to
Buyer or its designee an American Land Title Association Standard Coverage
Policy of title insurance, with liability equal to the total purchase price for
the Property, insuring Buyer that fee title to the Real Property is vested in
Buyer subject only to the Permitted Exceptions.
(d) On the Closing Date, Seller shall have executed and delivered to Tenant
the Lease Amendment.
(e) On the Closing Date, Buyer and Manager shall have executed and
delivered to each other the Property Management Agreement.
ARTICLE 8
Closing
8.1 Procedure. Seller and Buyer shall cause the following to occur at the
Closing on the Closing Date:
(a) Title Company shall be unconditionally obligated to record the Special
Warranty Deed for the Real Property, duly executed and acknowledged by Seller
and dated as of January 1, 1999, in the Official Records of the county in which
the Real Property is located.
(b) Seller shall date as of January 1, 1999, execute and deliver to Buyer
(i) Seller's Closing Certificate, (ii) the Assignment of Leases, (iii) the Bill
of Sale, (iv) the Assignment of Contracts, (v) the Assignment of Permits, (vi) a
Certificate of Nonforeign Status in the form of Exhibit P attached hereto and
(vii) Colorado Form DR1083.
(c) Buyer shall date as of January 1, 1999, execute and deliver to Seller
(i) Buyer's Closing Certificate, (ii) the Assignment of Leases and (iii) the
Assignment of Contracts.
(d) Buyer shall pay to Seller the total purchase price for the Property in
accordance with section 2.1 hereof.
(e) The Title Company shall issue to Buyer or its designee the title
insurance policy described in section 7.2(c) hereof.
8.2 Possession. Subject to the Lease, Seller shall transfer possession of
the Property to Buyer on the Closing Date. Seller shall, on the Closing Date,
deliver to Buyer the Lease and any plans and specifications, permits,
certificates, licenses and approvals relating to the Property in the possession
of Seller, which shall become the property of Buyer on the Closing Date.
7
<PAGE>
8.3 Closing Costs. Buyer shall pay all reasonable out-of-pocket costs and
expenses incurred by either party in connection with the transaction
contemplated by this Agreement, including, without limitation, Seller's
reasonable attorneys' fees up to a maximum of one hundred fifty thousand dollars
($150,000), all title insurance costs and other closing costs such as escrow
fees, recording fees and transfer taxes.
8.4 Prorations. At the Closing on the Closing Date, the current rent under
the Lease, the current installment of real property taxes and assessments levied
against the Property, current utilities, and other current operating and
maintenance expenses of the Property (net of any payments paid or payable by
Tenant for taxes, assessments, utilities and expenses) shall be prorated between
Seller and Buyer as of the Effective Date on the basis of a thirty-day month. On
or before the Closing Date, the security deposit, in the amount of ten million
dollars ($10,000,000), held by Seller under section 24.2 of the Lease, shall be
credited to Buyer and, in turn, paid to Seller for application toward payment of
the total purchase price for the Property in accordance with section 2.1 hereof.
ARTICLE 9
General
9.1 Notices. All notices and other communications under this Agreement
shall be properly given only if made in writing and mailed by certified mail,
return receipt requested, postage prepaid, or delivered by hand (including
messenger or recognized delivery, courier or air express service) to the party
at the address set forth in this section 9.1 or such other address as such party
may designate by notice to the other party. Such notices and other
communications shall be effective on the date of receipt (evidenced by the
certified mail receipt) if mailed or on the date of such hand delivery if hand
delivered. If any such notice or other communication is not received or cannot
be delivered due to a change in the address of the receiving party of which
notice was not previously given to the sending party or due to a refusal to
accept by the receiving party, such notice or other communication shall be
effective on the date delivery is attempted. Any notice or other communication
under this Agreement may be given on behalf of a party by the attorney for such
party.
(a) The address of Seller is:
TriNet Essential Facilities X, Inc.
One Embarcadero Center, Suite 3300
San Francisco, CA 94111
Attention: Mr. Kevin Deeble
8
<PAGE>
with a copy to:
TriNet Corporate Realty Trust, Inc.
One Embarcadero Center, Suite 3300
San Francisco, CA 94111
Attention: Geoffrey M. Dugan, Esq.
and with a further copy to:
Pillsbury Madison & Sutro LLP
235 Montgomery Street, 14th Floor
San Francisco, CA 94104
Attention: Glenn Q. Snyder, Esq.
(b) The address of Buyer is:
ICG Services, Inc.
161 Inverness Drive West
Englewood, CO 80112
Attention: Director of Real Estate,
Facilities and Corporate
Services
with a copy to:
Assistant General Counsel
161 Inverness Drive West
Englewood, CO 80112
9.2 Attorneys' Fees. If there is any legal action or proceeding between
Seller and Buyer arising from or based on this Agreement, the unsuccessful party
to such action or proceeding shall pay to the prevailing party all costs and
expenses, including reasonable attorneys' fees, incurred by such prevailing
party in such action or proceeding and in any appeal in connection therewith. If
such prevailing party recovers a judgment in any such action, proceeding or
appeal, such costs, expenses and attorneys' fees shall be included in and as a
part of such judgment.
9.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado.
9.4 Construction. Seller and Buyer acknowledge that each party and its
counsel have reviewed and revised this Agreement and that the rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any document executed and delivered by either party in connection with the
transactions contemplated by this Agreement. The captions in this Agreement are
for convenience of reference only and shall not be used to interpret this
Agreement.
9
<PAGE>
9.5 Terms Generally. The defined terms in this Agreement shall apply
equally to both the singular and the plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The term "person" includes individuals, corporations,
partnerships, trusts, other legal entities, organizations and associations, and
any government or governmental agency or authority. The words "include,"
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation." The words "approval," "consent" and "notice" shall be deemed to be
preceded by the word "written."
9.6 Further Assurances. From and after the date of this Agreement, Seller
and Buyer agree to do such things, perform such acts, and make, execute,
acknowledge and deliver such documents as may be reasonably necessary or proper
and usual to complete the transactions contemplated by this Agreement and to
carry out the purpose of this Agreement in accordance with this Agreement.
9.7 Partial Invalidity. If any provision of this Agreement is determined by
a proper court to be invalid, illegal or unenforceable, such invalidity,
illegality or unenforceability shall not affect the other provisions of this
Agreement and this Agreement shall remain in full force and effect without such
invalid, illegal or unenforceable provision.
9.8 Waivers. No waiver of any provision of this Agreement or any breach of
this Agreement shall be effective unless such waiver is in writing and signed by
the waiving party and any such waiver shall not be deemed a waiver of any other
provision of this Agreement or any other or subsequent breach of this Agreement.
9.9 Miscellaneous. The Exhibits attached to this Agreement are made a part
of this Agreement. Neither Seller nor Buyer shall make any public announcement
of this Agreement or the transactions contemplated by this Agreement prior to
closing without the prior consent of the other, unless any such announcement is
reasonably necessary to comply with applicable law. Buyer shall not assign or
transfer this Agreement, or any interest in or part of this Agreement, without
the prior consent of Seller. No such assignment or transfer shall release Buyer
from any obligation or liability under this Agreement. Subject to the foregoing,
this Agreement shall benefit and bind Seller and Buyer and their respective
personal representatives, heirs, successors and assigns. Time is of the essence
of this Agreement. This Agreement may be executed in counterparts, each of which
shall be an original, but all of which shall constitute one and the same
Agreement. This Agreement may not be amended or modified except by a written
agreement signed by Seller and Buyer. This Agreement constitutes the entire and
integrated agreement between Seller and Buyer relating to the purchase and sale
of the Property and supersedes all prior agreements, understandings, offers and
negotiations, oral or written, with respect to the sale of the Property.
10
<PAGE>
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of the
date first hereinabove written.
SELLER: TRINET ESSENTIAL FACILITIES X, INC., a Maryland
corporation
By /s/ Kevin Deeble
---------------------------------
Its Vice President of Capital Markets
---------------------------------
BUYER: ICG SERVICES, INC., a Delaware corporation
By /s/ H. Don Teague
------------------------
Its Executive Vice President
------------------------
11
<PAGE>
TITLE COMMITMENT
Exhibit A
<PAGE>
PERSONAL PROPERTY
All tangible and intangible personal property located on or within the Real
Property or used exclusively in the operation, management, repair or maintenance
of the Real Property (excluding items relating primarily to the operation of
Tenant's business as opposed to the operation of the Real Property), including,
without limitation, the following:
1. all plans, specifications, drawings, surveys, studies and reports
respecting the Real Property;
2. any and all draperies, curtains, and other window coverings; all storm
windows and storm doors; all building system components and replacement parts;
and all machinery, equipment, tools, supplies and other items of personal
property used or useful in the operation, management, repair and maintenance of
the Real Property.
EXHIBIT B
<PAGE>
CONTRACTS
1. Construction Contract dated September 20, 1996 between ICG Communications,
Inc. and Weitz-Cohen Construction Co. and change orders 1, 2, 3, 4, 5, 6, 7
and 8.
2. Architects Contract dated January 4, 1996 between ICG Communications, Inc.
and C.W. Fentress J.H. Bradburn and Associates, and a sheet summarizing 37
additional services documents.
3. One(1) Year Warranty for Trees, Plans and Ground Cover from Valley Crest
Landscaping, date to be determined when work is completed;
4. One (1) Year Warranty for Landscaping and Irrigation Maintenance from
Valley Crest Landscaping, date to be determined when work is completed;
5. Extended Ten (10) Year Warranty for Sheet Membrane Waterproofing from AAA
Waterproofing, date to be determined;
6. Two (2) Year Contractor's Warranty for Single Ply Membrane Roofing from
Bauen Corporation, dated December 31, 1997;
7. Ten (10) Year Manufacturer's Full System Warranty for Single Play Membrane
Roofing from Bauen Corporation, dated December 31, 1997;
8. Five (5) Year Warranty for Pedestrian Traffic Coating from AAA
Waterproofing, date to be determined when work is completed;
9. Three (3) Year Warranty for Sheet Metal Flashings and Trim from Bauen
Corporation, dated December 31, 1997;
10. Two (2) year Contractor's Warranty for Joint Sealers from CSW, Inc., date
to be determined when work is completed;
11. Lifetime Solid Core Warranty for Wood Doors from Golesh Door and Trim,
Inc., dated December 11, 1997;
12. Lifetime Fire Rated Warranty for Wood Doors from Golesh Door and Trim,
Inc., dated December 11, 1997;
13. Ten (10) Year Warranty for Mirrored Glass from Ken Caryl Glass, dated
December 11, 1997;
14. Five (5) Year Warranty for Curtain Walls, Stonework and Entrances from
Elward Construction, dated December 11, 1997;
EXHIBIT C
<PAGE>
15. Fifteen (15) Year Warranty for Carpet from Interface, covering excessive
surface wear, edge ravel, backing separations, shrinking, stretching and
static electricity, dated from date of original invoice.
16. Ten (10) Year Warranty for Carpet from Evans & Co., covering edge ravel,
delamination of secondary backing, wear, buckling, shifting, cupping, color
fastness, etc., dated December 11, 1997;
17. Two (2) Year Installation Warranty for Carpet from Evans & Co., dated
December 11, 1997;
18. Ten (10) Year Warranty for Carpet Tile from Evans & Co. covering edge
ravel, delamination of secondary backing, wear, buckling, shifting,
cupping, color fastness, etc., dated December 11, 1997;
19. Two (2) Year Installation Warranty for Carpet Title from Evans & Co., dated
December 11, 1997;
20. Three (3) Year Warranty against mildew and fungus for Wall Coverings from
Lundquist Associates, date to be determined;
21. One (1) Year Warranty for Residential Appliances from General Electric
dated December 1997;
22. One (1) Year Operation and Maintenance Warranty for Electric Traction
Passenger Elevators from Montgomery, dated December 11, 1997; and
23. Two (2) Year Warranty for HUFCOR Operable Partitions from ISEC, Inc. dated
June 12, 1997.
EXHIBIT C
<PAGE>
PERMITS
1. Arapahoe County Department of Highways/Engineering Case No. P96-023 dated
May 8, 1996 -- Application for Overlot Grading Permit.
2. Application for Water and Sewer Tap Permit No. 96-161 dated December 13,
1996 from Inverness Water and Sanitation District.
3. Arapahoe County Building Department Permit No. 96-86988 dated October 17,
1996 -- Foundation and Core.
4. Arapahoe County Building Department Permit No. 97-88504 dated January 24,
1997 Six Story Steel and Concrete Office Building.
5. Arapahoe County Building Department Permit No. 97-90258 dated April 24,
1997 -- Mechanical-Penthouse Level only.
6. Arapahoe County Building Department Permit No. 97-90257 dated April 24,
1997 -- Tenant Finish - Sixth Floor.
7. Arapahoe County Building Department Permit No. 97-90254 dated April 24,
1997 -- Tenant Finish - Fifth Floor.
8. Arapahoe County Building Department Permit No. 97-90253 dated April 24,
1997 -- Tenant Finish - Fourth Floor.
9. Arapahoe County Building Department Permit No. 97-90252 dated April 24,
1997 -- Tenant Finish - Third Floor.
10. Arapahoe County Building Department Permit No. 97-90251 dated April 24,
1997 -- Tenant Finish - Second Floor.
11. Arapahoe County Building Department Permit No. 97-90248 dated April 24,
1997 -- Tenant Finish - First Floor.
12. Arapahoe County Building Department Permit No. 97-90249; dated April 24,
1997 -- Tenant Finish - Lower Floor.
13. Castlewood Fire Protection District Tenant Finish Inspection Record Form
Permit Nos. TP970305, TP970304, TP970303, TP970302, TP970301, TP970300,
TP970299.
14. Castlewood Fire Protection District, Automatic Sprinkler System Inspection
Record Permit Nos. NP970161, NP970104.
EXHIBIT D
<PAGE>
PROMISSORY NOTE
EXHIBIT E
<PAGE>
Recorded at Request of and When
Recorded Mail to:
Sherman & Howard L.L.C.
633 Seventeenth Street
Denver, CO 80202
Attn: Stephanie Griffin, Esq.
Mail Tax Statements to:
ICG Services, Inc.
161 Inverness Drive West
Englewood, CO 80112
Attn: Director of Real Estate,
Facilities and Corporate
Finance
SPECIAL WARRANTY DEED
For valuable consideration, receipt of which is acknowledged, TRINET
ESSENTIAL FACILITIES X, INC., a Maryland corporation ("Grantor"), hereby grants
to ICG SERVICES, INC., a Delaware corporation ("Grantee"), the real property in
the City Englewood, County of Arapahoe, State of Colorado, described in Exhibit
A attached hereto and made a part hereof by this reference (the "Property").
TOGETHER, with all and singular the hereditaments and appurtenances thereto
belonging, or in anywise appertaining, and the reversion and reversions,
remainder and remainders, rents, issues and profits thereof, and all the estate,
right, title, interest, claim and demand whatsoever of the Grantor, either in
law or equity, of, in and to the Property, with the hereditaments and
appurtenances;
TO HAVE AND TO HOLD the Property, with the appurtenances, unto the Grantee,
its successors and assigns forever. The Grantor, for itself, its successors and
assigns, does covenant and agree that it shall and will WARRANT AND FOREVER
DEFEND the Property in the quiet and peaceable possession of the Grantee, its
successors and assigns, against all and every person or persons claiming the
whole or any part thereof, by, through or under the Grantor;
EXHIBIT F
<PAGE>
SUBJECT TO: those matters as set forth on Exhibit B attached hereto and
made a part hereof by this reference.
IN WITNESS WHEREOF, the Grantor has executed this Special Warranty Deed on
the date set forth below.
Dated as of: January 1, 1999.
TRINET ESSENTIAL FACILITIES X, INC., a Maryland corporation
By /s/ Kevin Deeble
---------------------------------
Its Vice President of Capital Markets
---------------------------------
EXHIBIT F
<PAGE>
EXHIBIT A
SPECIAL WARRANTY DEED
Legal Description
LOT 1, INVERNESS SUBDIVISION FILING NO. 22, COUNTY OF ARAPAHOE, STATE OF
COLORADO
EXHIBIT F
<PAGE>
EXHIBIT B
SPECIAL WARRANTY DEED
Permitted Exceptions
[TO BE INSERTED]
EXHIBIT F
<PAGE>
ASSIGNMENT OF LEASES
THIS ASSIGNMENT, made as of January 1, 1999, by and between TRINET
ESSENTIAL FACILITIES X, INC., a Maryland corporation ("Seller"), and ICG
SERVICES, INC., a Delaware corporation ("Buyer"),
W I T N E S S E T H:
For valuable consideration, receipt of which is acknowledged, Seller and
Buyer agree as follows:
1. Assignment and Assumption.
(a) Seller hereby assigns and transfers to Buyer all right, title and
interest of Seller in and to the Lease (the "Lease") described in Exhibit A
attached hereto and made a part hereof.
(b) Buyer hereby accepts the foregoing assignment, and assumes and agrees
to perform all of the covenants and agreements in the Lease to be performed by
the landlord thereunder from and after the date of this Assignment.
2. Indemnification.
(a) Seller shall indemnify and defend Buyer against and hold Buyer harmless
from all claims, demands, liabilities, losses, damages, costs and expenses,
including, without limitation, reasonable attorneys' fees and disbursements,
that are caused by any failure by Seller to perform the obligations of the
landlord under the Lease before the date of this Assignment.
(b) Buyer shall indemnify and defend Seller against and hold Seller
harmless form all claims, demands, liabilities, losses, damages, costs and
expenses, including, without limitation, reasonable attorneys' fees and
disbursements, that are caused by any failure by Buyer to perform the
obligations of the landlord under the Lease on or after the date of this
Assignment.
3. Further Assurances. Seller and Buyer agree to execute such other
documents and perform such other acts as may be reasonably necessary or proper
and usual to effect this Assignment.
4. Governing Law. This Assignment shall be governed by and construed in
accordance with the laws of the State of Colorado.
EXHIBIT G
<PAGE>
5. Successors and Assigns. This Assignment shall be binding upon and shall
inure to the benefit of Seller and Buyer and their respective personal
representatives, heirs, successors and assigns.
IN WITNESS WHEREOF, Seller and Buyer have executed this Assignment as of
the date first hereinabove written.
TRINET ESSENTIAL FACILITIES X, INC., a Maryland
corporation
By /s/ Kevin Deeble
---------------------------------
Its Vice President of Capital Markets
---------------------------------
ICG SERVICES, INC., a Delaware corporation
By /s/ H. Don Teague
------------------------
Its Executive Vice President
------------------------
EXHIBIT G
<PAGE>
EXHIBIT A
ASSIGNMENT OF LEASES
Description of Lease
Lease dated as of January 15, 1998, by and between ICG Holdings, Inc., a
Colorado corporation ("Tenant"), as tenant, and TriNet Essential Facilities X,
Inc., a Maryland corporation ("Original Landlord"), as landlord.
Basic Lease Information executed by Original Landlord and Tenant.
Memorandum of Lease for Recording, dated as of January 20, 1998, executed by
Original Landlord and Tenant.
Continuing Lease Guaranty, made as of January 20, 1998, by ICG Communications,
Inc., a Delaware corporation, to TriNet Essential Facilities X, Inc., a Maryland
corporation.
Continuing Lease Guaranty, made as of January 20, 1998, by ICG Holdings
(Canada), Inc., a Federal Canadian corporation, to TriNet Essential Facilities
X, Inc., a Maryland corporation.
First Amendment to Lease, dated for reference purposes as of January 1, 1999,
between Original Landlord and Tenant.
EXHIBIT G
<PAGE>
BILL OF SALE
For valuable consideration, receipt of which is acknowledged, TRINET
ESSENTIAL FACILITIES X, INC., a Maryland corporation ("Seller"), hereby sells,
assigns, transfers and delivers to ICG SERVICES, INC., a Delaware corporation
("Buyer"), all of the personal property described in Exhibit A attached hereto
and made a part hereof. Seller warrants to Buyer that Seller has good title to
all such personal property, free and clear of all liens, encumbrances, security
interests and adverse claims of any kind or nature whatsoever, and Seller shall
forever warrant and defend the title to all such personal property unto Buyer.
Dated as of: January 1, 1999.
SELLER: TRINET ESSENTIAL FACILITIES X, INC., a Maryland corporation
By /s/ Kevin Deeble
---------------------------------
Its Vice President of Capital Markets
---------------------------------
EXHIBIT H
<PAGE>
EXHIBIT A
BILL OF SALE
All tangible and intangible personal property located on or within the Real
Property (as defined in the Purchase Agreement dated as of January 1, 1999,
executed by Buyer and Seller; "Purchase Agreement") or used exclusively in the
operation, management, repair or maintenance of the Real Property (excluding
items relating primarily to the operation of Tenant's business as opposed to the
operation of the Real Property), including, without limitation, the following:
1. all plans, specifications, drawings, surveys, studies and reports
respecting the Real Property;
2. any and all draperies, curtains, and other window coverings; all storm
windows and storm doors; all building system components and replacement parts;
and all machinery, equipment, tools, supplies and other items of personal
property used or useful in the operation, management, repair and maintenance of
the Real Property.
EXHIBIT H
<PAGE>
ASSIGNMENT OF CONTRACTS
THIS ASSIGNMENT, made as of January 1, 1999, by and between TRINET
ESSENTIAL FACILITIES X, INC., a Maryland corporation ("Seller"), and ICG
SERVICES, INC., a Delaware corporation ("Buyer"),
W I T N E S S E T H:
For valuable consideration, receipt of which is acknowledged, Seller and
Buyer agree as follows:
1. Assignment and Assumption.
(a) Seller hereby assigns and transfers to Buyer all right, title and
interest of Seller in, to and under the contracts (the "Contracts") described in
Exhibit A attached hereto and made a part hereof.
(b) Buyer hereby accepts the foregoing assignment, and assumes and agrees
to perform all of the covenants and agreements in the Contracts to be performed
by Seller thereunder that arise or accrue from and after the date of this
Assignment as long as Buyer owns the real property subject to the Contracts.
2. Indemnification.
(a) Seller shall indemnify and defend Buyer against and hold Buyer harmless
from all claims, demands, liabilities, losses, damages, costs and expenses,
including, without limitation, reasonable attorneys' fees and disbursements,
that are caused by any failure by Seller to perform the obligations of Seller
under the Contracts before the date of this Assignment.
(b) Buyer shall indemnify and defend Seller against and hold Seller
harmless from all claims, demands, liabilities, losses, damages, costs and
expenses, including, without limitation, reasonable attorneys' fees and
disbursements, that are caused by any failure by Buyer to perform the
obligations of Seller arising or accruing under the Contracts on or after the
date of this Assignment and during Buyer's ownership of the real property
subject to the Contracts.
3. Further Assurances. Seller and Buyer agree to execute such other
documents and perform such other acts as may be reasonably necessary or proper
and usual to effect this Assignment.
4. Governing Law. This Assignment shall be governed by and construed in
accordance with the laws of the State of Colorado.
5. Successors and Assigns. This Assignment shall be binding upon and shall
inure to the benefit of Seller and Buyer and their respective personal
representatives, heirs, successors and assigns.
EXHIBIT I
<PAGE>
6. Counterparts. This Assignment may be signed in multiple
counterparts which, when signed by all parties, shall constitute a binding
agreement.
IN WITNESS WHEREOF, Seller and Buyer have executed this Assignment as of
the date first hereinabove written.
SELLER: TRINET ESSENTIAL FACILITIES X, INC., a Maryland corporation
By /s/ Kevin Deeble
---------------------------------
Its Vice President of Capital Markets
---------------------------------
BUYER: ICG SERVICES, INC., INC., a Delaware corporation
By /s/ H. Don Teague
------------------------
Its Executive Vice President
------------------------
EXHIBIT I
<PAGE>
EXHIBIT A
ASSIGNMENT OF CONTRACTS
1. Construction Contract dated September 20, 1996 between ICG Communications,
Inc. and Weitz-Cohen Construction Co. and change orders 1, 2, 3, 4, 5, 6, 7
and 8.
2. Architects Contract dated January 4, 1996 between ICG Communications, Inc.
and C.W. Fentress J.H. Bradburn and Associates, and a sheet summarizing 37
additional services documents.
3. One (1) Year Warranty for Trees, Plans and Ground Cover from Valley Crest
Landscaping, date to be determined when work is completed;
4. One (1) Year Warranty for Landscaping and Irrigation Maintenance from
Valley Crest Landscaping, date to be determined when work is completed;
5. Extended Ten (10) Year Warranty for Sheet Membrane Waterproofing from AAA
Waterproofing, date to be determined;
6. Two (2) Year Contractor's Warranty for Single Ply Membrane Roofing from
Bauen Corporation, dated December 31, 1997;
7. Ten (10) Year Manufacturer's Full System Warranty for Single Play Membrane
Roofing from Bauen Corporation, dated December 31, 1997;
8. Five (5) Year Warranty for Pedestrian Traffic Coating from AAA
Waterproofing, date to be determined when work is completed;
9. Three (3) Year Warranty for Sheet Metal Flashings and Trim from Bauen
Corporation, dated December 31, 1997;
10. Two (2) year Contractor's Warranty for Joint Sealers from CSW, Inc., date
to be determined when work is completed;
11. Lifetime Solid Core Warranty for Wood Doors from Golesh Door and Trim,
Inc., dated December 11, 1997;
12. Lifetime Fire Rated Warranty for Wood Doors from Golesh Door and Trim,
Inc., dated December 11, 1997;
13. Ten (10) Year Warranty for Mirrored Glass from Ken Caryl Glass, dated
December 11, 1997;
14. Five (5) Year Warranty for Curtain Walls, Stonework and Entrances from
Elward Construction, dated December 11, 1997;
EXHIBIT I
<PAGE>
EXHIBIT A
ASSIGNMENT OF CONTRACTS
15. Fifteen (15) Year Warranty for Carpet from Interface, covering excessive
surface wear, edge ravel, backing separations, shrinking, stretching and
static electricity, dated from date of original invoice.
16. Ten (10) Year Warranty for Carpet from Evans & Co., covering edge ravel,
delamination of secondary backing, wear, buckling, shifting, cupping, color
fastness, etc., dated December 11, 1997;
17. Two (2) Year Installation Warranty for Carpet from Evans & Co., dated
December 11, 1997;
18. Ten (10) Year Warranty for Carpet Tile from Evans & Co. covering edge
ravel, delamination of secondary backing, wear, buckling, shifting,
cupping, color fastness, etc., dated December 11, 1997;
19. Two (2) Year Installation Warranty for Carpet Title from Evans & Co., dated
December 11, 1997;
20. Three (3) Year Warranty against mildew and fungus for Wall Coverings from
Lundquist Associates, date to be determined;
21. One (1) Year Warranty for Residential Appliances from General Electric
dated December 1997;
22. One (1) Year Operation and Maintenance Warranty for Electric Traction
Passenger Elevators from Montgomery, dated December 11, 1997; and
23. Two (2) Year Warranty for HUFCOR Operable Partitions from ISEC, Inc. dated
June 12, 1997.
EXHIBIT I
<PAGE>
ASSIGNMENT OF PERMITS
For valuable consideration, receipt of which is acknowledged, TRINET
ESSENTIAL FACILITIES X, INC., a Maryland corporation ("Seller"), hereby assigns
and transfers to ICG SERVICES, INC., a Delaware corporation ("Buyer"), all of
Seller's right, title and interest in, to and under the Permits described in
Exhibit A attached hereto and made a part hereof.
Dated as of: January 1, 1999.
SELLER: TRINET ESSENTIAL FACILITIES X, INC., a
Maryland corporation
By /s/ Kevin Deeble
---------------------------------
Its Vice President of Capital Markets
---------------------------------
EXHIBIT J
<PAGE>
EXHIBIT A
ASSIGNMENT OF PERMITS
1. Arapahoe County Department of Highways/Engineering Case No. P96-023
dated May 8, 1996 -- Application for Overlot Grading Permit.
2. Application for Water and Sewer Tap Permit No. 96-161 dated December
13, 1996 from Inverness Water and Sanitation District.
3. Arapahoe County Building Department Permit No. 96-86988 dated October
17, 1996 -- Foundation and Core.
4. Arapahoe County Building Department Permit No. 97-88504 dated January
24, 1997 Six Story Steel and Concrete Office Building.
5. Arapahoe County Building Department Permit No. 97-90258 dated April
24, 1997 -- Mechanical-Penthouse Level only.
6. Arapahoe County Building Department Permit No. 97-90257 dated April
24, 1997 -- Tenant Finish - Sixth Floor.
7. Arapahoe County Building Department Permit No. 97-90254 dated April
24, 1997 -- Tenant Finish - Fifth Floor.
8. Arapahoe County Building Department Permit No. 97-90253 dated April
24, 1997 -- Tenant Finish - Fourth Floor.
9. Arapahoe County Building Department Permit No. 97-90252 dated April
24, 1997 -- Tenant Finish - Third Floor.
10. Arapahoe County Building Department Permit No. 97-90251 dated April
24, 1997 -- Tenant Finish - Second Floor.
11. Arapahoe County Building Department Permit No. 97-90248 dated April
24, 1997 -- Tenant Finish - First Floor.
12. Arapahoe County Building Department Permit No. 97-90249; dated April
24, 1997 -- Tenant Finish - Lower Floor.
13. Castlewood Fire Protection District Tenant Finish Inspection Record
Form Permit Nos. TP970305, TP970304, TP970303, TP970302, TP970301,
TP970300, TP970299.
14. Castlewood Fire Protection District, Automatic Sprinkler System
Inspection Record Permit Nos. NP970161, NP970104.
EXHIBIT J
<PAGE>
SELLER'S CLOSING CERTIFICATE
For valuable consideration, receipt of which is acknowledged, TRINET
ESSENTIAL FACILITIES X, INC., a Maryland corporation ("Seller"), hereby
certifies to ICG SERVICES, INC., a Delaware corporation ("Buyer"), that all
representations and warranties made by Seller in section 5.1 of the Purchase
Agreement (the "Purchase Agreement") dated as of January 1, 1999, between Seller
and Buyer are true and correct on and as of the date of this Certificate. This
Certificate is executed by Seller and delivered to Buyer pursuant to the
Purchase Agreement.
Dated: May 13, 1999.
TRINET ESSENTIAL FACILITIES X, INC., a Maryland
corporation
By /s/ Kevin Deeble
---------------------------------
Its Vice President of Capital Markets
---------------------------------
EXHIBIT K
<PAGE>
BUYER'S CLOSING CERTIFICATE
For valuable consideration, receipt of which is acknowledged, ICG SERVICES,
INC., a Delaware corporation ("Buyer"), hereby certifies to TRINET ESSENTIAL
FACILITIES X, INC., a Maryland corporation ("Seller"), that all representations
and warranties made by Buyer in section 5.2 of the Purchase Agreement (the
"Purchase Agreement") dated as of January 1, 1999, between Seller and Buyer are
true and correct on and as of the date of this Certificate. This Certificate is
executed by Buyer and delivered to Seller pursuant to the Purchase Agreement.
Dated: May 13, 1999.
ICG SERVICES, INC., a Delaware corporation
By /s/ H. Don Teague
---------------------------------
Its Executive Vice President
---------------------------------
EXHIBIT L
<PAGE>
LEASE AMENDMENT
EXHIBIT M
<PAGE>
PROPERTY MANAGEMENT AGREEMENT
EXHIBIT N
<PAGE>
RIGHT OF FIRST REFUSAL AGREEMENT
EXHIBIT O
<PAGE>
CERTIFICATE OF NONFOREIGN STATUS
Section 1445 of the Internal Revenue Code provides that a transferee of a
U.S. real property interest must withhold tax if the transferor is a foreign
person. To inform the transferee that withholding of tax is not required upon
the disposition of a U.S. real property interest by TRINET ESSENTIAL FACILITIES
X, INC., a Maryland corporation ("Seller"), the undersigned hereby certifies the
following on behalf of Seller:
1. Seller is not a foreign corporation, foreign partnership, foreign trust
or foreign estate (as those terms are defined in the Internal Revenue Code and
Income Tax Regulations);
2. Seller's U.S. employer identification number is 84-1448147; and
3. Seller's office address is Four Embarcadero Center, Suite 3150, San
Francisco, CA 94111.
Seller understands that this certification may be disclosed to the Internal
Revenue Service by the transferee and that any false statement contained herein
could be punished by fine, imprisonment, or both.
Under penalties of perjury I declare that I have examined this certificate
and to the best of my knowledge and belief it is true, correct and complete, and
I further declare that I have authority to sign this document on behalf of
Seller.
Dated: May 13, 1999.
TRINET ESSENTIAL FACILITIES X, INC., a Maryland
corporation
By /s/ Kevin Deeble
---------------------------------
Its Vice President of Capital Markets
---------------------------------
EXHIBIT P
