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, 2000
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 10, 2000
were 48,642,985, 31,931,588 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. CONSOLIDATED FINANCIAL STATEMENTS ...............................3
Consolidated Balance Sheets as of December 31, 1999
and March 31, 2000 (unaudited)................................3
Consolidated Statements of Operations for the Three
Months Ended March 31, 1999 and 2000 (unaudited)..............5
Consolidated Statement of Stockholders' Deficit for
the Three Months Ended March 31, 2000 (unaudited).............6
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 2000 (unaudited)..............7
Notes to Consolidated Financial Statements (unaudited)...........9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ......................................24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ....................................................34
PART II ......................................................................36
ITEM 1. LEGAL PROCEEDINGS...............................................36
ITEM 2. CHANGES IN SECURITIES...........................................36
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ................................36
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS ..........36
ITEM 5. OTHER INFORMATION ..............................................36
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ...............................36
Exhibits .......................................................36
Reports on Form 8-K ............................................37
2
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and March 31, 2000 (unaudited)
December 31, March 31,
1999 2000
------------- -------------
Assets (in thousands)
Current assets:
Cash and cash equivalents $ 103,288 40,699
Short-term investments available for
sale 22,219 31,115
Receivables:
Trade, net of allowance of $78,682
and $57,160 at December 31, 1999
and March 31, 2000, respectively
(note 6) 167,273 152,022
Other 1,458 4,489
------------- -------------
168,731 156,511
Prepaid expenses, deposits and
inventory 11,388 10,670
------------- -------------
Total current assets 305,626 238,995
------------- -------------
Property and equipment 1,805,378 2,017,958
Less accumulated depreciation (279,698) (336,090)
------------- -------------
Net property and equipment 1,525,680 1,681,868
------------- -------------
Restricted cash 12,537 11,457
Investments (note 4) 28,939 2,402
Other assets, net of accumulated
amortization:
Goodwill 95,187 87,281
Deferred financing costs 35,884 35,275
Other, net 16,768 18,059
------------- -------------
147,839 140,615
------------- -------------
Total assets (note 7) $2,020,621 2,075,337
============= =============
(Continued)
3
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited), Continued
December 31, March 31,
1999 2000
------------- -------------
Liabilities and Stockholders' Deficit (in thousands)
Current liabilities:
Accounts payable $ 112,291 56,544
Payable pursuant to IRU agreements 135,322 157,618
Accrued liabilities 85,709 91,284
Deferred revenue (note 6) 25,175 45,098
Deferred gain on sale (note 3) 5,475 -
Current portion of capital lease
obligations 8,090 11,256
Current portion of long-term debt
(note 5) 796 796
Current liabilities of discontinued
operations (note 3) 529 436
------------- -------------
Total current liabilities 373,387 363,032
------------- -------------
Capital lease obligations, less current
portion 63,348 72,884
Long-term debt, net of discount, less
current portion (note 5) 1,905,901 2,052,761
Other long-term liabilities 2,526 2,958
------------- -------------
Total liabilities 2,345,162 2,491,635
------------- -------------
Redeemable preferred stock of subsidiary
($397.9 and $412.0 million liquidation
value at December 31, 1999 and March
31, 2000, respectively) (note 5) 390,895 405,203
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, 2000) 128,428 128,524
Stockholders' deficit:
Common stock, $.01 par value,
100,000,000 shares authorized;
47,761,337 and 48,595,120 shares
issued and outstanding at December
31, 1999 and March 31, 2000,
respectively 478 486
Additional paid-in capital 599,282 612,418
Accumulated deficit (1,443,624) (1,565,258)
Accumulated other comprehensive income - 2,329
------------- -------------
Total stockholders' deficit (843,864) (950,025)
------------- -------------
Commitments and contingencies (note 6)
Total liabilities and stockholders'
deficit $2,020,621 2,075,337
============= =============
See accompanying notes to consolidated financial statements.
4
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended March 31, 1999 and 2000 (unaudited)
Three months ended
March 31,
------------------------
1999 2000
----------- -----------
(in thousands, except
per share data)
Revenue (note 7) $ 104,331 157,224
Operating costs and expenses:
Operating costs 53,649 82,902
Selling, general and administrative
expenses 42,808 55,089
Depreciation and amortization (note 7) 36,375 64,599
Other (933) 432
----------- -----------
Total operating costs and expenses 131,899 203,022
----------- -----------
Operating loss (note 7) (27,568) (45,798)
Other income (expense):
Interest expense (note 7) (47,438) (62,634)
Interest income 4,104 3,277
Other (expense) income, net,
including unrealized gain on
marketable trading securities in 1999
and realized gain on sale of
available for sale securities in 2000 (500) 158
----------- -----------
(43,834) (59,199)
----------- -----------
Loss from continuing operations before
preferred dividends and extraordinary
gain (71,402) (104,997)
Accretion and preferred dividends on
preferred securities of subsidiaries (14,804) (16,637)
----------- -----------
Loss from continuing operations before
extraordinary gain (86,206) (121,634)
Loss from discontinued operations (111) -
----------- -----------
Loss before extraordinary gain (86,317) (121,634)
Extraordinary gain on sales of
operations of NETCOM, net of income
taxes of $6.4 million (note 3) 193,029 -
----------- -----------
Net (loss) income $ 106,712 (121,634)
=========== ===========
Other comprehensive income:
Unrealized gain on available for sale
securities $ - 2,329
----------- -----------
Comprehensive (loss) income $ 106,712 (119,305)
=========== ===========
Net (loss) earnings per share - basic and diluted:
Loss from continuing operations $ (1.85) (2.52)
Loss from discontinued operations - -
Extraordinary gain on sales of
operations of NETCOM 4.14 -
----------- -----------
Net (loss) earnings per share - basic
and diluted $ 2.29 (2.52)
=========== ===========
Weighted average number of shares
outstanding - basic and diluted 46,538 48,189
=========== ===========
See accompanying notes to consolidated financial statements.
5
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Deficit
Three Months Ended March 31, 1999 (unaudited)
<TABLE>
<CAPTION>
Accumulated
Common stock Additional other Total
----------------- paid-in Accumulated comprehensive stockholders'
Shares Amount capital deficit income deficit
------- -------- ----------- ------------- --------------- ---------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 2000 47,761 $ 478 599,282 (1,443,624) - (843,864)
Shares issued for cash in
connection with the
exercise of options and
warrants 709 7 11,138 - - 11,145
Shares issued for cash in
connection with the
employee stock purchase plan 54 - 757 - - 757
Shares issued as contribution
to 401(k) plan 71 1 1,241 - - 1,242
Unrealized holding gain
on available for sale
securities, arising
during the period, net
of tax - - - - 2,810 2,810
Reclassification
adjustment, realized
gain on available for
sale securities - - - - (481) (481)
Net loss - - - (121,634) - (121,634)
------- -------- ----------- ------------- --------------- ---------------
Balances at March 31, 2000 48,595 486 612,418 (1,565,258) 2,329 (950,025)
======= ======== =========== ============= =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 2000 (unaudited)
Three months ended
March 31,
----------------------
1999 2000
---------- ----------
(in thousands)
Cash flows from operating activities:
Net (loss) income $ 106,712 (121,634)
Loss from discontinued operations 111 -
Extraordinary (gain) loss 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) (6,239)
Accretion and preferred dividends on preferred
securities of subsidiaries 14,804 16,637
Depreciation and amortization 36,375 64,599
Provision for uncollectible accounts 3,604 3,830
Deferred compensation - 432
Interest expense deferred and included in
long-term debt 46,283 52,064
Interest expense deferred and included in
capital lease obligations 1,406 1,351
Amortization of deferred financing costs
included in interest expense 1,082 501
Interest expense capitalized on assets under
construction (3,168) (1,477)
Contribution to 401(k) plan through issuance
of common stock 2,077 1,242
Net loss (gain) on disposal of long-lived
assets (933) -
Unrealized gain on marketable trading
securities in 1999 and realized gain on
sale of available for sale securities in 2000 (439) (481)
Other noncash expenses - 301
Change in operating assets and liabilities,
excluding the effects of dispositions and
noncash transactions:
Receivables (48,225) 8,390
Prepaid expenses, deposits and inventory (2,537) 1,705
Accounts payable and accrued liabilities (9,892) (50,460)
Deferred revenue 1,669 22,005
---------- ----------
Net cash used by operating activities (47,905) (7,234)
---------- ----------
Cash flows from investing activities:
Acquisition of property, equipment and other
assets (99,151) (141,299)
Payments for construction of corporate
headquarters - (1,699)
Proceeds from sale of available for sale
securities - 2,201
Proceeds from sales of operations of NETCOM, net
of cash included in sale 252,881 -
Proceeds from disposition of property, equipment
and other assets 4,300 -
Proceeds from sales of short-term investments
available for sale 5,340 19,399
Decrease in restricted cash 1,385 1,080
Purchase of investments (27,466) (1,150)
Purchase of minority interest in subsidiary (4,189) -
---------- ----------
Net cash (used) provided by investing
activities 133,100 (121,468)
---------- ----------
(Continued)
7
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited), Continued
Three months ended
March 31,
----------------------
1999 2000
---------- ----------
(in thousands)
Cash flows from financing activities:
Proceeds from issuance of common stock:
Exercise of options and warrants $ 2,769 11,145
Employee stock purchase plan 1,388 757
Proceeds from issuance of long-term debt - 95,000
Principal payments on capital lease obligations (1,793) (3,061)
Payments on IRU agreement - (35,198)
Principal payments on long-term debt (589) (205)
Payments of preferred dividends (2,231) (2,231)
---------- ----------
Net cash (used) provided by financing
activities (456) 66,207
---------- ----------
Net increase (decrease) in cash and cash
equivalents 84,739 (62,495)
Net cash used by discontinued operations (3,356) (94)
Cash and cash equivalents, beginning of period 210,307 103,288
---------- ----------
Cash and cash equivalents, end of period $ 291,690 40,699
========== ==========
Supplemental disclosure of cash flows information
of continuing operations:
Cash paid for interest $ 1,835 7,132
========== ==========
Cash paid for income taxes $ 409 220
========== ==========
Supplemental schedule of noncash 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 pursuant to IRU agreement $ - 57,494
Assets acquired under capital leases 3,760 14,415
---------- ----------
Total (note 6) $ 3,760 71,909
========== ==========
See accompanying notes to consolidated financial statements.
8
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999 and March 31, 2000 (unaudited)
(1) Organization and Nature of Business
ICG Communications, Inc., a Delaware corporation ("ICG" or "the Company"),
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 and wholly owned subsidiary of ICG ("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."
The Company's principal business activity is telecommunications services
("Telecom Services") which consists primarily of the Company's operations
as a facilities-based communications provider including the provision of
services such as network facilities and data management to Internet service
provider ("ISP") customers and voice and data communications services to
business customers such as local, long distance and enhanced telephony. The
Company also provides interexchange services such as special access and
switched access services to long distance carriers and other customers. The
Company began marketing competitive local dial-tone services to business
customers in early 1997, subsequent to the passage of the
Telecommunications Act of 1996, which permitted competitive interstate and
intrastate telephone services and began offering network services to ISPs
and other telecommunications providers in February 1999.
During 1999, the Company sold the retail customer ISP business of NETCOM,
retaining the national Tier 1 data network assets. Additionally, during
1999, the Company also sold ICG Fiber Optic Technologies, Inc. and Fiber
Optic Technologies of the Northwest, Inc., which provided information
technology services and selected networking products, as well as ICG
Satellite Services, Inc. and Maritime Telecommunications Network, Inc.,
which provided satellite voice, data and video services to major cruise
ship lines, the U.S. Navy, the offshore oil and gas industry and integrated
communications providers. (See note 3, "Discontinued Operations".)
(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 year ended December 31, 1999,
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, 2000 are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 2000.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
(b) Recent Accounting Pronouncements
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44 "Accounting for Certain Transactions
involving Stock Compensation - and interpretation of APB Opinion No. 25
("FIN 44"). This opinion provides guidance on the accounting for
certain stock option transactions and subsequent amendments to sock
option transactions. FIN 44 is effective July 1, 2000, but certain
conclusions cover specific events that occur after either December 15,
9
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(2) Significant Accounting Policies (continued)
1998 or January 12, 2000. To the extent that FIN 44 covers events
occurring during the period from December 15, 1998 and January 12,
2000, but before July 1, 2000, the effects of applying this
Interpretation are to be recognized on a prospective basis. The Company
has not yet assessed the impact, if any, that FIN 44 might have on its
financial position or results of operations.
In December 1999, the SEC released Staff Accounting Bulletin ("SAB")
No. 101, "Revenue Recognition in Financial Statements", which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. Subsequently, the SEC released
SAB 101A, which delayed the implementations date of SAB 101 for
registrants with fiscal years beginning between December 16, 1999 and
March 15, 2000. The Company has not yet assessed the impact, if any,
that SAB 101 might have on its financial position or results of
operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments and
hedging activities. As amended by SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of Effective
Date of FASB Statement No. 133", SFAS 133 is effective for all fiscal
years beginning after June 15, 2000. The Company will adopt SFAS 133
effective at the beginning of its fiscal year end 2001. The Company
does not believe that the adoption of SFAS 133 will have a material
effect on the Company's financial position or results of operations.
(c) Reclassifications
Certain 1999 amounts have been reclassified to conform with the 2000
presentation.
(3) Discontinued Operations
Loss from discontinued operations consists of the following:
Three months ended
March 31,
---------------------
1999 2000
--------- ----------
(in thousands)
Network Services (a) $ (412) -
Satellite Services (b) 301 -
--------- ----------
Loss from discontinued
operations $ (111) -
========= ==========
(a) Network Services
On July 15, 1999, the Company's board of directors adopted a formal
plan to dispose of the Company's investments in its wholly-owned
subsidiaries, ICG Fiber Optic Technologies, Inc. and Fiber Optic
Technologies of the Northwest, Inc. (collectively, "Network Services").
Accordingly, the Company's consolidated financial statements reflect
the operations of Network Services as discontinued for all periods
presented. On October 22, 1999, the Company completed the sale of all
of the capital stock of Network Services to ACS Communications, Inc.
for total proceeds of $23.9 million in cash.
10
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Discontinued Operations (continued)
(b) Satellite Services
On July 15, 1999, the Company's board of directors adopted a formal
plan to dispose of the Company's investments in ICG Satellite
Services, Inc. and Maritime Telecommunications Network, Inc.
(collectively, "Satellite Services"). Accordingly, the Company's
consolidated financial statements reflect the operations of Satellite
Services as discontinued for all periods presented. On November 30,
1999, the Company completed the sale of all of the capital stock of
Satellite Services to ATC Teleports, Inc. for total proceeds of $98.1
million in cash.
(c) 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 and predecessor to EarthLink, Inc.
("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 included
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 (the "MindSpring Capacity Agreement"). The MindSpring Capacity
Agreement was amended during the first quarter of 2000 to extend the
terms of the agreement through May 2000. MindSpring utilized the
Company's network capacity under this agreement to provide Internet
access to the dial-up services customers formerly owned by NETCOM. In
addition, the Company received for a one-year period 50% of the gross
revenue earned by MindSpring from the dedicated access customers
formerly owned by NETCOM. 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. The
gain and related income taxes were adjusted during the nine months
ended December 31, 1999 to record actual results. Offsetting the gain
on the sales during the three months ended March 31, 1999 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. Additionally, since the Company
expected to generate operating costs in excess of revenue under the
MindSpring Capacity Agreement 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 $35.5
million of the proceeds from the sale agreement to be applied on a
periodic basis to the network capacity agreement. The deferred proceeds
were recognized in the Company's statement of operations as the Company
incurred cash operating losses under the network capacity agreement.
Accordingly, the Company did not recognize any revenue, operating costs
11
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(3) Discontinued Operations (continued)
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, was recognized in the Company's consolidated statement of
operations as incurred. During the three months ended March 31, 2000,
$6.2 million in losses related to the MindSpring customers were offset
against the deferred amount. As of March 31, 2000, all amounts deferred
in relation to the MindSpring Capacity Agreement have been offset by
losses incurred under the agreement. The Company, through NetAhead, is
currently utilizing the retained network operating assets to provide
wholesale capacity and other enhanced network services on an ongoing
basis to MindSpring under an extension of the original network capacity
agreement as well as to other ISPs and telecommunications providers.
Operating results from such services have been included in the
Company's 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.
(4) Investments
On February 22, 2000, the Company purchased 61,845 shares of restricted
Series D Preferred Stock ("Cyras Preferred Stock") of Cyras Systems, Inc.,
("Cyras"), for approximately $1.0 million. Cyras is a manufacturer of
telecommunications equipment. Dividends on the Cyras Preferred Stock are 8%
per annum, noncumulative and payable in cash or any Cyras assets legally
available and as declared by the board of directors of Cyras. The Cyras
Preferred Stock is automatically convertible into shares of common stock of
Cyras upon the initial public offering of the common stock of Cyras or upon
the election to convert by more than 66% of all of the preferred
stockholders of Cyras.
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") which was converted into
555,555 shares of Class B Common Stock of NorthPoint (the "NorthPoint Class
B Shares") on May 5, 1999. The NorthPoint Class B Shares were then
converted on March 30, 2000 on a one-for-one basis into a voting class of
common stock of NorthPoint. The Company accounted for its investment in
NorthPoint under the cost method of accounting until the NorthPoint Class B
Shares were converted into voting and tradable common stock of NorthPoint,
after which the investment was classified as an available for sale
security. During the three months ended March 31, 2000, the Company sold
95,555 of the NorthPoint shares for proceeds of approximately $2.2 million.
A gain of approximately $0.5 million was recognized on the sale. All shares
remaining at March 31, 2000 are classified as available for sale with
unrealized gains on the investment of $2.3 million recorded as a component
of stockholders' equity.
12
<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:
December 31, March 31,
1999 2000
------------- -------------
(in thousands)
Senior Facility due on scheduled
maturity dates, secured by
substantially all of the assets of
ICG Equipment and NetAhead with
weighted average interest rates ranging
from 9.26% to 9.65% for the three months
ended March 31, 2000 $ 79,625 174,438
9 7/8% Senior discount notes of ICG
Services, net of discount 293,925 301,064
10% Senior discount notes of ICG
Services, net of discount 361,290 370,213
11 5/8% Senior discount notes of
Holdings, net of discount 137,185 141,079
12 1/2% Senior discount notes of
Holdings, net of discount 468,344 482,682
13 1/2% Senior discount notes of
Holdings, net of discount 532,252 550,022
Mortgage payable with interest at 8
1/2%, due monthly into 2009,
secured by building 999 982
Mortgage loan payable with
adjustable rate of interest
(15.21% at March 31, 2000), due
monthly into 2013, secured by
corporate headquarters 33,077 33,077
------------- -------------
1,906,697 2,053,557
Less current portion (796) (796)
------------- -------------
$ 1,905,901 2,052,761
============= =============
(a) Senior Facility
During the quarter ended March 31, 2000, the Company borrowed the
remaining $95.0 million available under the $100.0 million term loan.
The $100.0 million outstanding under the $100.0 million term loan
bears interest at a weighted average interest rate of 9.26% for the
three months ended March 31, 2000.
Redeemable preferred stock of subsidiary is summarized as follows:
December 31, March 31,
1999 2000
-------------- ------------
(in thousands)
14% Exchangeable preferred stock of
Holdings, mandatorily redeemable
in 2008 $ 144,144 149,384
14 1/4% Exchangeable preferred
stock of Holdings, mandatorily
redeemable in 2007 246,751 255,819
-------------- ------------
$ 390,895 405,203
============== ============
13
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Commitments and Contingencies
(a) Network Capacity and Construction
In January 2000, Qwest Communications Corporation ("Qwest") and the
Company signed an agreement, whereby the Company will provide, for
$126.5 million over the initial 6-year term of the agreement, an
indefeasible right of use ("IRU") for designated portions of the
Company's local fiber optic network. The Company will recognize
revenue ratably over the term of the agreement, as the network
capacity is available for use. Payments will be received in
installments through June 18, 2000. The agreement was amended in March
2000 to include additional capacity for proceeds of $53.8 million to
be received in installments through September 18, 2000. Qwest may, at
its option, extend the initial term of the agreement for an additional
four-year period and an additional 10-year period for incremental
payment at the time of the option exercises. In the event that the
Company fails to deliver any of the network capacity by March 31,
2001, Qwest is entitled to cancel any undelivered network capacity
segments and receive immediate refund of any amounts already paid to
the Company for such segments.
In June 1999, the Company signed a minimum 10-year agreement to lease
certain portions of its fiber optic network to Qwest for $32.0
million, which was received in full by the Company in June 1999. The
Company has accounted for the agreement as a sales-type lease and is
recognizing revenue and operating costs in its consolidated financial
statements on a percentage of completion basis as the network
build-out is completed and is available for use. On March 23, 2000,
the final network facilities to be included under the agreement were
identified and made available for use allowing the Company to
recognize all remaining revenue under the agreement except amounts
deferred related to maintenance services. For the three months ended
March 31, 2000, the Company included $11.5 million and $1.1 million in
revenue and operating costs, respectively, in its consolidated
financial statements related to the agreement, including revenue
attributed to maintenance services, which is recognized ratably over
the term of the agreement. Approximately $2.4 million of the total
proceeds received related to maintenance services remain in deferred
revenue in the Company's consolidated balance sheet at March 31, 2000.
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 $124.4 million at
March 31, 2000. The agreement has been accounted for as a capital
lease in the accompanying consolidated balance sheets.
(b) Telecommunications and Line Purchase Commitments
In November 1999, the Company entered into a one-year agreement with
Covad Communications Company, ("Covad"), to purchase digital subscriber
line ("DSL") services from Covad. Under the agreement, the Company is
required to purchase a minimum amount of DSL services before designated
intervals over the one-year period.
Effective September 1998, the Company entered into two service
agreements with three-year terms with WorldCom Network Services, Inc.
("WorldCom"). 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
14
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Commitments and Contingencies (continued)
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
has successfully achieved all minimum revenue commitments to WorldCom
under these agreements through March 31, 2000.
(c) Other Commitments
During the first quarter of 2000, the Company signed a letter of intent
with Cisco Systems, Inc. for financing of certain future capital
expenditures. The Company believes that this proposed financing
agreement will better enable the Company to fund its scheduled network
expansion through the purchase of Cisco equipment. The proposed Cisco
credit facility will provide the Company with up to $180.0 million of
capital lease financing with a three-year repayment term. During the
first quarter of 2000, $50.0 million of the capital lease financing
with Cisco was finalized and $11.5 million was drawn down under the
facility.
The Company has entered into various other 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 $386.9 million at March 31, 2000.
(d) Transport and Termination Charges
The Company has recorded revenue of approximately $30.8 million and
$35.5 million for the three months ended March 31, 1999 and 2000,
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. During the period, some of the ILECs have not paid all of
the bills they have received from the Company and have disputed these
charges based on the belief that such calls are not local traffic as
defined by the various agreements and not subject to payment of
transport and termination charges under state and federal laws and
public policies. In addition, some ILECs, while paying a portion of
reciprocal compensation due to ICG for ISP-bound traffic, have disputed
other portions of the charges.
The resolution of these disputes have been, and will continue to be,
based on rulings by state public utility commissions and/or by the
Federal Communications Commission ("FCC"), or through negotiations
between the parties. The Company has aggressively participated in state
and federal regulatory and judicial proceedings that address the
obligation of the ILECs to pay the Company reciprocal compensation for
ISP-bound traffic under the Company's interconnection agreements.
Subsequent to the issuance of favorable state regulatory rulings
by the Colorado, Ohio and California state commissions, the
15
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Commitments and Contingencies (continued)
Company has received payments from US West, Pacific Bell and
GTE-California for certain amounts owed for reciprocal compensation
totaling $52.4 million through March 31, 2000.
Additionally, through March 31, 2000, Southwestern Bell Telephone
Company ("SWBT") has remitted payment to the Company of $5.4 million
for reciprocal compensation owed to the Company for traffic from SWBT
customers in Texas to ISPs served by the Company. On December 29, 1999,
SWBT initiated commercial arbitration to determine whether the terms of
the Company's current interconnection agreement with SWBT require that
the rates that the Company has been billing SWBT for reciprocal
compensation be reduced to rates established by the Texas PUC in a 1998
consolidated arbitration with SWBT involving AT&T Corporation, MCI
Communications Corporation and other parties. Due to subsequent
procedural developments, this issue will be decided by the Texas PUC,
rather than in commercial arbitration; the Texas PUC proceeding is
pending.
On September 16, 1999, the CPUC rendered a decision against
MFS/Worldcom, a CLEC ("MFS"), in an arbitration between Pacific Bell
and MFS. The California PUC ruled that MFS should not be permitted to
charge reciprocal compensation rates for the tandem switching and
common transport rate elements. Although the California PUC's ruling
did not involve the Company, the Company made a decision effective for
the three months beginning on September 30, 1999 and thereafter to
suspend the revenue recognition for the tandem switching and common
transport rate elements for services provided in California and in all
other states where the Company operates and such rate elements are
included in the Company's interconnection agreement with the ILEC.
Additionally, the Company recorded a provision of $45.2 million during
the three months September 30, 1999 for accounts receivable related to
these elements recognized in periods through June 30, 1999, which the
Company believes may be uncollectible. The Company ceased recording
revenue for the tandem and transport elements of local reciprocal
compensation until the cash is received effective June 30, 1999. The
Company continues to bill Pacific Bell for the tandem switching and
common transport rate elements, and will pursue collection of its
accounts receivable, despite any provision. On February 4, 2000, the
California PUC initiated a new proceeding to examine, on a prospective
basis, compensation for ISP-bound traffic, including the tandem and
transport rate elements issue.
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
currently 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
is properly 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.
On March 24, 2000, the United States Court of Appeals for the District
of Columbia Circuit vacated and remanded the FCC's February 25, 1999
decision. The Company does not believe that the Circuit Court's
decision will adversely affect favorable state regulatory and judicial
decisions awarding reciprocal compensation for ISP traffic. The
decision does, however, create some uncertainty with respect to the
timing of future regulatory decisions, and there can be no assurance
that future FCC or state commission rulings will be favorable to the
Company.
16
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Commitments and Contingencies (continued)
The Company has also recorded revenue of approximately $5.2 million and
$5.5 million for the three months ended March 31, 1999 and 2000,
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 net trade receivables at March 31,
2000 are approximately $55.0 million, for all receivables related to
reciprocal compensation and other transport and termination charges.
As the Company's interconnection agreements expire or are extended,
rates for transport and termination charges are being and will continue
to be renegotiated and/or arbitrated. Rates for transport and
termination also may be impacted by ongoing state and federal
regulatory proceedings addressing intercarrier compensation for
Internet traffic on a prospective basis. In addition to the FCC's
pending rulemaking proceeding and the District of Columbia Court of
Appeals recent remand, of the states in which ICG currently operates,
the Ohio, Texas and California commissions currently are conducting
proceedings on prospective compensation.
The Company has negotiated and/or arbitrated new or extended
interconnection agreements with BellSouth, Ameritech, GTE-California
and Pacific Bell. The Company has completed arbitration proceedings
with BellSouth before the state commissions in Alabama, North Carolina,
Georgia, Kentucky, Florida and Tennessee and with Ameritech before the
Ohio commission. Final decisions issued by the Alabama, North Carolina,
Kentucky and Georgia commissions awarded the Company reciprocal
compensation for ISP traffic in new agreements to be executed by the
parties, including the tandem and transport rate element. The
arbitration decisions of the Florida and Ohio commissions declined to
rule on the merits of whether the Company should be paid reciprocal
compensation for ISP traffic. The Florida decision ruled that the
compensation provisions of the parties' current interconnection
agreement would continue to apply, subject to true up, until the
completion of the FCC's rulemaking on future compensation. The Ohio
commission deferred ruling on the merits until completion of the Ohio
commission's generic proceeding on prospective compensation, and
ordered that in the interim period until completion of the generic
proceeding, bill and keep procedures should be followed, subject to
true up once the commission proceeding is concluded. Arbitration
proceedings with US West before the Colorado commission and with SWBT
before the Texas commission are pending.
Subsequent to completion of the arbitration proceedings with BellSouth,
the Company signed a three-year agreement with BellSouth that, among
other issues, addresses the payment of reciprocal compensation for
Internet traffic. BellSouth agreed to pay past monies due to the
Company for local reciprocal compensation for the period beginning when
ISP traffic was first received by the Company from BellSouth and ending
December 31, 1999, and the parties also agreed to the payment of
reciprocal compensation for Internet and voice traffic for the period
from January 1, 2000 through December 31, 2002 at per-minute rates that
gradually reduce over the three year period. The agreement is
applicable to all nine states in the BellSouth operating territory.
While the Company intends to pursue the collection of all receivables
related to transport and termination charges and believes that future
revenue from transport and termination charges recognized under the
Company's interconnection agreements will be realized, there can be no
assurance that future regulatory and judicial rulings will be favorable
to the Company, or that different pricing plans for transport and
termination charges between carriers will not be adopted when the
Company's interconnection agreements continue to be renegotiated or
arbitrated, or as a result of FCC or state commission proceedings on
future compensation methods. In fact, the Company believes that
different pricing plans will continue to 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 subsequent periods, the Company's local
termination services still will be required by the ILECs and
17
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(6) Commitments and Contingencies (continued)
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
and/or arbitrate 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 (Case 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 the Court of Appeals affirmed the
trial court's decision. In April 2000, the Company reached a tentative
settlement arrangement with the plaintiffs. Under the terms of the
proposed settlement, the Company would be completely released from all
claims of the plaintiffs. The settlement would not have a material
adverse effect on the Company's financial condition, results of
operations or cash flows. If the parties are unable to finalize a
settlement, an expedited trial will take place and the Company will
vigorously defend against the plaintiffs' claims.
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 business unit. Administrative services
are provided to Telecom Services 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., ICG Services, Inc., ICG Tevis, Inc., ICG Corporate
Headquarters, L.L.C., ICG 161, L.P. and ICG Mountain View, Inc., which
primarily hold securities and real estate properties and provide certain
legal, accounting and finance, personnel and other administrative support
services to Telecom Services.
Direct and certain indirect costs incurred by Corporate Services on behalf
of Telecom Services are allocated to Telecom Services based on the nature
of the underlying costs. Transactions between Telecom Services and
Corporate Services 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 and noncash
charges), which represents the measure of operating performance used by
management to evaluate operating results, depreciation and amortization,
operating loss, interest expense, capital expenditures of continuing
operations and total assets for Telecom Services and Corporate Services. As
described in note 3, the operating results of the Company reflect the
operations of Network Services, Satellite Services, 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)
Three months ended
March 31,
----------------------
1999 2000
---------- ----------
(in thousands)
Revenue:
Telecom Services $ 104,331 157,224
Corporate Services - -
---------- ----------
Total revenue $ 104,331 157,224
========== ==========
EBITDA (before nonrecurring and
noncash charges) (a):
Telecom Services $ 12,257 25,093
Corporate Services (4,383) (5,860)
---------- ----------
Total EBITDA (before
nonrecurring and
noncash charges) $ 7,874 19,233
========== ==========
Depreciation and amortization (b):
Telecom Services $ 35,229 64,324
Corporate Services 1,146 275
---------- ----------
Total depreciation and
amortization $ 36,375 64,599
========== ==========
Operating loss:
Telecom Services $ 21,885 39,231
Corporate Services 5,683 6,567
---------- ----------
Total operating loss $ 27,568 45,798
========== ==========
Interest expense (b):
Telecom Services $ - 4,975
Corporate Services 47,438 57,659
---------- ----------
Total interest expense $ 47,438 62,634
========== ==========
Extraordinary (loss) gain:
Telecom Services $ 193,029 -
Corporate Services - -
---------- ----------
Total extraordinary (loss) gain $ 193,029 -
========== ==========
Capital expenditures of continuing
operations (c):
Telecom Services $ 102,911 213,208
Corporate Services - -
---------- ----------
Total capital expenditures
of continuing operations $ 102,911 213,208
========== ==========
December 31, March 31,
1999 2000
------------- -------------
(in thousands)
Total assets:
Telecom Services (d) $ 1,845,171 1,989,189
Corporate Services (d) 261,085 157,677
Eliminations (85,635) (71,529)
------------- -------------
Total assets $ 2,020,621 2,075,337
============= =============
19
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(7) Business Units (continued)
(a) EBITDA (before nonrecurring and noncash 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, revenue less operating costs and selling, general
and administrative expenses. EBITDA (before nonrecurring and noncash
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 and noncash
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 and
noncash 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 and noncash
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 with cash, under capital
leases and pursuant to IRU agreement and excludes payments for
construction of the Company's corporate headquarters of $1.7 million
during the three months ended March 31, 2000 and corporate
headquarters assets acquired through the issuance of long-term debt of
$33.7 million during the three months ended March 31, 1999.
(d) Total assets of Telecom Services and Corporate Services excludes
investments in consolidated subsidiaries which eliminate in
consolidation.
(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 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:
20
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(8) Summarized Financial Information of ICG Holdings, Inc. (continued)
Summarized Consolidated Balance Sheet Information
December 31, March 31,
1999 2000
------------ ------------
(in thousands)
----------------------------
Current assets $ 263,870 193,763
Property and equipment, net 675,613 736,724
Other non-current assets, net 128,489 105,551
------------ ------------
Total assets $1,067,972 1,036,038
============ ============
Current liabilities 148,042 175,785
Long-term debt, less current
portion 1,138,734 1,174,719
Capital lease obligations, less
current portion 57,564 57,220
Other long-term liabilities 1,233 3,649
Due to parent 256,348 271,252
Due to ICG Services 128,893 121,691
Redeemable preferred stock 390,895 405,203
Stockholder's deficit (1,053,737) (1,173,481)
------------ ------------
Total liabilities and
stockholders' deficit $1,067,972 1,036,038
============ ============
Summarized Consolidated Statement of Operations Information
Three months ended March 31,
--------------------------
1999 2000
------------ ------------
(in thousands)
Total revenue $ 105,733 152,877
Total operating costs and
expenses 138,105 206,659
------------ ------------
Operating loss $ (32,372) (53,782)
============ ============
Loss from continuing operations $ (67,370) (119,744)
============ ============
Net loss $ (82,250) (119,744)
============ ============
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
December 31, March 31,
1999 2000
-------------- -------------
(in thousands)
------------------------------
Current assets $ 82 82
Advances to subsidiaries 256,348 271,252
Non-current assets, net - 255,931
-------------- -------------
Total assets $ 256,430 527,265
============== =============
Current liabilities 73 73
Long-term debt, less
current portion - -
Due to parent 246,609 517,444
Share of losses of
subsidiaries 1,053,737 1,173,481
Shareholders' deficit (1,043,989) (1,163,733)
-------------- -------------
Total liabilities and
shareholders' deficit $ 256,430 527,265
============== =============
Condensed Statement of Operations Information
Three months ended
March 31,
-------------------------
1999 2000
------------ -----------
Total revenue $ - -
Total operating costs and
expenses 603 -
------------ -----------
Operating loss $ (603) -
============ ===========
Losses of subsidiaries (82,250) (119,744)
Net loss attributable to
common shareholders $ (82,853) (119,744)
============ ===========
(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, 1999 and 2000. ICG has no operations other than those of
ICG Services, ICG Funding and Holdings-Canada and their subsidiaries.
(11) Events Subsequent to March 31, 2000
On April 10, 2000, the Company sold 75,000 shares of 8% Series A-1, A-2 and
A-3 Convertible Preferred Stock of ICG (the "Convertible Preferred Stock")
and 10,000,000 warrants to purchase ICG Common Stock to affiliates of
Liberty Media Corporation ("Liberty Media"), Hicks, Muse, Tate & Furst
Incorporated ("Hicks Muse") and Gleacher Capital Partners ("Gleacher
Capital") (collectively, "the Investors"). The sale of the Convertible
Preferred Stock resulted in proceeds to the Company of $750.0 million
22
<PAGE>
ICG COMMUNICATIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
(11) Events Subsequent to March 31, 2000 (continued)
(before cash fees and expenses of approximately $36.0 million). Each share
of Convertible Preferred Stock has an initial liquidation preference of
$10,000 per share and bears cumulative dividend rate of 8% per annum,
compounded quarterly. Dividends accrete to the liquidation preference on a
quarterly basis for five years and are payable in cash or additional
liquidation preference accretion thereafter. In the event of a change in
control of the Company, as defined in the agreement, occurring prior to
five years from the date of issuance of the Convertible Preferred Stock,
the Company is, in most instances, required to make a special dividend
payment to the Convertible Preferred Stockholders equal to the difference
between the fully accreted liquidation preference of the Convertible
Preferred Stock five years from the date of issuance and the existing
liquidation preference on the date of the change in control. In addition,
the Company has the right, but not the obligation, to offer to repurchase
the Convertible Preferred Stock at 101% of the liquidation preference on
the date of the change in control (after giving effect to the special
dividend, if applicable).
The Convertible Preferred Stock is immediately convertible into shares of
ICG Common Stock at a conversion rate of $28.00 per share, subject to
adjustment and will have voting rights with the common stockholders on an
as-converted basis. The holders of the Series A-1 and A-2 Convertible
Preferred Stock collectively will be entitled to elect up to three
directors to the Company's Board of Directors. Additionally, certain
material transactions outside the ordinary course of business will require
an affirmative vote of at least one of the three directors elected by the
holders of the Series A-1 and A-2 Convertible Preferred Stock. The Company
may redeem the Convertible Preferred Stock at any time after five years
from the date of issuance through 15 years from the date of issuance, at
which time the Convertible Preferred Stock is mandatorily redeemable. The
warrants to purchase ICG Common Stock are immediately convertible into
shares of ICG Common Stock at a conversion rate of $34.00 per share
and expire in five years from the date of issuance. The affiliates of
Liberty Media, Hicks Muse and Gleacher Capital purchased $500.0 million,
$230.0 million and $20.0 million, respectively, in Convertible Preferred
Stock and received a ratable portion of the total 10,000,000 warrants.
Separately, on February 28, 2000, ICG Tevis, Inc., a subsidiary of the
Company, agreed to purchase, subject to regulatory approvals, 1,000,000
shares of common stock of Teligent, Inc., a fixed wireless broadband
communications provider ("Teligent"), from a subsidiary of Teligent in
exchange for 2,996,076 shares of ICG Common Stock.
23
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion includes certain forward-looking statements and
information that is based on the beliefs of management as well as assumptions
made by and information currently available to the Company. When used in this
document, the words "anticipate", "believe", "estimate" and "expect" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in this document. These
forward-looking statements are affected by important factors, including, but not
limited to, the ability of the Company to obtain adequate financing to fund
expansion, the 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, the 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, 1999 and 2000
represent the consolidated operating results of the Company. See the unaudited
consolidated financial statements of the Company for the three months ended
March 31, 2000 included elsewhere herein. The Company's consolidated financial
statements reflect the operations of Network Services, Satellite Services, 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 a facilities-based
communications provider and, based on revenue and customer lines in service, is
one of the largest competitive communications companies in the United States.
The Company primarily offers voice and data services directly to small- to
medium-sized business customers and offers network facilities and data
management to ISP customers. In addition, the Company offers special access and
switched access services to long-distance companies and other customers.
The Company began marketing and selling local dial-tone services in major
metropolitan areas in early 1997 subsequent to passage of the Telecommunications
Act, which permitted competitive interstate and intrastate telephone services
including local dial tone. During the first quarter of 2000, the Company offered
competitive telephone services in 31 states within the United States. In early
1998, the Company acquired NETCOM On-Line Communication Services, Inc.
("NETCOM"), which provided the Company with a Tier 1 national data network that
enabled the Company to launch its business of providing network infrastructure
to ISPs. By March 31, 2000, the company had 904,629 customer lines and data
access ports in service, approximately 12,000 business customers and
approximately 500 ISP customers.
At March 31, 2000 the Company's Tier 1 nationwide data network included
public and private peering locations, 227 POPs, 16 frame relay switches and
high-performance routers connecting a backbone of 24 ATM switches and 18,000
miles of leased long-haul fiber lines. In addition, at March 31, 2000, the
Company had 35 voice switches, 4,807 miles of local fiber and connections to
8,792 buildings.
As of March 31, 2000, the Company had approximately 650,000 data access
ports in service. The Company provides data access and transport services to
ISPs that in many cases rely on the Company to provide network ownership and
management. The Company's current product offerings to the ISP market include
dial-up products such as primary rate interface ("PRI"), remote access service
("RAS") and Internet remote access service ("IRAS"), as well as broadband access
services including T-1 and T-3 connections and DSL.
As of March 31, 2000, the Company had approximately 250,000 business
customer lines in service. Voice and data communication services offered to
business customers include local, long distance and enhanced telephony services
through its Internet protocol, circuit switch and regional fiber optic networks.
In regional markets, the Company is a cost-efficient alternative to the area's
incumbent local telephone company for businesses.
The Company also provides interexchange services to long-distance carriers
24
<PAGE>
and other customers including "special access" services that connect end-users
to long-distance carrier's facilities, connect a long-distance carrier's
facilities to the local telephone company central office and connect facilities
of the same or different long-distance carrier.
During the first quarter of 2000, the Company realized significant growth
as demonstrated by a 51% increase in revenue over the first quarter of 1999 and
a more than doubling of the number of lines in service compared to March 31,
1999. The Company's business continues to grow as a result of increased Internet
demand, new technologies and increased market share for customers traditionally
served by incumbent telephone companies. The Company's year 2000 business plan
calls for accelerated network expansion into 22 new major metropolitan areas.
The Company will also invest in developing and delivering new products and
services to add to its portfolio of offerings to each market segment.
To better focus its efforts on its core business operations, the Company
disposed of certain assets which management believed did not complement its
overall business strategy. During the year ended December 31, 1999, the Company
sold non-core assets and related securities for net cash proceeds of
approximately $405 million, including the sale of the Company's retail ISP
customer business and its Network Services and Satellite Services divisions (see
note 3, "Discontinued Operations" in the unaudited consolidated financial
statements of the Company for the three months ended March 31, 2000 included
elsewhere herein). The Company also centralized its provisioning process with
two new provisioning centers that replaced 30 regional centers and is in the
process of installing new, comprehensive operating support systems ("OSS") from
Telcordia for provisioning service and from Saville for customer billing.
In conjunction with the increase in its service offerings, the Company has
and will continue to need to spend significant amounts of capital on equipment,
sales, marketing, customer service, engineering and support personnel prior to
the generation of corresponding revenue. EBITDA losses, EBITDA (before
nonrecurring and noncash charges) losses and operating and net losses have
generally increased immediately preceding and during periods of relatively rapid
network expansion and development of new services. The Company reported positive
EBITDA (before nonrecurring and noncash charges) of $19.2 million for the
quarter ended March 31, 2000. As the Company provides a greater volume of higher
margin 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 improve.
Results of Operations
The following table provides certain statement of operations data and
certain other financial data for the Company for the periods indicated. The
table also presents revenue, operating costs and expenses, operating loss,
EBITDA and EBITDA (before nonrecurring and noncash charges) as a percentage of
the Company's total revenue.
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<PAGE>
Three months ended March 31,
--------------------------------------------
1999 2000
-------------------- ---------------------
$ % $ %
--------- -------- --------- ---------
(unaudited)
Statement of Operations Data: (in thousands)
Revenue 104,331 100 157,224 100
Operating costs 53,649 51 82,902 53
Selling, general and
administrative 42,808 41 55,089 35
Depreciation and
amortization 36,375 35 64,599 41
Other expense (income), net (933) (1) 432 -
--------- -------- --------- ---------
Operating loss (27,568) (26) (45,798) (29)
Other Data:
Net cash used by operating
activities (47,905) (7,234)
Net cash (used) provided
by investing activities 133,100 (121,468)
Net cash (used) provided
by financing activities (456) 66,207
EBITDA (1) 8,807 8 18,801 12
EBITDA (before nonrecurring
and noncash charges) (1) 7,874 8 19,233 12
Capital expenditures of
continuing operations (2) 102,911 213,208
Capital expenditures of
discontinued operations (2) 2,805 -
<TABLE>
<CAPTION>
March 31, June 30, September 30, December 31, March 31,
1999 1999 1999 1999 2000
------------- ------------- ------------- ------------- -------------
(unaudited)
Statistical Data (3):
<S> <C> <C> <C> <C> <C>
Full time employees 2,665 2,753 3,054 2,853 2,930
Telecom services:
Access lines in
service (4) 418,610 494,405 584,827 730,975 904,629
Buildings connected:
On-net 789 874 939 963 1,046
Hybrid (5) 5,337 5,915 6,476 7,115 7,746
------------- ------------- ------------- ------------- -------------
Total buildings
connected 6,126 6,789 7,415 8,078 8,792
Operational switches:
Circuit 29 29 29 31 35
ATM - - - 24 24
Frame Relay 17 16 16 16 16
------------- ------------- ------------- ------------- -------------
Total operational
switches 46 45 45 71 75
Regional fiber route
miles (6):
Operational 4,351 4,406 4,449 4,596 4,807
Under construction - - - - 368
Regional fiber strand
miles (7):
Operational 155,788 164,416 167,067 174,644 177,103
Under construction - - - - 17,813
Long-haul broadband
route miles - - - 18,000 18,000
Collocations with ILECs 111 126 139 147 183
</TABLE>
(1) 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, operating loss plus depreciation and amortization. EBITDA
(before nonrecurring and noncash charges) represents EBITDA before certain
nonrecurring charges such as the net loss (gain) on disposal of long-lived
assets and other, net operating costs and expenses, including deferred
compensation. EBITDA and EBITDA (before nonrecurring and noncash charges)
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<PAGE>
are provided because they are measures commonly used in the
telecommunications industry. EBITDA and EBITDA (before nonrecurring and
noncash 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
and noncash 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.
(2) Capital expenditures include assets acquired with cash, under capital
leases, pursuant to IRU agreement and through the issuance of debt or
warrants and excludes payments for construction of the Company's corporate
headquarters of $1.7 million during the three months ended March 31, 2000
and corporate headquarters assets acquired through the issuance of
long-term debt of $33.7 million during the three months ended March 31,
1999. Capital expenditures of discontinued operations includes the capital
expenditures of Network Services, Satellite Services, Zycom and NETCOM
combined for all periods presented.
(3) Amounts presented are for three-month periods ended, or as of the end of
the period presented.
(4) Access lines in service at March 31, 2000 includes approximately 90% of
lines provisioned through the Company's switch with the remainder
provisioned through resale and other agreements with various local exchange
carriers. Resale lines are used primarily to obtain customers. Although the
Company plans to continue to migrate lines from resale to higher margin
on-switch lines, there is no assurance that it will be successful in
executing this strategy.
(5) Hybrid buildings connected represent buildings connected to the Company's
network via another carrier's facilities.
(6) Regional fiber route miles refers to the number of miles of regional fiber
optic cable, including leased fiber. As of March 31, 2000, the Company had
4,807 regional fiber route miles, of which 48 regional fiber route miles
were leased under operating leases. Regional fiber route miles under
construction represents fiber under construction which is expected to be
operational within six months.
(7) Regional fiber strand miles refers to the number of regional fiber route
miles, including leased fiber, along a telecommunications path multiplied
by the number of fiber strands along that path. As of March 31, 2000, the
Company had 177,103 regional fiber strand miles, of which 856 regional
fiber strand miles were leased under operating leases. Regional fiber
strand miles under construction represents fiber under construction which
is expected to be operational within six months.
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenue. Total revenue of $157.2 million for the three months ended March
31, 2000 increased $52.9 million, or 51%, from the three months ended March 31,
1999. Local services revenue increased from $67.4 million (or 65% of total
revenue) for the three months ended March 31, 1999 to $102.6 million (or 65% of
total revenue) for the three months ended March 31, 2000, primarily due to an
increase in the local access lines at March 31, 1999 as compared to those in
service at March 31, 2000. In addition, local access revenue includes revenue of
approximately $30.8 million and $35.5 million for the three months ended March
31, 1999 and 2000, respectively, for reciprocal compensation relating to the
transport and termination of local traffic to ISPs from customers of ILECs
pursuant to various interconnection agreements. Certain of 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." Local
access revenue during the three months ended March 31, 2000 also includes
approximately $4.3 million in revenue for the period from February 18, 2000
through March 31, 2000 from the MindSpring Capacity Agreement which prior to
February 17, 2000 had been offset against the deferred gain on the sale of
NETCOM assets. Special access revenue increased from $22.6 million (or 22% of
total revenue) for the three months ended March 31, 1999 to $39.8 million (or
25% of total revenue) for the three months ended March 31, 2000. The increase in
special access revenue is due to increased sales as well as $11.5 million of
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<PAGE>
revenue recognized during the three months ended March 31, 2000 under the
Company's fiber optic lease agreement with a major interexchange carrier.
Switched access (primarily terminating long distance) and SS7 revenue increased
to $10.5 million for the three months ended March 31, 2000, compared to $9.2
million for the three months ended March 31, 1999. The Company has selectively
raised prices on its wholesale switched services products in order to improve
margins. Revenue from long distance services decreased from $5.1 million for the
three months ended March 31, 1999 to $4.3 million for the three months ended
March 31, 2000. The Company's long distance revenue for the three months ended
March 31, 2000 was impacted by planned attrition of resale access lines which
had high long distance service penetration rates.
Operating costs. Total operating costs increased $29.3 million, or 55%,
from $53.6 million for the three months ended March 31, 1999 to $82.9 million
for the three months ended March 31, 2000. Operating costs increased as a
percentage of revenue from 51% for the three months ended March 31, 1999 to 53%
for the three months ended March 31, 2000. Operating costs consist of payments
to ILECs for the use of network facilities to support local, special and
switched access services, network operating costs, right of way fees and other
costs. The increase in operating costs in absolute dollars and as a percentage
of revenue is attributable to the increase in volume of local and special access
services, the increase in network operating costs which include engineering and
operations personnel dedicated to the provision of local exchange services, the
expansion of ICG service offerings into cities where network capacity and switch
facility access is being leased from ILECs and the recognition of approximately
$9.4 million of operating expenses for the period from February 18, 2000 through
March 31, 2000 from the MindSpring Capacity Agreement which prior to February
17, 2000 had been offset against the deferred gain on the sale of NETCOM assets.
The Company expects the ratio of operating costs to revenue will improve as the
Company provides a greater volume of higher margin services, principally RAS and
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.
Selling, general and administrative expenses. Total selling, general and
administrative ("SG&A") expenses increased $12.3 million, or 29%, from $42.8
million for the three months ended March 31, 1999 to $55.1 million for the three
months ended March 31, 2000. Total SG&A expenses decreased as a percentage of
revenue from 41% for the three months ended March 31, 1999 to 35% for the three
months ended March 31, 2000. SG&A expenses related to the Company's
communication services ("Telecom Services") increased from $38.4 million, or 37%
of revenue, for the three months ended March 31, 1999 to $49.2 million, or 31%
of revenue, for the three months ended March 31, 2000. The increase in absolute
dollars is principally due to an increase in average staff levels resulting in
increased salary and benefits expense as well as the recognition of
approximately $1.0 million of SG&A expenses for the period from February 18,
2000 through March 31, 2000 from the MindSpring Capacity Agreement which prior
to February 17, 2000 had been offset against the deferred gain on the sale of
NETCOM assets. As the Company benefits from the revenue generated by newly
developed services requiring substantial administrative and marketing expense
prior to initial service offerings, principally local exchange services, SG&A
expenses have been declining as a percentage of revenue. From time to time, the
Company will experience increases in SG&A expenses as the Company prepares for
offerings of newly developed services, such as RAS. Corporate Services SG&A
expenses increased $1.5 million, from $4.4 million for the three months ended
March 31, 1999 to $5.9 million for the three months ended March 31, 2000,
primarily due to increased salary costs.
Depreciation and amortization. Depreciation and amortization increased
$28.2 million, or 78%, for the three months ended March 31, 2000, compared to
the three months ended March 31, 1999, primarily due to increased investment in
depreciable assets resulting from the continued expansion of the Company's
networks and services as well as a reduction in the overall weighted-average
useful life of depreciable assets in service. 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.
Interest expense. Interest expense increased $15.2 million, from $47.4
million for the three months ended March 31, 1999, to $62.6 million for the
three months ended March 31, 2000, which includes $53.9 million of noncash
interest. The Company's interest expense increased and will continue to
increase, because the principal amount of its indebtedness increases until the
Company's fixed rate senior indebtedness begins to pay interest in cash,
beginning in 2001. Additionally, interest expense increased due to the increase
in long-term debt associated with the senior secured financing facility (the
"Senior Facility") completed in August 1999.
28
<PAGE>
Interest income. Interest income decreased $0.8 million, from $4.1 million
for the three months ended March 31, 1999, to $3.3 million for the three months
ended March 31, 2000. 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) income, net, including unrealized gain on marketable
trading securities in 1999 and realized gain on sale of available for sale
securities in 2000. Other (expense) income, net fluctuated from a loss of $0.5
million for the three months ended March 31, 1999 to income of $0.2 million for
the three months ended March 31, 2000. For the three months ended March 31,
1999, other (expense) income, 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 retail ISP
operations of NETCOM. For the three months ended March 31, 2000, other (expense)
income primarily consists of a realized gain on the sale of a portion of the
NorthPoint common stock partially offset by other nonoperating expenses.
Accretion and preferred dividends on preferred securities of subsidiaries.
Accretion and preferred dividends on preferred securities of subsidiaries
increased $1.8 million, from $14.8 million for the three months ended March 31,
1999 to $16.6 million for the three months ended March 31, 2000. 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 2007 (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, 2000 consists of
the accretion of issuance costs $0.3 million and the accrual of the preferred
securities dividends $16.3 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
$35.4 million, or 41%, from $86.2 million for the three months ended March 31,
1999 to $121.6 million for the three months ended March 31, 2000 due primarily
to the increases in depreciation and amortization and interest expense,
partially offset by an increase in operating margin, as noted above.
Loss from discontinued operations. For the three months ended March 31,
1999, loss from discontinued operations was $0.1 million and consists of the
combined net loss of Network Services, Satellite Services, 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
of Zycom for the three months ended March 31, 1999 or 2000. Since the Company
reported 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 (loss) 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. The gain and related income taxes were adjusted during the nine
months ended December 31, 1999 to reflect actual results. Offsetting the gain on
the sales during the three months ended March 31, 1999 is approximately $16.6
million of net losses of operations of NETCOM from November 3, 1998 through the
dates of the sales. Additionally, $35.5 million of the proceeds from the sale of
certain of the domestic operating assets and liabilities of NETCOM to MindSpring
were deferred. The deferred proceeds were recognized on a periodic basis over
the term of the MindSpring Capacity Agreement.
Liquidity and Capital Resources
The Company's growth to date has been funded through a combination of
equity, debt and lease financing and non-core asset sales. The Company has also
incurred losses from continuing operations since inception and, as of March 31,
2000, had a working capital deficit of $124.0 million. As of March 31, 2000, the
Company had approximately $71.8 million of cash and short term investments and
approximately $25.0 million of credit available under the Senior Facility.
The Company has entered into several financing agreements subsequent to
and during the three months ended March 31, 2000 to provide additional capital
to support the Company's operating losses and planned capital expansion,
29
<PAGE>
including:
i) On April 10, 2000 the Company completed the sale of 75,000 shares
of 8% Series A-1, A-2 and A-3 Convertible Preferred Stock and
warrants (see note 11, "Events Subsequent to March 31, 2000" in
the unaudited consolidated financial statements of the Company
for the three months ended March 31, 2000 included elsewhere
herein) to affiliates of Liberty Media Corporation, Hicks, Muse,
Tate & Furst Incorporated and Gleacher Capital Partners. The
transaction resulted in proceeds to the Company of $750.0 million
(before cash expenses and fees of approximately $36.0 million).
ii) During the three months ended March 31, 2000, the Company signed
letters of intent with two major vendors, Cisco Systems, Inc. and
Lucent Technologies, Inc., to provide financing for the
acquisition of equipment. The proposed Cisco credit facility will
provide the Company with up to $180.0 million of capital lease
financing and is expected to close in the second quarter of 2000.
Given the closing of the equity transaction described in (i)
above, the Company has postponed finalizing the arrangements with
Lucent.
Management believes that with the completion of the preferred stock
transaction noted above, additional financing including bank financing, vendor
financing, or the issuance of high yield debt will be available to fund
operations and achieve the Company's targeted future growth through early 2001.
While the Company believes that it could obtain requisite additional financing,
there can be no assurance that such financing would be available on a timely
basis or on acceptable terms.
Net Cash Used By Operating Activities
The Company's operating activities used $47.9 million and $7.2 million for
the three months ended March 31, 1999 and 2000, respectively. Net cash used by
operating activities is primarily due to losses from continuing operations,
decreases in accounts payable and accrued liabilities and changes in accounts
receivable balances which are partially offset by changes in working capital
items and noncash expenses, such as depreciation and amortization, deferred
interest expense and accretion and preferred dividends on subsidiary preferred
securities.
Net Cash (Used) Provided By Investing Activities
Investing activities provided $133.1 million and used $121.5 million in
the three months ended March 31, 1999 and 2000, respectively. Net cash (used)
provided by investing activities includes cash expended for the acquisition of
property, equipment and other assets of $99.2 million and $141.3 million for the
three months ended March 31, 1999 and 2000, respectively. For the three months
ended March 31, 2000, net cash (used) provided by investing activities included
proceeds from the sale of short-term investments available for sale. Included in
net cash (used) 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. The
Company will continue to use cash in 2000 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 $14.4 million during the three months ended March 31, 2000.
Net Cash (Used) Provided By Financing Activities
Financing activities used $0.5 million and provided $66.2 million in the
three months ended March 31, 1999 and 2000, respectively. Net cash (used)
provided by financing activities for the three months ended March 31, 1999 and
2000 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. Net cash
provided by financing activities for the three months ended March 31, 2000 also
includes $95.0 million in proceeds from the issuance of long-term debt partially
offset by $35.2 million of payments made on the IRU agreement.
On August 12, 1999, ICG Equipment and NetAhead entered into a $200.0
million senior secured financing facility (the "Senior Facility") consisting of
a $75.0 million term loan, a $100.0 million term loan and a $25.0 million
revolving line of credit. As of March 31, 2000, $174.4 million was outstanding
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<PAGE>
under the loans at weighted average interest rates ranging from 9.26% to 9.65%
for the three months ended March 31, 2000. Quarterly repayments on the debt
commence at various dates beginning September 30, 1999 with remaining
outstanding balances maturing on June 30, 2005 for the $100.0 million term loan
and the $25.0 million line of credit and March 31, 2006 for the $75.0 million
term loan.
As of March 31, 2000, the Company had an aggregate accreted value of
approximately $1.8 billion 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. With respect to fixed rate senior indebtedness outstanding on March 31,
2000, 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.
As of March 31, 2000, an aggregate amount of $533.7 million was
outstanding under the 6 3/4% Preferred Securities, the 14% Preferred Stock and
the 14 1/4% Preferred Stock. 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. With
respect to preferred securities currently outstanding, the Company has cash
dividend obligations of approximately $6.7 million remaining 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.
Capital Expenditures
The Company's capital expenditures of continuing operations (excluding the
acquisition of corporate headquarters assets acquired through the issuance of
long-term debt of $33.7 million during the three months ended March 31, 1999 and
payments for construction of the Company's corporate headquarters of $1.7
million during the three months ended March 31, 2000 and including assets
acquired with cash, under capital leases and pursuant to IRU agreement) were
$102.9 million and $213.2 million for the three months ended March 31, 1999 and
2000, 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 $800.0
million during the remainder of 2000. In the event that the Company's efforts to
acquire new customers and deploy new services are more successful then planned,
the Company may be required to expand capital resources earlier in the year than
expected to accommodate customer demands.
During the first quarter of 2000, the Company entered into a letter of
intent with Cisco Systems, Inc. The Company believes that this financing
agreement will better enable the Company to fund its scheduled network expansion
through the purchase of Cisco equipment. The Cisco credit facility provides for
up to $180.0 million of capital lease financing with a three-year repayment
term. The Company anticipates that the Cisco transaction will close during the
second quarter of 2000. There is no assurance, however, that this transaction
will close during that time period, or at all.
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. Further, the
Company's ability to make capital expenditures to meet its business plan will
depend on numerous factors, including certain factors beyond the Company's
control. These factors include, but are not limited to, economic conditions,
competition, regulatory developments and the availability of equity, debt and
lease financing.
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<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,
2000 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. Changes in the Company's business plan may
require additional sources of cash which may be obtained through public and
private equity and debt financings, credit facilities 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,
however, 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 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 $30.8 million and $35.5
million for the three months ended March 31, 1999 and 2000, 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. During the period, some of the
ILECs have not paid all of the bills they have received from the Company and
have disputed these charges based on the belief that such calls are not local
traffic as defined by the various agreements and not subject to payment of
transport and termination charges under state and federal laws and public
policies. In addition, some ILECs, while paying a portion of reciprocal
compensation due to ICG for ISP-bound traffic, have disputed other portions of
the charges.
The resolution of these disputes have been, and will continue to be, based
on rulings by state public utility commissions and/or by the Federal
Communications Commission ("FCC"), or through negotiations between the parties.
The Company has aggressively participated in state and federal regulatory and
judicial proceedings that address the obligation of the ILECs to pay the Company
reciprocal compensation for ISP-bound traffic under the Company's
interconnection agreements. Subsequent to the issuance of favorable state
regulatory rulings by the Colorado, Ohio and California state commissions, the
Company has received payments from US West, Pacific Bell and GTE-California for
amounts owed for reciprocal compensation totaling $52.4 million through March
31, 2000.
Additionally, through March 31, 2000, Southwestern Bell Telephone Company
("SWBT") has remitted payment to the Company of $5.4 million for reciprocal
compensation owed to the Company for traffic from SWBT customers in Texas to
ISPs served by the Company. On December 29, 1999, SWBT initiated commercial
arbitration to determine whether the terms of the Company's current
interconnection agreement with SWBT require that the rates that the Company has
been billing SWBT for reciprocal compensation be reduced to rates established by
the Texas PUC in a 1998 consolidated arbitration with SWBT involving AT&T
Corporation, MCI Communications Corporation and other parties. Due to subsequent
procedural developments, this issue will be decided by the Texas PUC, rather
than in commercial arbitration; the Texas PUC proceeding is pending.
On September 16, 1999, the CPUC rendered a decision against MFS/Worldcom,
a CLEC ("MFS"), in an arbitration between Pacific Bell and MFS. The California
PUC ruled that MFS should not be permitted to charge reciprocal compensation
rates for the tandem switching and common transport rate elements. Although the
California PUC's ruling did not involve the Company, the Company made a decision
effective for the three months beginning on September 30, 1999 and thereafter to
suspend the revenue recognition for the tandem switching and common transport
rate elements for services provided in California and in all other states where
32
<PAGE>
the Company operates and such rate elements are included in the Company's
interconnection agreement with the ILEC. Additionally, the Company recorded a
provision of $45.2 million during the three months September 30, 1999 for
accounts receivable related to these elements recognized in periods through June
30, 1999, which the Company believes may be uncollectible. The Company ceased
recording revenue for the tandem and transport elements of local reciprocal
compensation until the cash is received effective June 30, 1999. The Company
continues to bill Pacific Bell for the tandem switching and common transport
rate elements, and will pursue collection of its accounts receivable, despite
any provision. On February 4, 2000, the California PUC initiated a new
proceeding to examine, on a prospective basis, compensation for ISP-bound
traffic, including the tandem and transport rate elements issue.
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 currently 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 is properly 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. On March 24, 2000, the United States Court of Appeals
for the District of Columbia Circuit vacated and remanded the FCC's February 25,
1999 decision. The Company does not believe that the Circuit Court's decision
will adversely affect favorable state regulatory and judicial decisions awarding
reciprocal compensation for ISP traffic. The decision does, however, create some
uncertainty with respect to the timing of future regulatory decisions, and there
can be no assurance that future FCC or state commission rulings will be
favorable to the Company.
The Company has also recorded revenue of approximately $5.2 million and
$5.5 million for the three months ended March 31, 1999 and 2000, 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
net trade receivables at March 31, 2000 are approximately $55.0 million, for all
receivables related to reciprocal compensation and other transport and
termination charges.
As the Company's interconnection agreements expire or are extended, rates
for transport and termination charges are being and will continue to be
renegotiated and/or arbitrated. Rates for transport and termination also may be
impacted by ongoing state and federal regulatory proceedings addressing
intercarrier compensation for Internet traffic on a prospective basis. In
addition to the FCC's pending rulemaking proceeding and the District of Columbia
Court of Appeals recent remand, of the states in which ICG currently operates,
the Ohio, Texas and California commissions currently are conducting proceedings
on prospective compensation.
The Company has negotiated and/or arbitrated new or extended
interconnection agreements with BellSouth, Ameritech, GTE-California and Pacific
Bell. The Company has completed arbitration proceedings with Bell South before
the state commissions in Alabama, North Carolina, Georgia, Kentucky, Florida and
Tennessee and with Ameritech before the Ohio commission. Final decisions issued
by the Alabama, North Carolina, Kentucky and Georgia commissions awarded the
Company reciprocal compensation for ISP traffic in new agreements to be executed
by the parties, including the tandem and transport rate element. The arbitration
decisions of the Florida and Ohio commissions declined to rule on the merits of
whether the Company should be paid reciprocal compensation for ISP traffic. The
Florida decision ruled that the compensation provisions of the parties' current
interconnection agreement would continue to apply, subject to true up, until the
completion of the FCC's rulemaking on future compensation. The Ohio commission
deferred ruling on the merits until completion of the Ohio commission's generic
proceeding on prospective compensation, and ordered that in the interim period
until completion of the generic proceeding, bill and keep procedures should be
followed, subject to true up once the commission proceeding is concluded.
Arbitration proceedings with US West before the Colorado commission and with
SWBT before the Texas commission are pending.
Subsequent to completion of the arbitration proceedings with BellSouth,
the Company signed a three-year agreement with BellSouth that, among other
issues, addresses the payment of reciprocal compensation for Internet traffic.
BellSouth agreed to pay past monies due to the Company for local reciprocal
compensation for the period beginning when ISP traffic was first received by the
Company from BellSouth and ending December 31, 1999, and the parties also agreed
33
<PAGE>
to the payment of reciprocal compensation for Internet and voice traffic for the
period from January 1, 2000 through December 31, 2002 at per-minute rates that
gradually reduce over the three year period. The agreement is applicable to all
nine states in the BellSouth operating territory.
While the Company intends to pursue the collection of all receivables
related to transport and termination charges and believes that future revenue
from transport and termination charges recognized under the Company's
interconnection agreements will be realized, there can be no assurance that
future regulatory and judicial rulings will be favorable to the Company, or that
different pricing plans for transport and termination charges between carriers
will not be adopted when the Company's interconnection agreements continue to be
renegotiated or arbitrated, or as a result of FCC or state commission
proceedings on future compensation methods. In fact, the Company believes that
different pricing plans will continue to 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 subsequent
periods, 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 and/or arbitrate
reasonable compensation and collection terms for local termination services,
although there is no assurance that such compensation will remain consistent
with current levels.
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, 2000, the Company had approximately $61.2 million in
cash, cash equivalents, and short-term investments available for sale (excluding
the $10.6 million available for sale investment in NorthPoint common stock as
discussed below) at a weighted average fixed interest rate of 5.61% for the
three months ended March 31, 2000. A hypothetical 10% fluctuation in market
rates of interest would not cause a material change in the fair value of the
Company's investment in marketable securities at March 31, 2000 and,
accordingly, would not cause a material impact on the Company's financial
position, results of operations or cash flows.
At March 31, 2000, the Company's indebtedness included $1.8 billion under
the 13 1/2% Notes, 12 1/2% Notes, 11 5/8% Notes, 10% Notes and 9 7/8% Notes and
$533.7 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. 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.
On August 12, 1999, the Company entered into the Senior Facility,
consisting of two term loans and a revolving line of credit. All components of
the Senior Facility bear variable annual rates of interest, based on the change
in LIBOR, the Royal Bank of Canada prime rate and the federal funds rate.
Consequently, additional borrowings under the Senior Facility and increases in
LIBOR, the Royal Bank of Canada prime rate and the federal funds rate will
increase the Company's indebtedness and may increase the Company's interest
expense in future periods. Additionally, under the terms of the Senior Facility,
the Company is required to hedge the interest rate risk on $100.0 million of the
Senior Facility if LIBOR exceeds 9.0% for 15 consecutive days. As of March 31,
2000, the Company had $174.4 million outstanding under the Senior Facility. A
34
<PAGE>
hypothetical change in annual interest rate of 1% per annum would result in a
change in interest expense of approximately $0.4 million for the three months
ended March 31, 2000.
Equity Price Risk
On March 30, 1999, the Company purchased, for approximately $10.0 million
in cash, 454,545 shares of NorthPoint Preferred Stock which was converted into
555,555 shares of Class B Common Stock of NorthPoint (the "NorthPoint Class B
Shares") on May 5, 1999. The NorthPoint Class B Shares were converted on March
30, 2000 on a one-for-one basis into a voting class of common stock of
NorthPoint. On March 30 and 31, 2000, the Company sold 95,555 of the NorthPoint
common shares for proceeds of approximately $2.2 million. The remaining
investment is stated at fair market value and is included in short-term
investments available for sale at March 31, 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 as the Company liquidates 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.
The Company also has investments in International ThinkLink Corporation,
Cyras Systems, Inc., and Centennial Strategic Partners VI, L.P. totaling $2.4
million at March 31, 2000. Changes in the fair market value of these investments
would not cause a material impact on the Company's financial position, results
of operations or cash flows.
Market Price Risk
The fair value of the Company's Senior Discount Notes outstanding was
$1,567.1 million as of March 31, 2000 compared to the carrying value of $1,845.1
million. A hypothetical 10% fluctuation in market rates of interest would not
cause a material change in the fair value of the Company's Senior Discount Notes
at March 31, 2000.
35
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
See Note 6 (e) to the Company's unaudited consolidated financial
statements for the three months ended March 31, 2000 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 Employment Agreement dated as of December 22, 1999
by and between ICG Communications, Inc. and William
S. Beans, Jr.
10.2 Employment Agreement dated as of March 23, 2000 by and
between ICG Communications, Inc. and W. Terrell
Wingfield, Jr.
10.3 Deferred Compensation Agreement dated as of March 31,
2000 by and between ICG Communications, Inc. and J.
Shelby Bryan.
10.4 Certificate of Designation of the Powers, Preferences
and Relative, Participating, Optional and Other Special
Rights of 8% Series A-1 Convertible Preferred Stock Due
2015, 8% Series A-2 Convertible Preferred Stock Due
2015 and 8% Series A-3 Convertible Preferred Stock Due
2015, and Qualifications, Limitations and Restrictions
Thereof, Filed on April 7, 2000 with the Delaware
Secretary of State.
10.5 Registration Rights Agreement dated as of April 7,
2000, by and between ICG Communications, Inc. and
Liberty Media Corporation, HMTF Bridge ICG, LLC, HM4
ICG Qualified Fund, LLC, HM4 ICG Private Fund, LLC, HM
PG-IV ICG, LLC, HM 4-SBS ICG Coinvestors, LLC, HM 4-EQ
ICG Coinvestors, LLC and Gleacher/ICG Investors LLC.
10.6 Amendment to the Preferred Stock and Warrant Purchase
Agreement dated as of April 10, 2000 between ICG
Communications, Inc. and Liberty Media Corporation,
HMTF Bridge ICG, LLC, HM4 ICG Qualified Fund, LLC, HM4
ICG Private Fund, LLC, HM PG-IV ICG, LLC, HM 4-SBS ICG
Coinvestors, LLC, HM 4-EQ ICG Coinvestors, LLC and
Gleacher/ICG Investors LLC.
36
<PAGE>
10.7 Form of Common Stock Warrant Agreement dated April 10,
2000.
10.8 Amendment to Employment Agreement dated as of April 13,
2000 by and between ICG Communications, Inc. and
William S. Beans, Jr.
(27) Financial Data Schedule.
27.1: Financial Data Schedule of ICG Communications, Inc. for
the Three Months Ended March 31, 2000.
(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, 2000:
ICG Communications, Inc.
ICG Holdings (Canada) Co.
ICG Holdings, Inc.
(i) Current Report on Form 8-K dated March 7, 2000, regarding the
announcement of earnings information and results of
operations for the quarter and year ended December 31, 1999.
(ii) Current Report on Form 8-K dated March 8, 2000, regarding the
announcement of ICG's definitive preferred stock and warrant
purchase agreement with HMTF Bridge ICG, LLC, Liberty Media
Corporation, and Gleacher/ICG Investors LLC.
37
<PAGE>
INDEX TO EXHIBITS
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
<PAGE>
INDEX TO EXHIBITS
10.1 Employment Agreement dated as of December 22, 1999 by and between ICG
Communications, Inc. and William S. Beans, Jr.
10.2 Employment Agreement dated as of March 23, 2000 by and between ICG
Communications, Inc. and W. Terrell Wingfield, Jr.
10.3 Deferred Compensation Agreement dated as of March 31, 2000 by and
between ICG Communications, Inc. and J. Shelby Bryan.
10.4 Certificate of Designation of the Powers, Preferences and Relative,
Participating, Optional and Other Special Rights of 8% Series A-1
Convertible Preferred Stock Due 2015, 8% Series A-2 Convertible
Preferred Stock Due 2015 and 8% Series A-3 Convertible Preferred Stock
Due 2015, and Qualifications, Limitations and Restrictions Thereof,
Filed on April 7, 2000 with the Delaware Secretary of State.
10.5 Registration Rights Agreement dated as of April 7, 2000, by and between
ICG Communications, Inc. and Liberty Media Corporation, HMTF Bridge
ICG, LLC, HM4 ICG Qualified Fund, LLC, HM4 ICG Private Fund, LLC, HM
PG-IV ICG, LLC, HM 4-SBS ICG Coinvestors, LLC, HM 4-EQ ICG Coinvestors,
LLC and Gleacher/ICG Investors LLC.
10.6 Amendment to the Preferred Stock and Warrant Purchase Agreement dated
as of April 10, 2000 between ICG Communications, Inc. and Liberty Media
Corporation, HMTF Bridge ICG, LLC, HM4 ICG Qualified Fund, LLC, HM4 ICG
Private Fund, LLC, HM PG-IV ICG, LLC, HM 4-SBS ICG Coinvestors, LLC, HM
4-EQ ICG Coinvestors, LLC and Gleacher/ICG Investors LLC.
10.7 Form of Common Stock Warrant Agreement dated April 10, 2000.
10.8 Amendment to Employment Agreement dated as of April 13, 2000 by and
between ICG Communications, Inc. and William S. Beans, Jr.
27.1: Financial Data Schedule of ICG Communications, Inc. for the Three
Months Ended March 31, 2000.
<PAGE>
EXHIBIT 10.1
Employment Agreement dated as of December 22, 1999 by and between
ICG Communications, Inc. and William S. Beans, Jr.
<PAGE>
EXHIBIT 10.2
Employment Agreement dated as of March 23, 2000 by and between
ICG Communications, Inc. and W. Terrell Wingfield, Jr.
<PAGE>
EXHIBIT 10.3
Deferred Compensation Agreement dated as of March 31, 2000 by and
between ICG Communications, Inc. and J. Shelby Bryan.
<PAGE>
EXHIBIT 10.4
Certificate of Designation of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights of 8%
Series A-1 Convertible Preferred Stock Due 2015, 8% Series A-2
Convertible Preferred Stock Due 2015 and 8% Series A-3
Convertible Preferred Stock Due 2015, and Qualifications,
Limitations and Restrictions Thereof, Filed on April 7, 2000 with
the Delaware Secretary of State.
<PAGE>
EXHIBIT 10.5
Registration Rights Agreement dated as of April 7, 2000, by and
between ICG Communications, Inc. and Liberty Media Corporation,
HMTF Bridge ICG, LLC, HM4 ICG Qualified Fund, LLC, HM4 ICG
Private Fund, LLC, HM PG-IV ICG, LLC, HM 4-SBS ICG Coinvestors,
LLC, HM 4-EQ ICG Coinvestors, LLC and Gleacher/ICG Investors LLC.
<PAGE>
EXHIBIT 10.6
Amendment to the Preferred Stock and Warrant Purchase Agreement
dated as of April 10, 2000 between ICG Communications, Inc. and
Liberty Media Corporation, HMTF Bridge ICG, LLC, HM4 ICG
Qualified Fund, LLC, HM4 ICG Private Fund, LLC, HM PG-IV ICG,
LLC, HM 4-SBS ICG Coinvestors, LLC, HM 4-EQ ICG Coinvestors, LLC
and Gleacher/ICG Investors LLC.
<PAGE>
EXHIBIT 10.7
Form of Common Stock Warrant Agreement dated April 10, 2000.
<PAGE>
EXHIBIT 10.8
Amendment to Employment Agreement dated as of April 13, 2000 by
and between ICG Communications, Inc. and William S. Beans, Jr.
<PAGE>
EXHIBIT 27.1
Financial Data Schedule of ICG Communications, Inc. for the Three
Months Ended March 31, 2000.
<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 11, 2000.
ICG COMMUNICATIONS, INC.
Date: May 11, 2000 By: /s/ Harry R. Herbst
--------------------------------
Harry R. Herbst, Executive Vice
President, Chief Financial Officer and
Director (Principal Financial Officer)
Date: May 11, 2000 By: /s/ John V. Colgan
--------------------------------
John V. Colgan, Senior Vice
President of Finance and 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 11, 2000.
ICG HOLDINGS (CANADA) CO.
Date: May 11, 2000 By: /s/ Harry R. Herbst
--------------------------------
Harry R. Herbst, Executive Vice
President, Chief Financial Officer and
Director (Principal Financial Officer)
Date: May 11, 2000 By: /s/ John V. Colgan
--------------------------------
John V. Colgan, Senior Vice
President of Finance and 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 11, 2000.
ICG HOLDINGS, INC.
Date: May 11, 2000 By: /s/ Harry R. Herbst
--------------------------------
Harry R. Herbst, Executive Vice
President, Chief Financial Officer and
Director (Principal Financial Officer)
Date: May 11, 2000 By: /s/ John V. Colgan
--------------------------------
John V. Colgan, Senior Vice
President of Finance and Controller
(Principal Accounting Officer)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 22nd day
of December, 1999 by and between ICG Communications, Inc. ("Employer" or the
"Company") and William S. Beans, Jr. ("Employee").
R E C I T A L S
WHEREAS, the Company desires to employ Employee as provided herein; and
WHEREAS, Employee desires to be employed by Employer as provided
herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. Employment. The Company agrees to employ Employee and Employee
hereby agrees to be employed on a full-time basis by the Company or by such of
its subsidiary or affiliate corporations as determined by the Company in such
position as is designated by the Company, for the period and upon the terms and
conditions hereinafter set forth.
2. Duties. Employee shall serve as President and Chief Operating
Officer ("COO") of the Company and shall report to the Chief Executive Officer.
The initial list of employees who will report to Employee is attached as Exhibit
A. During his employment, Employee shall perform the duties and bear the
responsibilities commensurate with his position and shall serve the Employer
faithfully and to the best of his ability. Employee shall devote 100% of his
working time to carrying out his obligations hereunder. During the Employment
Period, and excluding any periods of vacation, holiday, personal leave and sick
leave to which the Employee is entitled, the Employee shall devote the
Employee's full business time, attention and ability to the business and affairs
of the Company and shall use the Employee's best efforts to carry out the
Employee's responsibilities faithfully and efficiently in a professional manner.
It shall not be considered a violation of the foregoing for the Employee to (a)
serve on corporate or civic boards approved in writing by the Company (which
approval shall not be unreasonably withheld) or on charitable boards or
committees, (b) deliver lectures or fulfill speaking engagements and (c) manage
personal investments, so long as the activities referred to in clauses (a)
through (c) above do not substantially interfere with the performance of the
Employee's responsibilities as COO of the Company in accordance with this
Agreement.
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<PAGE>
3. Compensation and Benefits.
3.1 The Company shall pay Employee during the Term of his
Agreement an annual base salary, payable bi-weekly. The annual base salary as
President and COO will initially be Four Hundred Seventy Five Thousand Dollars
($475,000), which shall be effective as of December 22, 1999.
3.2 In addition to the base salary, Employee will be eligible
for an annual performance bonus in an exact amount to be determined by the Board
of Directors of the Company or the Compensation Committee of the Board. The
annual bonus will be determined in accordance with the bonus plan of the Company
and will be based on objectives and goals set for the Company and Employee.
Employee's annual bonus as President and COO is initially established at 70% of
annual base salary (the "Targeted Annual Bonus") if all objectives and goals are
met. Additional bonus dollars may be paid in accordance with the Company's bonus
plan if Employee and the Company exceed his and its goals and objectives. The
annual performance bonus is payable at the sole discretion of the Company and is
contingent upon Employee being employed by the Company as of the date of the
payment of the annual bonus. Notwithstanding the foregoing, Employee's annual
performance bonus for 1999 will be One Hundred and Fifty Thousand Dollars
($150,000). $46,875.00 of the 1999 annual performance bonus, less applicable
withholding taxes and other governmental obligations, has been paid; the
remaining $103,125.00, less applicable withholding taxes and other government
obligations, of the 1999 annual performance bonus will be paid to Employee when
final bonuses for 1999 are paid to all employees.
3.3 In addition to salary and bonus payments as provided above,
the Company will provide Employee, during the Term of this Agreement, with the
benefits of such insurance plans, hospitalization plans and other perquisites
as shall be generally provided to employees of the Company at his level
and for which Employee may be eligible under the terms and conditions thereof.
Employee will also be entitled to all benefits provided under any directors
and officers liability insurance or errors and omissions insurance maintained
by the Company.
3.4 Throughout the Term of this Agreement, the Company will
reimburse Employee for all reasonable out-of-pocket expenses incurred by
Employee in connection with the business of the Company and the performance of
his duties under this Agreement, upon presentation to the Company by Employee of
an itemized accounting of such expenses with reasonable supporting data.
3.5 The Company may from time to time provide to Employee
stock options pursuant to and subject to the terms and conditions of the
Company's stock option plans. Initially, the Company will provide to Employee:
(1) 14,814 stock options under the Company's 1998 Stock Option Plan with an
exercise price equal to the closing stock price of the Company's common stock on
June 28, 1999 vesting over three years (34% after one (1) year and thereafter in
equal quarterly installments over 24 months); (2) 135,186 non-qualified stock
options with an exercise price equal to the closing stock price of the Company's
common stock on June 28, 1999 vesting over three years(34% after one (1) year
and thereafter in equal quarterly installments over 24 months); (3) 260,000
Share Price Appreciation Vesting non-qualified stock options with an exercise
2
<PAGE>
price equal to the closing stock price of the Company's common stock on June 28,
1999 vesting based upon share price appreciation, in each case pursuant to the
terms of a stock option agreement entered into between Employee and the Company;
(4) 240,000 Share Price Appreciation Vesting non-qualified stock options under
the Company's 1998 Stock Option Plan with an exercise price equal to the closing
stock price of the Company's common stock on December 22, 1999, vesting based
upon share price appreciation, pursuant to the terms of a stock option agreement
to be entered into between Employee and the Company; and (5) 100,000 stock
options under the Company's 1996 Stock Option Plan with an exercise price equal
to the closing stock price of the Company's common stock on December 22, 1999
vesting over three years (34% after one (1) year and thereafter in equal
quarterly installments over 24 months), pursuant to the terms of a stock option
agreement to be entered into between Employee and the Company.
3.6 Employee will be entitled to a moving allowance of $50,000
to cover expenses incidentally incurred by Employee in moving his residence from
New Jersey to the Denver, Colorado metropolitan area. In addition, the Company
will reimburse Employee for taxes payable in respect of the reimbursement
hereunder by paying additional amounts under this Section 3.7 so that the total
amount paid under this Section 3.7 ("X") equals the $50,000 amount reimbursable
to Employee under this Section 3.7 ("Reimbursement") divided by one (1) minus
Employee's effective federal, state and local income tax rate ("TR") by use of
the following formula: X=Reimbursement.
-------------
1 - TR
3.7 Employee will be entitled to an executive life insurance
policy in the amount of $1.5 million.
3.8 The Company has advanced to Employee on his first day of
employment $100,000, which will be repaid by Employee (a) in cash upon his
voluntary resignation pursuant to Section 4 hereof or (b) as a deduction to any
lump-sum payment made to Employee by the Company in connection with a
termination of his employment hereunder. Notwithstanding the foregoing, if the
Company reaches its revenue targets for fiscal year 2000, the loan will be
forgiven.
3.9 During the Term of this Agreement, the Company will lease, on
Employee's behalf, a Mercedes Benz S500 or like vehicle.
4. Term. The initial term of this Agreement will be for three (3)
years commencing on December 22, 1999 ("Term"). Beginning on December 22, 2000,
this Agreement will thereafter automatically renew from month-to-month such that
there will always be two (2) years remaining in the Term, unless and until
either party shall give at least sixty (60) days notice to the other of his or
its desire to terminate this Agreement (in such case, the Term shall end upon
the date indicated in such notice). The applicable provisions of Sections 6, 7,
and 8 shall remain in full force and effect for the time periods specified in
such Sections notwithstanding the termination of this Agreement.
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5. Termination.
5.1 If Employee dies during the Term of this Agreement, this
Agreement will terminate and the Company will pay the estate of Employee an
amount equal to six (6) months salary. In addition, all stock options previously
granted to Employee shall be 100% vested upon his death. The estate of Employee
will be entitled to exercise all options for a period of one (1) year after the
date of death of Employee in accordance with the plans and agreements relating
to such options.
5.2 If, during the Term of this Agreement, Employee is prevented
from performing his duties by reason of illness or incapacity for one hundred
forty (140 ) days in any one hundred eighty (180) day period, the Company
may terminate this Agreement, upon thirty (30) days notice to Employee or his
duly appointed legal representative. Employee will be entitled to all benefits
provided under any disability plans of the Company. In addition, all stock
options previously granted to Employee shall become 100% vested upon his
termination of employment as a result of such illness or incapacity. Employee or
his duly appointed legal representative will be entitled to exercise all options
theretofore vested under the Stock Option Agreements for a period of one (1)
year after the date of termination in accordance with the plans and agreements
relating to such options.
5.3 For the purposes of this Agreement, a "Change in Control"
of the Company shall mean and be deemed to have occurred if (a) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934 as amended (Exchange Act)) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of the combined voting power of the
Company's then outstanding securities; (b) at any time a majority of the
directors of the Company are persons who were not nominated for election by the
Board; (c) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation; (d) the Company shall sell or otherwise dispose of, in one
transaction or a series of related transactions, assets aggregating more than
50% of the assets of the Company and its subsidiaries consolidated; or (e) the
stockholders of the Company approve a plan of complete liquidation of the
Company or any agreement for the sale or disposition by the Company of all or
substantially all the Company's assets. Upon the occurrence of a Change in
Control, the Company shall pay Employee an amount equal to one (1) times the
aggregate amount of his annual base salary plus his Targeted Annual Bonus plus
the annual value of his benefits and perquisites. At the time of the occurrence
of a Change in Control all options to purchase shares of the Company that have
been granted to Employee pursuant to the Stock Option Agreements or the
Company's stock option plans, but not yet vested, will immediately vest and
Employee shall be entitled to exercise such options in accordance with the plans
and agreements relating to such options. In addition, the Company or Employee
may terminate this Agreement upon at least thirty (30) days notice at any time
within one (1) year after the occurrence of a Change in Control of the Company.
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<PAGE>
5.4 Employee may terminate this Agreement upon at least thirty
(30) days notice upon the occurrence of a constructive dismissal of Employee.
For the purposes of this Agreement, "constructive dismissal " shall mean, unless
consented to by Employee in writing, any of the following actions by the
Company:
(i) any reduction in the annual salary of Employee or a
material breach of this Agreement;
(ii) prior to the occurrence of a Change in Control of the
Company, any requirement to relocate to another state or
country, provided, however, that this provision shall
not be applicable if the principal executive offices of
the Company are being relocated to such state or
country;
(iii)any material reduction in the value of Employee's
benefits plans and programs; and
(iv) a new Chief Executive Officer is appointed who
materially reduces Employee's duties.
5.5 The Company may terminate this Agreement immediately, for
cause for gross negligence, intentional misconduct or the commission of a felony
by Employee which could reasonably be expected to result in material damage to
the Company, in which case all rights under this Agreement shall end as of the
date of such termination.
5.6 If this Agreement is terminated by the Company under
Section 4 or Section 5.3, or by Employee under Section 5.4, the Company shall
pay Employee a termination fee in an amount equal to two (2) times the aggregate
amount of his annual base salary plus his Targeted Annual Bonus plus the annual
value of his benefits and perquisites. Such termination fee will be paid in a
lump sum within fifteen (15) days from the date of termination. In addition, if
the Company terminates this Agreement under Section 4, or the Company or
Employee terminates this Agreement under Section 5.3 or Employee terminates this
Agreement under Section 5.4, all options to purchase shares of the Company that
have been granted to Employee pursuant to the Stock Option Agreements or the
Company's stock option plans, but not yet vested, will immediately vest on the
date of termination and Employee will be entitled to exercise all options held
by Employee for a period of one (1) year after the date of termination in
accordance with the plans and agreements relating to such options.
5.7. The Company shall be responsible for any gross-up payment
required to off-set any excise taxes placed on Employee if any payments made
to Employee under this Section 5 are considered "parachute payments" (within
the meaning of Section 280g of the Internal Revenue Code).
5
<PAGE>
6. Non-Compete and Non-Interference.
6.1 During the Term of this Agreement and, if Employee's
employment with the Company is terminated under Section 4 or Section 5.3, for a
period of twelve (12) months after such termination, Employee shall not,
directly or indirectly, own, manage, operate, control, be employed by, or
participate in the ownership, management, operation or control of, a business
that is engaged in the same business as the Company within any area
constituting, during the term of Employee's employment or at the time Employee's
employment is terminated, a Relevant Area. A "Relevant Area" shall be defined
for the purposes of this Agreement as any area located within, or within fifty
(50) miles of, the legal boundaries or limits of any city within which the
Company is engaged in business or in which the Company has publicly announced or
privately disclosed to Employee that it plans to engage in business. If, within
one (1) year of a Change of Control of the Company, Employee's employment is
terminated by the Company under Section 4, this Section 6.1 shall not apply.
6.2 During the Term of this Agreement and for a period of two
(2) years after termination of this Agreement, Employee shall not (i) directly
or indirectly cause or attempt to cause any employee of the Company or any of
its affiliates to leave the employ of the Company or any affiliate, (ii) in any
way interfere with the relationship between the Company and any employee or
between an affiliate and any employee of the affiliate, or (iii) interfere or
attempt to interfere with any transaction in which the Company or any of its
affiliates was involved during the Term of this Agreement.
6.3 Employee agrees that, because of the nature and
sensitivity of the information to which he will be privy and because of the
nature and scope of the Company's business, the restrictions contained in this
Section 6 are fair and reasonable.
7. Confidential Information.
7.1 The relationship between the Company and Employee is one
of confidence and trust. This relationship and the rights granted and duties
imposed by this Section shall continue until a date ten (10) years from the date
Employee's employment is terminated.
7.2 As used in this Agreement (i) "Confidential Information"
means information disclosed to or acquired by Employee about the Company's
plans, products, processes and services, including information relating to
research, development, inventions, manufacturing, purchasing, accounting,
engineering, marketing, merchandising, selling, pricing, tariffed or contractual
terms, customer lists and prospect lists and other market information, with
respect to any of the Company's business activities; and (ii) "Inventions" means
any inventions, discoveries, concepts and ideas, whether patentable or not,
including, without limitation, processes, methods, formulas, and techniques (as
well as related improvements and knowledge) that are based on or related to
Confidential Information, that pertain in any manner to the Company's
technology, expertise or business and that are made or conceived by Employee,
either solely or jointly with others, and while employed by the Company or
within six (6) months thereafter, whether or not made or conceived during
working hours or with the use of the Company's facilities, materials or
personnel.
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7.3 Employee agrees that he shall at no time during the Term
of this Agreement or at any time thereafter disclose any Confidential
Information to any person, firm, or corporation to any extent or for any reason
or purpose or use any Confidential Information for any purpose other than the
conduct of the Company's business.
7.4 Any Confidential Information that is directly or indirectly
originated, developed or perfected to any degree by Employee during the term of
his employment by the Company shall be and remain the sole property of the
Company and shall be deemed trade secrets of the Company.
7.5 Upon termination of Employee's employment pursuant to any
of the provisions herein, Employee or his legal representative shall deliver to
the Company all originals and all duplicates and/or copies of all documents,
records, notebooks, and similar repositories of or containing Confidential
Information then in his possession, whether prepared by him or not.
7.6 Employee agrees that the covenants and agreements contained
in this Section 7 are fair and reasonable and that no waiver or modification of
this Section or any covenant or condition set forth herein shall be valid unless
set forth in writing and duly executed by the parties hereto.
8. Injunctive Relief. Upon a material breach or threatened material
breach by Employee of any of the provisions of Sections 6 or 7 of this
Agreement, the Company shall be entitled to an injunction restraining Employee
from such breach. Nothing herein shall be construed as prohibiting the Company
from pursuing any other remedies for such breach or threatened breach, including
recovery of damages from Employee.
9. No Waiver. A waiver by the Company of a breach of any provision of
this Agreement by Employee shall not operate or be construed as a waiver of
any subsequent or other breach by Employee.
10. Severability. It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision or portion of
this Agreement shall be adjudicated to be invalid or unenforceable, this
Agreement shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
11. Notices. All communications, requests, consents and other notices
provided for in this Agreement shall be in writing and shall be deemed given if
delivered by hand or mailed by first class mail, postage prepaid, to the last
known address of the recipient.
12. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Colorado.
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<PAGE>
13. Assignment. Neither this Agreement nor any rights or duties
hereunder may be assigned by Employee or the Company without the prior written
consent of the other, such consent not to be unreasonably withheld.
14. Amendments. No provision of this Agreement shall be altered,
amended, revoked or waived except by an instrument in writing, signed by each
party to this Agreement.
15. Binding Effect. Except as otherwise provided herein, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective legal representatives, heirs, successors and
assigns.
16. Execution in Counterparts.This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
17. Arbitration. Any dispute, controversy, or question arising under,
out of, or relating to this Agreement (or the breach thereof) or, Employee's
employment with the Company or termination thereof, shall be referred for
arbitration in the State of Colorado to a neutral arbitrator selected by the
Employee and the Company and this shall be the exclusive and sole means for
resolving such dispute.
18. Indemnification. In addition to any rights to indemnification to
which Employee is entitled to under the Corporation's Articles of Incorporation
and Bylaws, Company shall indemnify Employee at all times during and after the
term of this Agreement to the maximum extent permitted under Delaware Business
Corporation Act or any successor provision thereof and any other applicable
state law, and shall pay Employee's expenses in defending any civil action,
suit, or proceeding in advance of the final disposition of such action, suit or
proceeding, to the maximum extent permitted under such applicable state laws for
Employee's action or inaction on behalf of the Company under the terms of this
Agreement. In connection herewith, if the Company has or obtains directors or
officers insurance, so-called, Employee shall be covered by such policy to the
same extent as the peer senior executives.
19. Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties and supersedes all prior understandings,
agreements or representations by or between the parties, whether written or
oral, which relate in any way to the subject matter hereof.
[Remainder of Page Intentionally Left Blank. Signature Page to Follow]
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
/s/ William S. Beans, Jr.
-------------------------------
William S. Beans, Jr.
ICG COMMUNICATIONS, INC.
By: J. Shelby Bryan
----------------------------
Name: J. Shelby Bryan
Title: Chairman and CEO
9
<PAGE>
EXHIBIT A TO EMPLOYMENT AGREEMENT
Between
ICG COMMUNICATIONS, INC.
And
WILLIAM S. BEANS, JR.
INITIAL LIST OF EMPLOYEES REPORTING TO WILLIAM S. BEANS, JR.:
-------------------------------------------------------------
Mike Kallet
Executive Vice President - Product Development & Technology
Cindy Schonhaut
Executive Vice President - Government & External Affairs
James Washington
Executive Vice President - Network Services
Carla Wolin
Executive Vice President - People Services
Pamela Jacobson
Executive Vice President - Sales & Marketing
10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 23rd day of
March, 2000 by and between ICG Communications, Inc. ("Employer" or the
"Company") and W. Terrell Wingfield, Jr. ("Employee").
R E C I T A L S
WHEREAS, the Company desires to employ Employee as provided herein; and
WHEREAS, Employee desires to be employed by Employer as provided
herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the parties agree as follows:
1. Employment. The Company agrees to employ Employee and Employee
hereby agrees to be employed on a full-time basis by the Company or by such of
its subsidiary or affiliate corporations as determined by the Company in
such position as is mutually agreed, for the period and upon the terms and
conditions hereinafter set forth.
2. Duties. During his employment, Employee shall perform the duties
and bear the responsibilities commensurate with his position and shall serve
the Employer faithfully and to the best of his ability. Employee shall devote
100% of his working time to carrying out his obligations hereunder.
3. Compensation and Benefits.
3.1 The Company shall pay Employee during the Term of this
Agreement an annual base salary, payable bi-weekly. The annual base salary will
initially be Three Hundred Thirty-Five Thousand and no/100 Dollars
($335,000.00).
3.2 In addition to the base salary, Employee will be eligible
for an annual performance bonus in an exact amount to be determined by the Board
of Directors of the Company or the Compensation Committee of the Board. The
annual bonus will be determined in accordance with the bonus plan of the Company
and will be based on objectives and goals set for the Company and the Employee.
Employee's annual bonus is initially established at 50% of annual base salary if
all objectives and goals are met.
3.3 In addition to salary and bonus payments as provided
above, the Company will provide Employee, during the Term of this Agreement,
with the benefits of such insurance plans, hospitalization plans and other
perquisites as shall be generally provided to employees of the Company at his
level and for which Employee may be eligible under the terms and conditions
thereof. Employee will also be entitled to all benefits provided under any
directors and officers liability insurance or errors and omissions insurance
maintained by the Company.
3.4 Throughout the Term of this Agreement, the Company will
reimburse Employee for all reasonable out-of-pocket expenses incurred by
Employee in connection with the business of the Company and the performance of
his duties under this Agreement, upon presentation to the Company by Employee of
an itemized accounting of such expenses with reasonable supporting data.
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<PAGE>
3.5 The Company will from time to time provide to Employee
stock options and/or awards pursuant to and subject to the terms and conditions
of the Company's Stock Option Plans and/or stock option agreements.
4. Term. The initial term of this Agreement will be for two (2) years
commencing as of the date hereof ("Term"). From the date hereof, this
Agreement will automatically renew from month-to-month such that there will
always be two (2) years remaining in the Term, unless and until either party
shall give at least sixty (60) days notice to the other of his or its desire
to terminate this Agreement (in such case, the Term shall end upon the date
indicated in such notice). The applicable provisions of Sections 6, 7, and 8
shall remain in full force and effect for the time periods specified in such
Sections notwithstanding the termination of this Agreement.
5. Termination.
5.1 If Employee dies during the Term of this Agreement, this
Agreement will terminate. The Company will pay the estate of Employee an amount
equal to three (3) months salary. In addition, the estate of Employee will be
entitled to exercise all options theretofore vested under the Company's Stock
Option Plans for a period of one (1) year after the date of death of Employee in
accordance with the plans and agreements relating to such options.
5.2 If, during the Term of this Agreement, Employee is
prevented from performing his duties by reason of illness or incapacity for one
hundred forty (140) days in any one hundred eighty (180) day period, the Company
may terminate this Agreement, upon thirty (30) days notice to Employee or his
duly appointed legal representative. Employee will be entitled to all benefits
provided under any disability plans of the Company. In addition, Employee or his
duly appointed legal representative will be entitled to exercise all options
theretofore vested under the Company's Stock Option Plans for a period of one
(1) year after the date of termination in accordance with the plans and
agreements relating to such options.
5.3 For the purposes of this Agreement, a "Change in Control"
of the Company shall mean and be deemed to have occurred if (a) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934 as amended (Exchange Act)) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of the combined voting power of the
Company's then outstanding securities; (b) at any time a majority of the
directors of the Company are persons who were not nominated for election by the
Board; (c) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 50% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation; (d) the Company shall sell or otherwise dispose of, in one
transaction or a series of related transactions, assets aggregating more than
50% of the assets of the Company and its subsidiaries consolidated; or (e) the
stockholders of the Company approve a plan of complete liquidation of the
Company or any agreement for the sale or disposition by the Company of all or
substantially all the Company's assets. Upon the occurrence of a Change of
Control of the Company, all options to purchase shares of the Company that have
been granted to Employee pursuant to the Company's Stock Option Plans and/or
agreements, but not yet vested, will immediately vest and Employee shall be
entitled to exercise such options in accordance with the plans and agreements
relating to such options, provided, however, that the options granted under the
Share Price Appreciation Vesting Non-Qualified Stock Option Agreement dated
March 23, 2000 between Employee and the Company shall not vest on an accelerated
2
<PAGE>
basis upon the occurrence of a Change of Control of the Company except as
expressly set forth in that option agreement. At any time within one (1) year
after the occurrence of a Change in Control of the Company, either the Company
or Employee may terminate this Agreement upon at least thirty (30) days notice.
5.4 Employee may terminate this Agreement upon at least thirty
(30) days notice upon the occurrence of a constructive dismissal of Employee.
For the purposes of this Agreement, "constructive dismissal" includes, without
limiting the generality of any action by the Company which constitutes
constructive dismissal, unless consented to by Employee in writing, any of the
following actions by the Company:
(i) any material reduction in Employee's positions, duties,
responsibilities, powers or reporting relationships;
(ii) any reduction in the annual compensation of Employee;
(iii) prior to the occurrence of a Change in Control of the
Company, any requirement to relocate to another city, state
or country, provided, however, that this provision shall not
be applicable if the principal executive offices of the
Company are being relocated to such city, state or country;
(iv) subsequent to the occurrence of a Change in Control of the
Company, any requirement to relocate to another city, state
or country; and
(v) any material reduction in the value of Employee's benefits
plans and programs, including, without limiting the
generality of the foregoing, bonus arrangements.
5.5 The Company may terminate this Agreement immediately for
gross negligence, intentional misconduct or the commission of a felony by the
Employee, in which case all rights under this Agreement shall end as of the date
of such termination.
5.6 If this Agreement is terminated by the Company under
Section 4 or Section 5.3, the Company shall pay Employee a termination fee in an
amount equal to two (2) times the aggregate amount of his annual base salary
plus his targeted annual bonus plus the annual value of his benefits and
perquisites. Such termination fee will be paid in a lump sum within fifteen (15)
days from the date of termination. If this Agreement is terminated by Employee
under Section 5.4, the Company will pay Employee a termination fee equal to one
(1) times the aggregate amount of his annual base salary plus his targeted
annual bonus plus the annual value of his benefits and perquisites. Such
termination fee will be paid in a lump sum within fifteen (15) days from the
date of termination. In addition, if the Company terminates this Agreement under
Section 4 or Employee terminates this Agreement under Section 5.3 or Section
5.4, all options to purchase shares of the Company and/or stock awards that have
been granted to Employee, but not yet vested, will immediately vest on the date
of termination and Employee will be entitled to exercise all options held by the
Employee for a period of six (6) months after the date of termination in
accordance with the plans and agreements relating to such options, provided,
however, the options granted under the Share Price Appreciation Vesting
Non-Qualified Option Agreement dated March 23, 2000 between Employee and the
Company shall not vest on an accelerated basis upon Employee's termination of
employment except as expressly set forth in that option agreement. If the terms
of this Section 5.6 and the terms of the plans and agreements relating to such
stock options and/or awards conflict, the terms of the option plans and/or award
agreements shall control.
3
<PAGE>
5.7 The Company shall be responsible for any gross-up payment required
to off-set any excise taxes placed on Employee if any payments made to
Employee under this Section 5 are considered "parachute payments" within the
meaning of Section 280g of the Internal Revenue Code.
6. Non-Compete and Non-Interference.
6.1 During the Term of this Agreement and, if Employee's
employment with the Company is terminated under Section 4 or Section 5.3, for a
period of twelve (12) months after such termination, Employee shall not,
directly or indirectly, own, manage, operate, control, be employed by, or
participate in the ownership, management, operation or control of, a business
that is engaged in the same business as the Company within any area
constituting, during the term of Employee's employment or at the time Employee's
employment is terminated, a Relevant Area. A "Relevant Area" shall be defined
for the purposes of this Agreement as any area located within, or within fifty
(50) miles of, the legal boundaries or limits of any city within which the
Company is engaged in business or in which the Company has publicly announced or
privately disclosed to Employee that it plans to engage in business.
6.2. During the Term of this Agreement and for a period of two
(2) years after termination of this Agreement, Employee shall not (i) directly
or indirectly cause or attempt to cause any employee of the Company or any of
its affiliates to leave the employ of the Company or any affiliate, (ii) in any
way interfere with the relationship between the Company and any employee or
between an affiliate and any employee of the affiliate, or (iii) interfere or
attempt to interfere with any transaction in which the Company or any of its
affiliates was involved during the Term of this Agreement.
6.3 Employee agrees that, because of the nature and sensitivity
of the information to which he will be privy and because of the nature and
scope of the Company's business, the restrictions contained in this Section 6
are fair and reasonable.
7. Confidential Information.
7.1 The relationship between the Company and Employee is one
of confidence and trust. This relationship and the rights granted and duties
imposed by this Section shall continue until a date ten (10) years from the date
Employee's employment is terminated.
7.2 As used in this Agreement (i) "Confidential Information"
means information disclosed to or acquired by Employee about the Company's
plans, products, processes and services, including information relating to
research, development, inventions, manufacturing, purchasing, accounting,
engineering, marketing, merchandising, selling, pricing, tariffed or contractual
terms, customer lists and prospect lists and other market information, with
respect to any of the Company's business activities; and (ii) "Inventions" means
any inventions, discoveries, concepts and ideas, whether patentable or not,
including, without limitation, processes, methods, formulas, and techniques (as
well as related improvements and knowledge) that are based on or related to
Confidential Information, that pertain in any manner to the Company's
technology, expertise or business and that are made or conceived by Employee,
either solely or jointly with others, and while employed by the Company or
within six (6) months thereafter, whether or not made or conceived during
working hours or with the use of the Company's facilities, materials or
personnel.
7.3 Employee agrees that he shall at no time during the Term
of this Agreement or at any time thereafter disclose any Confidential
Information to any person, firm or corporation to any extent or for any reason
or purpose or use any Confidential Information for any purpose other than the
conduct of the Company's business.
4
<PAGE>
7.4 Any Confidential Information that is directly or indirectly
originated, developed or perfected to any degree by Employee during the term of
his employment by the Company shall be and remain the sole property of the
Company and shall be deemed trade secrets of the Company.
7.5 Upon termination of Employee's employment pursuant to any
of the provisions herein, Employee or his legal representative shall deliver to
the Company all originals and all duplicates and/or copies of all documents,
records, notebooks, and similar repositories of or containing Confidential
Information then in his possession, whether prepared by him or not.
7.6 Employee agrees that the covenants and agreements contained
in this Section 7 are fair and reasonable and that no waiver or modification of
this Section or any covenant or condition set forth herein shall be valid unless
set forth in writing and duly executed by the parties hereto.
8. Injunctive Relief. Upon a material breach or threatened material
breach by Employee of any of the provisions of Sections 6 or 7 of this
Agreement, the Company shall be entitled to an injunction restraining Employee
from such breach. Nothing herein shall be construed as prohibiting the Company
from pursuing any other remedies for such breach or threatened breach, including
recovery of damages from Employee.
9. No Waiver. A waiver by the Company of a breach of any provision of
this Agreement by Employee shall not operate or be construed as a waiver of any
subsequent or other breach by Employee.
10. Severability. It is the desire and intent of the parties that the
provisions of this Agreement shall be enforced to the fullest extent permissible
under the laws and public policies applied in each jurisdiction in which
enforcement is sought. Accordingly, if any particular provision or portion of
this Agreement shall be adjudicated to be invalid or unenforceable, this
Agreement shall be deemed amended to delete therefrom the portion thus
adjudicated to be invalid or unenforceable, such deletion to apply only with
respect to the operation of such provision in the particular jurisdiction in
which such adjudication is made.
11. Notices. All communications, requests, consents and other notices
provided for in this Agreement shall be in writing and shall be deemed given if
delivered by hand or mailed by first class mail, postage prepaid, to the last
known address of the recipient.
12. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Colorado.
13. Assignment. Neither this Agreement nor any rights or duties
hereunder may be assigned by Employee or the Company without the prior written
consent of the other, such consent not to be unreasonably withheld.
14. Amendments. No provision of this Agreement shall be altered,
amended, revoked or waived except by an instrument in writing, signed by each
party to this Agreement.
15. Binding Effect. Except as otherwise provided herein, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective legal representatives, heirs, successors and
assigns.
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16. Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
17. Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties and supersedes all prior understandings,
agreements or representations by or between the parties, whether written or
oral, which relate in any way to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
W. TERRELL WINGFIELD, JR.
/s/ W. Terrell Wingfield, Jr.
------------------------------------
ICG COMMUNICATIONS, INC.
By: /s/ William S. Beans, Jr.
---------------------------------
Name: William S. Beans, Jr.
-------------------------------
Title: President and COO
-----------------------------
6
DEFERRED COMPENSATION AGREEMENT is
made and entered into as of the 31st day of
March, 2000 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 Chairman of the Board 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 and, in particular, to recognize the Employee's efforts
in the Company's pending private equity financing in the amount of $750,000,000
by affiliates of Hicks Muse Tate & Furst Incorporated, Liberty Media Corporation
and Gleacher Capital Partners (the "Private Equity Transaction");
NOW THEREFORE, in consideration of the premises and mutual covenants
and obligations hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
Section 1. Definitions.
As used in this Agreement, the following terms shall have the
following meanings:
"Commission" shall mean the Securities and Exchange Commission or
any other Governmental Authority at the time administering the Securities Act.
"Common Stock" shall mean shares of the common stock of the Company,
$.01 par value per share.
"Common Stock Equivalent" shall mean one share of Common Stock or
the right to acquire, whether or not such right is immediately exercisable, one
share of Common Stock, whether evidenced by an option, warrant, convertible
security or other instrument or agreement.
"Company" shall have the meaning ascribed to it in the caption to
this Agreement.
"Demand Registration" shall mean a registration under the Securities
Act requested in accordance with Section 4.
<PAGE>
"Employee" shall have the meaning ascribed to it in the caption to
this Agreement.
"Governmental Authority" shall mean any domestic or foreign
government or political subdivision thereof, whether on a federal, state or
local level and whether executive, legislative or judicial in nature, including
any agency, authority, board, bureau, commission, court, department or other
instrumentality thereof.
"Other Shares" shall mean at any time those shares of Common Stock
which do not constitute Primary Shares or Shares.
"Person" shall be construed as broadly as possible and shall include
an individual person, a partnership (including a limited liability partnership),
a corporation, an association, a joint stock company, a limited liability
company, a trust, a joint venture, an unincorporated organization and a
Governmental Authority.
"Primary Shares" shall mean, at any time, the authorized but
unissued shares of Common Stock or Common Stock held by the Company in its
treasury.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any prospectus subject to completion, and any such
prospectus as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Shares and, in each case, by
all other amendments and supplements to such prospectus, including
post-effective amendments, and in each case including all material incorporated
by reference therein.
"Registration Statement" shall mean any registration statement of
the Company which covers any of the Shares, and all amendments and supplements
to any such Registration Statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Representative" of a Person shall be construed broadly and shall
include such Person's partners, officers, directors, employees, agents, counsel,
accountants and other representatives.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any successor Federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same may from time to time be in
effect.
"Underwriter" shall mean a securities dealer who purchases any
Shares as principal and not as part of such dealer's market-making activities.
Section 2. 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, on January 1, 2001 (the "Delivery Date"), the Company
shall issue the Employee an aggregate amount of 50,000 shares of Common Stock
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<PAGE>
(the "Shares"), of the Company; provided, however, that the Shares shall only be
issued to the Employee on the terms hereof after the completion of the Private
Equity Transaction. In the event that the Private Equity Transaction is not
completed for any reason by the Delivery Date, this Agreement shall terminate
and the Company shall have no obligations hereunder. If the Employee's period of
employment is terminated for any reason, the Employee shall be entitled to have
the Company issue the Shares to the Employee or the Employee's designated
beneficiary(ies) in the same manner as set forth above.
(b) Nothing contained herein shall be deemed to exclude the Employee
from any base or supplemental compensation, bonus, pension, insurance, severance
pay or other benefit to which he otherwise 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
employment, pension, retirement, stock option or other agreement, benefit plan
or arrangement of the Company for the benefit of the Employee or the Company's
employees.
Section 3. Gross-Up Payment.
(a) In the event any amounts paid or payable to the Employee by the
Company contemplated by this Agreement which are 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 3 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 3(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
<PAGE>
Section 4. Demand Registration on Form S-3.
(a) The Employee may make up to one (1) written request for a Demand
Registration of all or any part of the Shares. Any request for a Demand
Registration will specify the aggregate number of Shares proposed to be sold and
will also specify the intended method of disposition thereof. A registration
will not count as a Demand Registration until it has become effective. Should a
Demand Registration not become effective due to the inability of the Employee to
reach agreement with the Underwriters for the proposed sale on price or other
customary terms for such transaction, then such Demand Registration shall be
deemed to have been effected (provided that (i) if the Demand Registration does
not become effective because a material adverse change has occurred, or is
reasonably likely to occur, in the condition (financial or otherwise), business,
assets or results of operations of the Company and its subsidiaries taken as a
whole subsequent to the date of the written request made by the Employee, (ii)
if the Company withdraws the Demand Registration for any reason or preempts the
request for the Demand Registration or (iii) if, after the Demand Registration
has become effective, an offering of Shares pursuant to a registration is
interfered with by any stop order, injunction or other order or requirement of
the Commission or other Governmental Authority or court, then the Demand
Registration shall not be deemed to have been effected and will not count as a
Demand Registration.
(b) If the Employee so elects, the offering of such Shares pursuant to
such Demand Registration shall be in the form of a "firm commitment"
underwritten offering. The Employee shall have the right to select the managing
Underwriters and any additional investment bankers and managers to be used in
connection with any offering under this Section 4, subject to the Company's
approval, which approval shall not be unreasonably withheld.
(c) Securities to be sold for the account of any Person (including the
Company) other than the Employee shall not be included in a Demand Registration
if the managing Underwriter or Underwriters shall advise the Company and the
Employee in writing that the inclusion of such securities will materially and
adversely affect the price of the offering (a "Material Adverse Effect").
Furthermore, in the event the managing Underwriter or Underwriters shall advise
the Company or the Employee that even after exclusion of all securities of other
Persons (including the Company) pursuant to the immediately preceding sentence,
the number of Shares proposed to be included in such Demand Registration by the
Employee is sufficiently large to cause a Material Adverse Effect, the Shares to
be included in such Demand Registration shall equal the number of shares which
the Company and the Employee are so advised can be sold in such offering without
a Material Adverse Effect.
(d) If the Company shall be requested by the Employee (the "Request")
to effect a registration under the Securities Act of Shares in accordance with
this Section 4, then the Company shall promptly give written notice of such
proposed registration to the Employee and shall offer to include the Shares in
such proposed registration. The Request shall specify the number of Shares
proposed to be included in such registration. The Company shall promptly use its
best efforts to effect such registration of the Shares which the Company has
4
<PAGE>
been so requested to register on Form S-3, if such form is available.
Section 5. Piggyback Registration.
(a) If the Company at any time proposes fo r any reason to register
Primary Shares or Other Shares under the Securities Act (other than on Form S-4
or Form S-8 promulgated under the Securities Act or any successor forms
thereto), it shall promptly give written notice to the Employee of its intention
to register the Primary Shares or Other Shares and, upon the written request,
given within 20 days after delivery of any such notice by the Company, of such
Employee to include in such registration Shares (which request shall specify the
number of Shares proposed to be included in such registration), the Company
shall use its best efforts to cause all such Shares to be included in such
registration on the same terms and conditions as the securities otherwise being
sold in such registration, provided, however, that if the managing Underwriter
advises the Company that the inclusion of all the Shares or Other Shares
proposed to be included in such registration would interfere with the successful
marketing (including pricing) of Primary Shares proposed to be registered by the
Company, then the numberof Primary Shares, Other Shares and Shares proposed to
be included in such registration shall be included in the following order:
(i) first, the Primary Shares; and
(ii) second, the Shares and the Other Shares, pro rata.
Section 6. Preparation and Filing.
(a) If and whenever the Company is under an obligation pursuant to the
provisions of this Agreement to use its best efforts to effect the registration
of any Shares, the Company shall, as expeditiously as practicable:
(i) use its best efforts to cause a Registration Statement
that registers such Shares to become and remain effective for a period of
120 days or until all of such Shares have been disposed of (if earlier);
(ii) furnish, at least five business days before filing a
Registration Statement that registers such Shares, a Prospectus relating
thereto and any amendments or supplements relating to such Registration
Statement or Prospectus, to counsel for the Employee copies of all such
documents proposed to be filed (it being understood that such five
business-day period need not apply to successive drafts of the same document
proposed to be filed so long as such successive drafts are supplied to such
counsel in advance of the proposed filing by a period of time that is
customary and reasonable under the circumstances);
(iii)prepare and file with the Commission such amendments and
supplements to such Registration Statement and Prospectus used in connection
therewith as may be necessary to keep such Registration Statement effective
for the lesser of a period of 120 days or until all of such Shares have been
5
<PAGE>
disposed of (if earlier) and to comply with the provisions of the Securities
Act with respect to the sale or other disposition of such Shares;
(iv) notify counsel for the Employee in writing (A) of any
comments by the Commission with respect to such Registration Statement or
Prospectus, or any request by the Commission for the amending or
supplementing thereof or for additional information with respect thereto,
(B) of the issuance by the Commission of any stop order suspending the
effectiveness of such Registration Statement or Prospectus or any amendment
or supplement thereto or the initiation of any proceedings for that purpose
and (C) of the receipt by the Company of any notification with respect to
the suspension of the qualification of such Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purposes;
(v) use its best efforts to register or qualify such Shares
under such other securities or blue sky laws of such jurisdictions as any
seller of Shares reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable such seller
of Shares to consummate the disposition in such jurisdictions of the Shares
owned by such seller; provided, however, that the Company will not be
required to qualify generally to do business, subject itself to general
taxation or consent to general service of process in any jurisdiction where
it would not otherwise be required to do so but for this clause (v);
(vi) furnish to each seller of such Shares such number
of copies of a summary Prospectus or other Prospectus, including a
preliminary Prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such seller of Shares may
reasonably request in order to facilitate the public sale or other
disposition of such Shares;
(vii) use its best efforts to cause such Shares to be
registered with or approved by such other Governmental Authorities as may be
necessary by virtue of the business and operations of the Company to enable
the seller or sellers thereof to consummate the disposition of such Shares;
(viii)notify on a timely basis each seller of such Shares
at any time when a Prospectus relating to such Shares is required to be
delivered under the Securities Act within the appropriate period mentioned
in clause (i) of this Section 6(a) of the happening of any event as a result
of which the Prospectus included in such Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing and, at the request of such seller, prepare and furnish to such
seller a reasonable number of copies of a supplement to or an amendment of
such Prospectus as may be necessary so that, as thereafter delivered to
the offerees of such shares, such Prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
6
<PAGE>
misleading in light of the circumstances then existing;
(ix) make available for inspection by any seller of such
Shares, any Underwriter participating in any disposition pursuant to such
Registration Statement and any attorney, accountant or other agent retained
by any such seller or Underwriter (collectively, the "Inspectors"), all
pertinent financial, business and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records"), as
shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information (together with the Records, the
"Information") reasonably requested by any such Inspector in connection
with such Registration Statement (and any of the Information which the
Company determines in good faith to be confidential, and of which
determination the Inspectors are so notified, shall not be disclosed by the
Inspectors unless (A) the disclosure of such Information is necessary to
avoid or correct a misstatement or omission in the Registration Statement,
(B) the release of such Information is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction, (C) such Information has
been made generally available to the public, and (D) the seller of Shares
agrees that it will, upon learning that disclosure of such Information is
sought in a court of competent jurisdiction, give notice to the Company
and allow the Company, at the Company's expense, to undertake appropriate
action to prevent disclosure of the Information deemed confidential);
(x) use its best efforts to obtain from its independent
certified public accountants a "cold comfort" letter in customary form and
covering such matters of the type customarily covered by cold comfort
letters;
(xi) use its best efforts to obtain, from its counsel, an
opinion or opinions in customary form (which shall also be addressed to the
sellers of Shares in such registration);
(xii) provide a transfer agent and registrar (which may be
the same entity and which may be the Company) for such Shares;
(xiii) issue to any Underwriter to which any seller of Shares
may sell Shares in such offering certificates evidencing such Shares;
(xiv) list such Shares on any national securities exchange on
which any shares of the Common Stock are listed or, if the Common Stock is
not listed on a national securities exchange, use its best efforts to
qualify such Shares for inclusion on the automated quotation system of the
National Association of Securities Dealers, Inc. (the "NASD"), National
Market System ("NMS"), or such other national securities exchange as the
holder of such Shares shall request;
(xv) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission; and
7
<PAGE>
(xvi) use its best efforts to take all other steps necessary
to effect the registration of such Shares contemplated hereby.
(b) each holder of Shares that sells Shares pursuant to a
registration under this Agreement agrees that during such time as such seller
may be engaged in a distribution of the Shares, such seller shall comply with
Regulation M promulgated under the Exchange Act and pursuant thereto it shall,
among other things: (i) not engage in any stabilization activity in connection
with the Common Stock of the Company in contravention of such rules; (ii)
distribute the Shares under the Registration Statement solely in the manner
described in the Registration Statement; and (iii) cease distribution of such
Shares pursuant to such Registration Statement upon receipt of written notice
from the Company that the prospectus covering the Shares contains any untrue
statement of a material fact or omits a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Section 7. Registration Expenses.
All reasonable expenses incurred by the Company, including, without
limitation, all registration and filing fees (including all expenses incident to
filing with the NASD), fees and expense of complying with securities and blue
sky laws, printing expenses, fees and expenses of the Company's counsel and
accountants and reasonable fees and expenses of counsel for the Employee, shall
be paid by the Company.
Section 8. Indemnification.
(a) In connection with any registration of any Shares under the
Securities Act pursuant to this Agreement, the Company shall enter into such
reasonable customary indemnification agreements that indemnify and hold harmless
the seller of such Shares, each Underwriter, broker or any other Person acting
on behalf of such seller, each other Person, if any, who controls any of the
foregoing Persons within the meaning of the Securities Act and each
Representative of any of the foregoing Persons, against any losses, claims,
damages or liabilities, joint or several, to which any of the foregoing Persons
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement under which such Shares
were registered, any preliminary Prospectus or final Prospectus contained
therein, any amendment or supplement thereto or any document incident to
registration or qualification of any Shares, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading or,
with respect to any Prospectus, necessary to make the statements therein in
light of the circumstances under which they were made not misleading, or any
violation by the Company of the Securities Act or state securities or blue sky
laws applicable to the Company and relating to action or inaction required of
the Company in connection with such registration or qualification under such
state securities or blue sky laws, and the Company shall promptly reimburse such
seller, such Underwriter, such broker, such controlling Person or such
Representatives for any reasonable legal or other expenses incurred by any of
8
<PAGE>
them in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company shall not be liable to
any such Person to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said Registration Statement,
preliminary Prospectus, amendment, supplement or document incident to
registration or qualification of any Shares in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by such Person, or a Person duly acting on their behalf, specifically
for use in the preparation thereof; provided further, however, that the
foregoing indemnity agreement is subject to the condition that, insofar as it
relates to any untrue statement, allegedly untrue statement, omission or alleged
omission made in any preliminary Prospectus but eliminated or remedied in the
final Prospectus (filed pursuant to Rule 424 of the Securities Act), such
indemnity agreement shall not inure to the benefit of any indemnified party
from whom the Person asserting any loss, claim, damage, liability or expense
purchased the Shares which are the subject thereof, if a copy of such final
Prospectus had been timely made available to such indemnified party and such
final Prospectus was not delivered to such Person with or prior to the written
confirmation of the sale of such Registrable Shares to such Person.
(b) In connection with any registration of Shares under the Securities
Act pursuant to this Agreement, each seller of Shares shall enter into such
reasonable customary indemnification agreements that indemnify and hold harmless
(in the same manner and to the same extent as set forth in paragraph (a) of this
Section 8) the Company, each Underwriter or broker involved in such offering,
each other seller of Shares under such Registration Statement, each Person who
controls any of the foregoing Persons within the meaning of the Securities Act
and any Representative of the foregoing Persons with respect to any statement or
omission from such Registration Statement, any preliminary Prospectus or final
Prospectus contained therein, any amendment or supplement thereto or any
document incident to registration or qualification of any Shares, if such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company or such Underwriter through an instrument
duly executed by such seller or a Person duly acting on their behalf
specifically for use in connection with the preparation of such Registration
Statement, preliminary Prospectus, final Prospectus, amendment or supplement;
provided, however, that the maximum amount of liability in respect of such
indemnification shall be limited, in the case of each seller of Shares, to an
amount equal to the net proceeds actually received by such seller from the sale
of Shares effected pursuant to such registration.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 8, such indemnified party will, if a claim in respect
thereof is made against an indemnifying party, give written notice to the latter
of the commencement of such action (provided however, that an indemnified
party's failure to give such notice in a timely manner shall only relieve the
indemnification obligations of an indemnifying party to the extent such
indemnifying party is prejudiced by such failure). In case any such action is
brought against an indemnified party, the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any other
indemnifying party similarly notified to the extent that it may wish, with
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<PAGE>
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not be responsible for any
legal or other expenses subsequently incurred by the indemnified party in
connection with the defense thereof; provided, however, that if any indemnified
party shall have reasonably concluded that there may be one or more legal or
equitable defenses available to such indemnified party which are in addition to
or conflict with those available to the indemnifying party, or that such claim
or litigation involves or could have an effect upon matters beyond the scope of
the indemnity agreement provided in this Section 8, the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party and such indemnifying party shall reimburse such indemnified
party and any Person controlling such indemnified party for that portion of the
fees and expenses of any one lead counsel (plus appropriate special and local
counsel) retained by the indemnified party which are reasonably related to the
matters covered by the indemnity agreement provided in this Section 8.
(d) If the indemnification provided for in this Section 8 is held by a
court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, claim, damage or liability referred to herein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amounts paid or payable by such indemnified party as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other hand in connection with the
statements or omissions which resulted in such loss, claim, damage or liability
as well as any other relevant equitable considerations; provided, however, that
the maximum amount of liability in respect of such contribution shall be
limited, in the case of each seller of Shares, to an amount equal to the net
proceeds actually received by such seller from the sale of Shares effected
pursuant to such registration. The relative fault of the indemnifying party and
of the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The indemnification and contribution provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party and will survive transfer of the
Shares.
Section 9. Rule 144.
The Company covenants that it will file any reports required to be
filed by it under the Securities Act and the Exchange Act and that it will take
such further action as the Employee may reasonably request to the extent
required from time to time to enable the Employee to sell the Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the
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Commission. Upon the request of the Employee, the Company will deliver to the
Employee a written statement as to whether it has complied with such reporting
requirements.
Section 10. Termination of Registration Rights.
The registration rights provided for under this Agreement shall
terminate and be of no further force or effect following the third anniversary
of the issuance of the Shares.
Section 11. Binding Agreement: Successors and Assigns.
This Agreement and the obligations hereunder 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 exists.
Section 12. 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.
Section 13. 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.
Section 14. Governing Law.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Delaware.
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Section 15. 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.
Section 16. 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.
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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: Vice 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: __________________
__________________
Fax: ___-____-______
ICG COMMUNICATIONS, INC.
CERTIFICATE OF DESIGNATION OF THE POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL
AND OTHER SPECIAL RIGHTS OF 8% SERIES A-1
CONVERTIBLE PREFERRED STOCK, 8% SERIES A-2
CONVERTIBLE PREFERRED STOCK AND 8% SERIES A-3
CONVERTIBLE PREFERRED STOCK, AND
QUALIFICATIONS, LIMITATIONS
AND RESTRICTIONS THEREOF
8% Series A-1 Convertible
Preferred Stock due 2015
8% Series A-2 Convertible
Preferred Stock due 2015
8% Series A-3 Convertible
Preferred Stock due 2015
ICG COMMUNICATIONS, INC., a company organized and existing
under the General Corporation Law of the State of Delaware (the "Company"),
certifies that pursuant to the authority contained in its Certificate of
Incorporation (the "Certificate of Incorporation") and its By-laws (the
"By-laws"), and in accordance with Section 151 of the General Corporation Law of
the State of Delaware (the "DGCL"), the board of directors of the Company (the
"Board of Directors") at a meeting duly called and held on April 6, 2000 duly
approved and adopted the following resolution, which resolution remains in full
force and effect on the date hereof:
RESOLVED, that pursuant to the authority vested in the Board
of Directors by the Certificate of Incorporation and By-laws, the Board of
Directors does hereby create, authorize and provide for the issue of three
series of the Company's preferred stock, par value $0.01 per share ("Preferred
Stock"), having the following designation, voting powers, preferences and
relative, participating, optional and other special rights:
Certain capitalized terms used herein are defined in Section 17.
1. Number and Designation.
The Company shall have a series of Preferred Stock, which
shall be designated as its 8% Series A-1 Convertible Preferred Stock due 2015
(the "Series A-1 Preferred Stock"). The number of shares constituting the Series
A-1 Preferred Stock shall be 50,000. The Company shall have a series of
Preferred Stock, which shall be designated as its 8% Series A-2 Convertible
Preferred Stock due 2015 (the "Series A-2 Preferred Stock"). The number of
shares constituting the Series A-2 Preferred Stock shall be 23,000. The Company
shall have a series of Preferred Stock, which shall be designated as its 8%
Series A-3 Convertible Preferred Stock due 2015 (the "Series A-3 Preferred
Stock"). The number of shares constituting the Series A-3 Preferred Stock shall
be 75,000. The Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series
A-3 Preferred Stock are referred to collectively herein, either conjunctively or
disjunctively as appropriate from the context, as the "Series A Preferred
Stock." Except to the extent otherwise specified in this Certificate of
Designation, the powers, preferences and relative, participating, optional and
other special rights of the Series A-1 Preferred Stock, Series A-2 Preferred
Stock and Series A-3 Preferred Stock shall be identical and, except as provided
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herein or as may be required by applicable law, the Series A-1 Preferred Stock,
Series A-2 Preferred Stock and Series A-3 Preferred Stock shall be treated as a
single class. Unless otherwise specified, references herein to any "Section"
refer to the Section number specified in this Certificate of Designation.
2. Issuance.
The Company may issue up to 50,000 shares of Series A-1
Preferred Stock, 23,000 shares of Series A-2 Preferred Stock and 75,000 shares
of Series A-3 Preferred Stock, each in accordance with the Purchase Agreement;
provided, however, that without the unanimous consent of the holders of the
Series A Preferred Stock the Company shall not issue (i) any additional shares
of Series A Preferred Stock such that the aggregate number of shares of Series
A-1 Preferred Stock, Series A-2 Preferred Stock and Series A-3 Preferred Stock
at any one time outstanding exceeds 75,000 shares, (ii) more than 2,000 shares
of Series A-3 Preferred Stock to the initial purchaser thereof in accordance
with the Purchase Agreement or (iii) more than 73,000 shares of Series A-3
Preferred Stock from time to time upon automatic conversion of shares of Series
A-1 Preferred Stock or Series A-2 Preferred Stock into Series A-3 Preferred
Stock as provided in Section 12(i).
3. Registered Form; Liquidation Preference; Registrar.
Certificates for shares of Series A Preferred Stock shall be
issuable only in registered form. The initial Liquidation Preference per share
of Series A Preferred Stock shall be $10,000 per share plus accrued and unpaid
dividends. The Company shall serve as initial Registrar and Transfer Agent (the
"Registrar") for the Series A Preferred Stock.
4. Registration; Transfer.
Shares of the Series A Preferred Stock have not been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
and may not be resold, pledged or otherwise transferred prior to the date when
they may be resold pursuant to Rule 144 under the Securities Act other than (i)
to the Company, (ii) pursuant to an exemption from registration under the
Securities Act or (iii) pursuant to an effective registration statement under
the Securities Act, in each case in accordance with any applicable securities
laws of any state of the United States. Until such time as it is no longer
required pursuant to the Securities Act, certificates evidencing the Series A
Preferred Stock shall contain a legend (the "Restricted Shares Legend")
evidencing the foregoing restrictions in substantially the form set forth on the
form of Series A Preferred Stock attached hereto as Exhibit A. In the event of
certain transfers of shares of Series A-1 Preferred Stock or Series A-2
Preferred Stock, the transferred shares shall automatically be converted into
shares of Series A-3 Preferred Stock as provided in Section 12(i).
5. Paying Agent and Conversion Agent.
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(a) The Company shall maintain (i) an office or agency where
shares of Series A Preferred Stock may be presented for payment (the "Paying
Agent"), (ii) an office or agency where shares of Series A Preferred Stock may
be presented for conversion (the "Conversion Agent"), and (iii) a Registrar,
which shall be an office or an agency where shares of Series A Preferred Stock
may be presented for transfer. The Company may appoint the Registrar, the Paying
Agent and the Conversion Agent and may appoint one or more additional paying
agents and one or more additional conversion agents in such other locations as
it shall determine. The term "Paying Agent" includes any additional paying
agent, and the term "Conversion Agent" includes any additional conversion agent.
The Company may change any Paying Agent or Conversion Agent without prior notice
to any holder. The Company shall notify the Registrar of the name and address of
any Paying Agent or Conversion Agent appointed by the Company. If the Company
fails to appoint or maintain another entity as Paying Agent or Conversion Agent,
the Registrar shall act as such. Notwithstanding the foregoing, the Company or
any of its Affiliates may act as Paying Agent, Registrar, coregistrar or
Conversion Agent.
(b) Neither the Company nor the Registrar shall be required
(A) to issue, countersign or register the transfer of or exchange any share
of Series A Preferred Stock during a period beginning at the opening of business
15 days before any Redemption Date (as defined under Section 10(d)) and ending
at the close of business on such Redemption Date or (B) to register the transfer
of or exchange any share of Series A Preferred Stock so selected for redemption.
(c) If shares of Series A Preferred Stock are issued upon the
transfer, exchange or replacement of shares of Series A Preferred Stock bearing
the Restricted Shares Legend, or if a request is made to remove such Restricted
Shares Legend on shares of Series A Preferred Stock, the shares of Series A
Preferred Stock so issued shall bear the Restricted Shares Legend, or the
Restricted Shares Legend shall not be removed, as the case may be, unless the
holders of such shares shall request such Legend be removed, and outside
counsel for such holders reasonably determines that the transfer of such shares
is no longer restricted by the Securities Act and outside counsel for the
Company reasonably concurs in such determination.
(d) Each holder of a share of Series A Preferred Stock agrees to
indemnify the Company and the Registrar against any liability that directly
results from the transfer, exchange or assignment by such holder of such
holder's share of Series A Preferred Stock in violation of any provision
of this Certificate of Designation and/or applicable Federal or state securities
law; provided, however, that such indemnity shall not apply to acts of willful
misconduct or gross negligence on the part of the Company or the Registrar, as
the case may be.
(e) Payments due on the shares of Series A Preferred Stock shall
be payable at the office or agency of the Paying Agent maintained for such
purpose in The City of New York and at any other office or agency maintained by
the Paying Agent for such purpose. If any such payment is in cash, it shall
be payable in United States dollars by check drawn on, or wire transfer
(provided that appropriate wire instructions have been received by the Paying
Agent at least 15 days prior to the applicable date of payment) to a United
States dollar account maintained by the holder with, a bank located in New York
City; provided that at the option of the Company payment of dividends in cash
may be made by check mailed to the address of the person entitled thereto as
such address shall appear in the Series A Preferred Share Register; and
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provided further that any payment to a holder in excess of $100,000 shall be
made by wire transfer at the request of such holder.
6. Dividend Rights.
(a) The holders of Series A Preferred Stock shall be entitled to
cumulative dividends, in preference to dividends on any Junior Shares, which
shall accrue as provided herein. Dividends on each share of Series A Preferred
Stock will accrue on a daily basis at the rate of 8.00% per annum of the then
effective Liquidation Preference of such share from and including the Closing
Date to the first to occur of (i) the date on which such share is redeemed in
accordance with Section 10, (ii) the date on which such share is converted in
accordance with Section 12 (except for a conversion of shares of Series A-1
Preferred Stock or Series A-2 Preferred Stock into shares of Series A-3
Preferred Stock pursuant to Section 12(i)) or (iii) the date the Company is
liquidated, dissolved or wound up in accordance with Section 9(c). Dividends
shall accrue as provided herein whether or not such dividends have been
declared, whether or not there are any unrestricted funds of the Company legally
available for the payment of dividends and whether or not such dividends are
then payable in cash as provided in Section 11. The Company will take all
actions required or permitted under the DGCL to permit the payment or accrual
of dividends on the Series A Preferred Stock. On each Dividend Payment Date,
commencing June 30, 2000, to and including the June 30, 2005 Dividend Payment
Date, accrued dividends on a share of the Series A Preferred Stock for the
preceding Dividend Period shall be added cumulatively to and thereafter remain
a part of the Liquidation Preference of such share. Thereafter, accrued
dividends shall be payable quarterly on each Dividend Payment Date, commencing
on September 30, 2005, as and when declared out of funds legally available
therefor, to the holders of record of the Series A Preferred Stock as of the
close of business on the applicable Dividend Record Date. Accrued dividends that
are not paid in full in cash on any such Dividend Payment Date (whether or not
declared and whether or not there are sufficient funds legally available for the
payment thereof) shall be added cumulatively to the Liquidation Preference
on the applicable Dividend Payment Date and thereafter remain a part thereof.
Accrued dividends added to the Liquidation Preference of a share of Series A
Preferred Stock in accordance with the foregoing provisions of this Section
6(a) are sometimes referred to in this Certificate as "Accumulated Dividends".
For purposes of determining the amount of dividends "accrued" (i) as of the
first Dividend Payment Date and as of any date that is not a Dividend Payment
Date, such amount shall be calculated on the basis of the rate per annum
specified above in this paragraph for the actual number of days elapsed from
and including the Closing Date (in case of the first Dividend Payment Date and
any date prior to the first Dividend Payment Date) or the last preceding
Dividend Payment Date (in case of any other date) to the date as of which such
determination is to be made, based on a 360-day year, and (ii) as of any
Dividend Payment Date after the first Dividend Payment Date, such amount shall
be calculated on the basis of such rate per annum based on a 360-day year
of twelve 30-day months. Whenever the Company shall declare or pay any dividend
on any Series A Preferred Stock, the holders of each share of Series A Preferred
Stock shall be entitled to receive such dividend on a per share basis.
(b) If a Change of Control occurs prior to June 30, 2005 (the
time and date such Change of Control occurs being the "Change of Control Date"),
an amount equal to the Special Dividend shall be added to the Liquidation
Preference of each share of the Series A Preferred Stock as of the Change
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of Control Date and thereafter remain a part thereof. The Special Dividend shall
be added to the Liquidation Preference without regard to whether or not the
Company has made or intends to make a Change of Control Offer or Purchase Offer.
(c) In addition to all dividends provided for above, whenever the
Company shall declare or pay any dividend in cash on any Common Stock, the
holders of Series A Preferred Stock shall be entitled to receive such dividend
on an as converted basis. Dividends payable pursuant to this Section 6(c) shall
not reduce any dividends otherwise payable pursuant to Section 6(a) or 6(b).
7. Payment of Dividend; Mechanics of Payment; Dividend Rights
Preserved.
(a) Subject to Sections 6 and 11, dividends on any share of
Series A Preferred Stock that are payable, and are punctually paid or duly
provided for, on any Dividend Payment Date shall be paid in cash to the person
in whose name such share of Series A Preferred Stock (or one or more predecessor
shares of Series A Preferred Stock) is registered at the close of business on
the next preceding March 15, June 15, September 15 and December 15 (each, a
"Dividend Record Date").
(b) Except as required by instruments governing the Preferred
Stock Mandatorily Redeemable 2009 of the Company in accordance with their
terms on the date hereof, unless full cumulative dividends on all outstanding
shares of Series A Preferred Stock for all past Dividend Periods shall have been
declared and paid, or declared and a sufficient sum for the payment thereof set
apart, then:
(i) no dividend (other than (A) with respect to Junior
Shares, a dividend payable solely in Junior Shares, (B) with respect
to Parity Shares, a dividend payable solely in Junior Shares or Parity
Shares or (C) with respect to Parity Shares, a partial dividend paid
pro rata on such Parity Shares and the shares of Series A Preferred
Stock) shall be declared or paid upon, or any sum set apart for the
payment of dividends upon, any Junior Shares or Parity Shares,
respectively;
(ii) no other distribution shall be declared or made upon,
or any sum set apart for the payment of any distribution upon, any
Junior Shares or Parity Shares;
(iii) no Junior Shares or Parity Shares or any warrants,
rights, calls or options (other than any cashless exercises of options
or buybacks of options or restricted stock from present or former
employees, directors or consultants) exercisable for or convertible
into any Parity Share or Junior Share shall be purchased, redeemed or
otherwise acquired (other than in exchange for or conversion of other
Junior Shares or Parity Shares, respectively) by the Company or any of
its subsidiaries;
(iv) no monies shall be paid into or set apart or made
available for a sinking or other like fund for the purchase, redemption
or other acquisition of any Junior Shares or Parity Shares or any
warrants, rights, calls or options exercisable for or convertible into
any Parity Shares or Junior Shares by the Company or any of its
subsidiaries (other than any cashless exercises of options or option
buybacks); and
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(v) other than in accordance with Section 13 or 14 of this
Certificate of Designation, no Series A Preferred Stock shall be
purchased, redeemed or otherwise acquired by the Company or any of its
subsidiaries and no monies shall be paid into, or set apart or made
available for a sinking or other like fund for any such purpose, unless
all outstanding shares of Series A Preferred Stock shall be purchased,
redeemed or otherwise acquired by the Company.
Except as provided in Sections 6, 12 or 13, holders of Series
A Preferred Stock will not be entitled to any dividends, whether payable in
cash, property or stock, in excess of the full cumulative dividends as herein
described.
(c) The Company will notify the Registrar and make a public
announcement no later than the close of business on the tenth Business Day prior
to the Record Date for each dividend as to whether it will pay such dividend.
(d) Subject to the foregoing provisions of this Section 7, each
share of Series A Preferred Stock delivered under this Certificate of
Designation upon registration of transfer of or in exchange for or in lieu of
any other share of Series A Preferred Stock shall carry the rights to dividends
accumulated and unpaid, and to accrue, that were carried by such other shares
of Series A Preferred Stock.
(e) The holder of record of a share of Series A Preferred Stock
at the close of business on a Dividend Record Date with respect to the payment
of dividends on the shares of Series A Preferred Stock will be entitled to
receive such dividends with respect to such share of Series A Preferred Stock
on the corresponding Dividend Payment Date, notwithstanding the conversion of
such share after such Dividend Record Date and prior to such Dividend Payment
Date.
8. Voting Rights.
(a) The holders of record of shares of Series A Preferred Stock
shall not be entitled to any voting rights except as hereinafter provided in
this Section 8 or as otherwise provided by law.
(b) The holders of record of shares of Series A Preferred Stock
shall be entitled to vote on all matters that the holders of the Company's
Common Stock are entitled to vote upon.
(c) In addition to the voting rights set forth above, the
approval of the holders of at least the Applicable Percentage of the then
Outstanding shares of Series A Preferred Stock voting or consenting, as the
case may be, as one separate class, will be required for the Company to:
(i) amend the Certificate of Incorporation, this
Certificate of Designation or the By-Laws so as to (A) affect adversely
the rights, preferences (including, without limitation, liquidation
preferences, conversion price, dividend rate and Optional Redemption
provisions), privileges or voting rights of holders of any shares of
Series A Preferred Stock, or (B) increase or decrease the number of
authorized shares of Series A Preferred Stock, or (C) alter the
relative rights, preferences (including, without limitation,
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liquidation preferences, conversion price, dividend rate and Optional
Redemption provisions), privileges or voting rights as among holders
of the shares of Series A-1 Preferred Stock, Series A-2 Preferred Stock
or Series A-3 Preferred Stock;
(ii) in a single transaction or series of related
transactions, consolidate or merge with or into, or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially
all of its assets to, any person or adopt a plan of liquidation or
dissolution;
(iii) enter into, or permit any of its subsidiaries to enter
into, any agreement or transaction that would impose material
restrictions on the Company's ability to honor the exercise of any
rights of the holders of the Series A Preferred Stock or on the ability
of a holder of shares of Series A Preferred Stock to exercise full
rights of ownership thereof;
(iv) other than as contemplated by Section 12(d) (vi)
and Section 12(d) (vii) or as otherwise required by instruments
governing securities of the Company in existence on the date of
the Purchase Agreement in accordance with their terms on such date,
authorize, create, modify the terms of, increase the authorized amount
of or issue any shares of any class or series of equity of the Company
that would be deemed to be Parity Shares or Senior Shares with respect
to rights relating to (a) payments of dividends or distributions, (b)
rights to redemption, or (c) distribution of assets upon liquidation,
dissolution or winding-up, other than issuances of shares of Series A-3
Preferred Stock upon the conversion of shares of Series A-1
Preferred Stock or Series A-2 Preferred Stock in accordance with
Section 12(i); or
(v) commence or effect any tender or exchange offer for all
or any portion of the Common Stock or permit any subsidiary to do so.
As used in this Section 8(c), the "Applicable Percentage"
shall mean (A) in the case of clauses (i) and (iii), 75%; (B) in the case of
clause (ii) in the case of a transaction that constitutes a "Qualifying
Transaction", a majority, and in the case of a transaction that does not
constitute a Qualifying Transaction, 69%; (C) in the case of clause (iv) with
respect to Senior Shares, 75%, and with respect to Parity Shares, 69%; and (D)
in the case of clause (v), a majority. As used herein, a "Qualifying
Transaction" shall mean a transaction in which the Company consolidates or
merges with or into, or sells, assigns, transfers, leases, conveys or otherwise
disposes of all or substantially all of its assets to, a person (i) if the
Company is the surviving or continuing person and the Series A Preferred Stock
shall remain outstanding without any amendment that would adversely affect the
preferences, rights or powers of the Series A Preferred Stock, or (ii) if the
Company is not the surviving or continuing person, (a) the entity formed by such
consolidation or merger or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made (in any such case, the
"resulting entity") is a corporation or limited liability company organized and
existing under the laws of Bermuda, the United States or any State thereof or
the District of Columbia; and (b) the shares of Series A Preferred Stock are
converted into or exchanged for and become shares of such resulting entity,
having in respect of such resulting entity the same (or more favorable) powers,
preferences and relative, participating, optional or other special rights that
the shares of Series A Preferred Stock had immediately prior to such
transaction; and, in either case, the Company shall have delivered to the
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Registrar an Officers' Certificate and an opinion of counsel, reasonably
satisfactory in form and content, each stating that such consolidation, merger,
conveyance or transfer complies with this Section 8 and that all conditions
precedent herein provided for relating to such transaction have been complied
with.
In addition to, and not in lieu of, any approval otherwise
required pursuant to Section 8(c)(i), the approval of the holders of a majority
of the outstanding shares of Series A-1 Preferred Stock, Series A-2 Preferred
Stock or Series A-3 Preferred Stock, as the case may be, shall be required for
the Company to amend the Certificate of Incorporation, this Certificate of
Designation or the By-laws so as to affect adversely the rights, preferences
(including, without limitation, liquidation preferences, conversion price,
dividend rate and Optional Redemption provisions), privileges or voting rights
of the holders of Series A-1 Preferred Stock, Series A-2 Preferred Stock or
Series A-3 Preferred Stock, respectively.
(d) (i) For so long as the members of the HMTF Group in the
aggregate own any combination of shares of Common Stock and Series A-2
Preferred Stock representing an amount of Common Stock (on an as-converted
basis) that, taken together, equals at least 4,107,143 shares of Common Stock
(as adjusted for any stock dividends, splits and combinations and similar events
affecting the Common Stock from time to time), the holders of the Series A-2
Preferred Stock, voting as a single class by a plurality of the votes cast,
shall be entitled to elect, at any annual meeting of stockholders or special
meeting held in place thereof, or at a special meeting of the holders of the
Series A-2 Preferred Stock called as hereinafter provided, one director, or if
greater, such number (rounded up to the next whole number) equal to 10% of the
then authorized number of members of the Company's Board of Directors, to
serve on the Board of Directors. At any time after voting power to elect such
director(s) shall have become vested and be continuing in the holders of the
Series A-2 Preferred Stock pursuant to this paragraph, or if a vacancy shall
exist in the office of a director elected by the holders of the Series A-2
Preferred Stock at a time when the holders of the Series A-2 Preferred Stock
are entitled to elect a director pursuant to this paragraph, a proper officer
of the Company may, and upon the written request of the holders of record of at
least twenty-five percent (25%) of the Series A-2 Preferred Stock then
outstanding addressed to the Secretary of the Company shall, call a special
meeting of the holders of the Series A-2 Preferred Stock for the sole purpose of
electing the director that such holders are entitled to elect. If such meeting
shall not be called by a proper officer of the Company within twenty (20) days
after personal service of said written request upon the Secretary of the
Company, or within twenty (20) days after mailing the same within the United
States by certified mail, addressed to the Secretary of the Company at its
principal executive offices, then the holders of at least twenty-five percent
(25%) of the Series A-2 Preferred Stock then outstanding may designate in
writing one of their number to call such meeting at the expense of the Company,
and such meeting may be called by the person so designated upon the notice
required for the annual meeting of stockholders of the Company and shall be held
at the place for holding the annual meetings of stockholders. As used herein,
"HMTF Group" means Hicks, Muse, Tate & Furst Incorporated, a Texas corporation,
and its Affiliates and their respective officers, directors, partners, members,
stockholders and employees (and members of their respective families and trusts
for the primary benefit of such family members) and HM4 ICG Qualified Fund, LLC;
HM4 ICG Private Fund, LLC; HM PG-IV ICG, LLC; HM 4-SBS ICG Coinvestors, LLC;
HM4-EQ ICG Coinvestors, LLC and HMTF Bridge ICG, LLC; and their respective
Affiliates. The action permitted or required to be taken by the holders of the
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Series A-2 Preferred Stock pursuant to this Section 8(d)(i) may be taken (1) at
any annual or special meeting of stockholders or at a special meeting of the
holders of the Series A-2 Preferred Stock, or (2) without a meeting, without
prior notice, and without a vote if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of the Series A-2
Preferred Stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares held
by the holders of the Series A-2 Preferred Stock entitled to vote thereon
were present and voted and shall be delivered to the Company by delivery to its
address listed in Section 8.2 of the Purchase Agreement.
(ii) For so long as the members of the Liberty Group in the
aggregate own any combination of shares of Common Stock and Series
A-1 Preferred Stock representing an amount of Common Stock (on an as-
converted basis) that, taken together, equals 2,687,571 shares of
Common Stock (as adjusted for any stock dividends, splits and
combinations and similar events affecting the Common Stock from time to
time), the holders of the Series A-1 Preferred Stock, voting as a
single class by a plurality of the votes cast or by written consent of
a majority in interest of the holders of the Series A-1 Preferred
Stock, shall be entitled to elect one director, or if greater, such
number (rounded up to the next whole number) equal to 10% of the then
authorized number of members of the Company's Board of Directors, to
serve on the Board of Directors, at any annual meeting of stockholders
or special meeting held in place thereof, or at a special meeting of
the holders of the Series A-1 Preferred Stock called as hereinafter
provided. At any time after voting power to elect such director(s)
shall have become vested and be continuing in the holders of the Series
A-1 Preferred Stock pursuant to this paragraph, or if a vacancy shall
exist in the office of a director elected by the holders of the Series
A-1 Preferred Stock at a time when the holders of the Series A-1
Preferred Stock are entitled to elect a director pursuant to this
paragraph, a proper officer of the Company may, and upon the written
request of the holders of record of at least twenty-five percent (25%)
of the Series A-1 Preferred Stock then outstanding addressed to the
Secretary of the Company shall, call a special meeting of the holders
of the Series A-1 Preferred Stock for the sole purpose of electing the
director that such holders are entitled to elect. If such meeting shall
not be called by a proper officer of the Company within twenty (20)
days after personal service of said written request upon the Secretary
of the Company, or within twenty (20) days after mailing the same
within the United States by certified mail, addressed to the Secretary
of the Company at its principal executive offices, then the holders of
at least twenty-five percent (25%) of the Series A-1 Preferred Stock
then outstanding may designate in writing one of their number to call
such meeting at the expense of the Company, and such meeting may be
called by the person so designated upon the notice required for the
annual meeting of stockholders of the Company and shall be held at the
place for holding the annual meetings of stockholders. As used herein,
(i) "Liberty Group" means Liberty and its Affiliates, and (ii)
"Liberty" means Liberty Media Corporation, a Delaware corporation,
provided that if substantially all of the assets of Liberty Media
Corporation are at any time thereafter contributed to Liberty Media
Group LLC, a Delaware limited liability company, then from and after
such contribution, Liberty shall mean Liberty Media Group LLC. The
action permitted or required to be taken by the holders of the Series
A-1 Preferred Stock pursuant to this Section 8(d)(ii) may be taken (1)
at any annual or special meeting of stockholders or at a special
meeting of the holders of the Series A-1 Preferred Stock, or (2)
without a meeting, without prior notice, and without a vote if a
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consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of the Series A-1 Preferred Stock having
not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares held by
the holders of the Series A-1 Preferred Stock entitled to vote thereon
were present and voted and shall be delivered to the Company by
delivery to its address listed in Section 8.2 of the Purchase
Agreement.
(iii)For so long as the members of the Liberty Group
own any combination of shares of Common Stock and Series A-1 Preferred
Stock representing an amount of Common Stock (on an as-converted basis)
that, taken together, equals 8,928,571 shares of Common Stock (as
adjusted for any stock dividends, splits and combinations and similar
events affecting the Common Stock from time to time), the holders of
the Series A-1 Preferred Stock, voting as a single class by plurality
of the votes cast or by written consent of a majority in interest of
the holders of the Series A-1 Preferred Stock, shall be entitled to
elect one additional director, or if greater, such number (rounded up
to the next whole number) of additional directors equal to 10% of the
then authorized number of members of the Company's Board of Directors,
to serve on the Board of Directors, at any annual meeting of
stockholders or special meeting held in place thereof, or at a special
meeting of the holders of the Series A-1 Preferred Stock called as
hereinafter provided. At any time after voting power to elect such
director(s) shall have become vested and be continuing in the holders
of the Series A-1 Preferred Stock pursuant to this paragraph, or if a
vacancy shall exist in the office of a director elected by the holders
of the Series A-1 Preferred Stock at a time when the holders of the
Series A-1 Preferred Stock are entitled to elect a director pursuant to
this paragraph, a proper officer of the Company may, and upon the
written request of the holders of record of at least twenty-five
percent (25%) of the Series A-1 Preferred Stock then outstanding
addressed to the Secretary of the Company shall, call a special meeting
of the holders of the Series A-1 Preferred Stock for the sole purpose
of electing the director that such holders are entitled to elect. If
such meeting shall not be called by a proper officer of the Company
within twenty (20) days after personal service of said written request
upon the Secretary of the Company, or within twenty (20) days after
mailing the same within the United States by certified mail, addressed
to the Secretary of the Company at its principal executive offices,
then the holders of at least twenty-five percent (25%) of the Series
A-1 Preferred Stock then outstanding may designate in writing one of
their number to call such meeting at the expense of the Company, and
such meeting may be called by the person so designated upon the notice
required for the annual meeting of stockholders of the Company and
shall be held at the place for holding the annual meetings of
stockholders. The action permitted or required to be taken by the
holders of the Series A-1 Preferred Stock pursuant to this Section
8(d)(iii) may be taken (1) at any annual or special meeting of
stockholders or at a special meeting of the holders of the Series A-1
Preferred Stock, or (2) without a meeting, without prior notice, and
without a vote if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of the Series A-1
Preferred Stock having not less than the minimum number of votes that
would be necessary to authorize or take such action at a meeting at
which all shares held by the holders of the Series A-1 Preferred Stock
entitled to vote thereon were present and voted and shall be delivered
to the Company by delivery to its address listed in Section 8.2 of the
Purchase Agreement.
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(e) In exercising the voting rights set forth in Section 8(b),
each share of Series A Preferred Stock shall be entitled to vote on an
as-converted basis with the holders of the Company's Common Stock. Except as set
forth in the preceding sentence and in Section 8(d), each share of Series A
Preferred Stock entitled to vote shall have one vote per share, provided,
however, that if the Company issues any other series of preferred stock which
has the right to vote with the Series A Preferred Stock as a single class on any
matter not specified in this Section 8, then the Series A Preferred Stock shall
have with respect to such matters one vote per $10,000 of the aggregate
liquidation preference of all shares of Series A Preferred Stock; and provided
further that without the unanimous consent of the holders of the Series A
Preferred Stock, the Company shall not issue any other series of preferred stock
which has the right to vote with the Series A Preferred Stock as a single class
on any matter not specified in this Section 8, unless such other series of
preferred stock shall have with respect to such matters one vote per $10,000 of
the aggregate liquidation preference of all shares of such other series of
preferred stock and such issuance is otherwise permitted hereunder. Except as
otherwise required by applicable law or as set forth herein, the shares of
Series A Preferred Stock shall not have any relative, participating, optional or
other special voting rights and powers and the consent of the holders thereof
shall not be required for the taking of any corporate action.
9. Ranking; Liquidation.
(a) The shares of Series A Preferred Stock will, with respect to
dividend rights and rights on liquidation, winding-up and dissolution, rank (i)
senior to all shares of Common Stock (whether issued in one or more classes) and
to each other class of capital stock or series of Preferred Stock of the Company
(other than the Preferred Stock Mandatorily Redeemable 2009 of the Company) the
terms of which do not expressly provide that it ranks senior to or on a parity
with the shares of Series A Preferred Stock as to dividend rights and rights on
liquidation, winding-up and dissolution of the Company (collectively referred
to, together with all shares of Common Stock (whether issued in one or more
classes) of the Company, as "Junior Shares"); (ii) on a parity with the
Preferred Stock Mandatorily Redeemable 2009 of the Company and with each other
class of capital stock or series of Preferred Stock of the Company issued by the
Company in compliance with Section 8, the terms of which expressly provide that
such class or series will rank on a parity with the shares of Series A Preferred
Stock as to dividend rights and rights on liquidation, winding-up and
dissolution of the Company (collectively referred to as "Parity Shares"); and
(iii) junior to each class of capital stock or series of Preferred Stock of the
Company issued by the Company in compliance with Section 8, the terms of which
expressly provide that such class or series will rank senior to the shares of
Series A Preferred Stock as to dividend rights and rights upon liquidation,
winding-up and dissolution of the Company (collectively referred to as "Senior
Shares"). The Series A-2 Preferred Stock and Series A-3 Preferred Stock shall be
deemed to be Parity Shares with respect to the Series A-1 Preferred Stock; the
Series A-1 Preferred Stock and Series A-3 Preferred Stock shall be deemed to be
Parity Shares with respect to the Series A-2 Preferred Stock; and the Series A-1
Preferred Stock and Series A-2 Preferred Stock shall be deemed to be Parity
Shares with respect to the Series A-3 Preferred Stock.
(b) No dividend whatsoever shall be declared or paid upon, or any
sum set apart for the payment of dividends upon, any outstanding shares of
Series A Preferred Stock with respect to any dividend period unless all
dividends for all preceding dividend periods have been declared and paid, or
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declared and a sufficient sum set apart for the payment of such dividends, upon
all outstanding Senior Shares.
(c) In the event of any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary, the holders of the shares of
Series A Preferred Stock then Outstanding shall be entitled to receive, prior
and in preference to any distribution of any of the assets of the Company to the
holders of shares of Common Stock or Junior Shares by reason of their ownership
thereof, an amount equal to the greater of (i) the then effective Liquidation
Preference of their shares of Series A Preferred Stock, plus an amount equal to
all dividends accrued and unpaid thereon from the last Dividend Payment Date to
the date fixed for liquidation, dissolution or winding-up or (ii) the amount
such holders would receive if such holders converted their shares of Series A
Preferred Stock into Common Stock immediately prior to such liquidation,
dissolution or winding up. If upon the occurrence of such event the assets of
the Company shall be insufficient to permit the payment to such holders of the
full preferential amount and all liquidating payments on all shares of Series A
Preferred Stock and any Parity Shares, the entire assets of the Company legally
available for distribution shall be distributed among the holders of the shares
of Series A Preferred Stock and the holders of all Parity Shares ratably in
accordance with the respective amounts that would be payable on such shares of
Series A Preferred Stock and any such Parity Shares if all amounts payable
thereon were paid in full. After payment of the full preferential amount (and,
if applicable, an amount equal to a pro rata dividend to the holders of
Outstanding shares of Series A Preferred Stock), such holders shall not be
entitled to any additional distribution of assets of the Company.
10. Redemption.
(a) The shares of Series A Preferred Stock may be redeemed by the
Company at any time commencing on or after June 30, 2005, in whole or from time
to time in part, at the election of the Company (an "Optional Redemption"), at a
redemption price (the "Redemption Price") payable in cash equal to 100% of the
then effective Liquidation Preference (after giving effect to the Special
Dividend, if applicable), plus accrued and unpaid dividends thereon from the
last Dividend Payment Date to the date of redemption (the "Optional Redemption
Date").
(b) Shares of Series A Preferred Stock (if not earlier redeemed
or converted) shall be mandatorily redeemed by the Company on June 30, 2015 (the
"Mandatory Redemption Date"); provided, however, that if such date is not a
Business Day, then the Mandatory Redemption Date shall be the next Business Day,
at a Redemption Price per share in cash equal to the then effective Liquidation
Preference (after giving effect to the Special Dividend, if applicable), plus
accrued and unpaid dividends thereon from the last Dividend Payment Date to the
Mandatory Redemption Date.
(c) In the event of a redemption of fewer than all the shares of
Series A Preferred Stock, the shares of Series A Preferred Stock will be chosen
for redemption by the Registrar from the Outstanding shares of Series A
Preferred Stock not previously called for redemption, pro rata or by lot or by
such other method as the Registrar shall deem fair and appropriate; provided,
that the Company may redeem (an "Odd-lot Redemption") all shares held by holders
of fewer than 100 shares of Series A Preferred Stock (or by holders that would
hold fewer than 100 shares of Series A Preferred Stock following such
redemption) prior to its redemption of other shares of Series A Preferred Stock;
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provided, further, that the Company may not redeem a portion of any share
without redeeming the entire share. Notwithstanding the foregoing, the Company
may not effect an Odd-lot Redemption with respect to any shares of Series A
Preferred Stock held by the members of the Liberty Group or the HMTF Group. If
fewer than all the shares of Series A Preferred Stock represented by any share
certificate are so to be redeemed, (i) the Company shall issue a new certificate
for the shares not redeemed and (ii) if any shares represented thereby are
converted before termination of the conversion right with respect to such
shares, such converted shares shall be deemed (so far as may be) to be the
shares represented by such share certificate that was selected for redemption.
Shares of Series A Preferred Stock that have been converted during a selection
of shares of Series A Preferred Stock to be redeemed shall be treated by the
Registrar as outstanding for the purpose of such selection but not for the
purpose of the payment of the Redemption Price.
(d) In the event the Company elects to effect an Optional
Redemption, the Company shall (i) make a public announcement of the redemption
and (ii) give a redemption notice (the "Redemption Notice") to the holders not
fewer than 30 days nor more than 60 days before the redemption date (the
"Redemption Date"). Whenever a Redemption Notice is required to be delivered to
the holders, such notice shall provide the information set forth below and be
given by first class mail, postage prepaid to each holder of shares of Series A
Preferred Stock to be redeemed, at such holder's address appearing in the Series
A Preferred Share Register. All Redemption Notices shall identify the shares of
Series A Preferred Stock to be redeemed (including CUSIP number) and shall
state:
(i) the Redemption Date;
(ii) the applicable Redemption Price;
(iii)if fewer than all the outstanding shares of Series A
Preferred Stock are to be redeemed, the identification (and, in the
case of partial redemption, the certificate number, the total number of
shares represented thereby and the number of such shares being redeemed
on the Redemption Date) of the particular shares of Series A Preferred
Stock to be redeemed;
(iv) that on the Redemption Date the Redemption Price,
together with all accrued and unpaid dividends from the last Dividend
Payment Date to the Redemption Date, will become due and payable upon
each such share of Series A Preferred Stock to be redeemed and that
dividends thereon will cease to accrue on and after said date;
(v) the conversion price, the date on which the right to
convert shares of Series A Preferred Stock to be redeemed will
terminate and the place or places where such shares of Series A
Preferred Stock may be surrendered for conversion; and
(vi) the place or places where such shares of Series A
Preferred Stock are to be surrendered for payment of the Redemption
Price and the other amounts which are then payable.
The Redemption Notice shall be given by the Company or, at the
Company's request, by the Registrar in the name and at the expense of the
Company; provided that if the Company so requests, it shall provide the
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Registrar adequate time, as reasonably determined by the Registrar, to deliver
such notices in a timely fashion.
(e) Prior to any Redemption Date, the Company shall deposit with
the Registrar or with a Paying Agent (or, if the Company is acting as its own
Paying Agent, segregate and hold in trust) an amount of consideration sufficient
to pay the Redemption Price of all the shares of Series A Preferred Stock that
are to be redeemed on that date plus all accrued and unpaid dividends thereon
from the last Dividend Payment Date to the Redemption Date. If any share of
Series A Preferred Stock called for redemption is converted, any consideration
deposited with the Registrar or with any Paying Agent or so segregated and held
in trust for the redemption of such share of Series A Preferred Stock shall be
paid or delivered to the Company upon Company Order or, if then held by the
Company, shall be discharged from such trust.
(f) Notice of redemption having been given as aforesaid, the
shares of Series A Preferred Stock so to be redeemed shall, on the Redemption
Date, become due and payable at the Redemption Price therein specified plus all
accrued and unpaid dividends thereon from the last Dividend Payment Date to the
Redemption Date, and from and after such date (unless the Company shall default
in the payment of the Redemption Price and accrued but unpaid dividends)
dividends on such shares of Series A Preferred Stock shall cease to accrue and
such shares shall cease to be convertible into shares of Common Stock. Upon
surrender of any such shares of Series A Preferred Stock for redemption in
accordance with said notice, such shares of Series A Preferred Stock shall be
redeemed by the Company at the applicable Redemption Price, together with all
accrued and unpaid dividends thereon from the last Dividend Payment Date to the
Redemption Date. If any share of Series A Preferred Stock called for redemption
shall not be so paid upon surrender thereof for redemption, the Redemption Price
thereof, and all accrued and unpaid dividends thereon from the last Dividend
Payment Date to the Redemption Date, shall, until paid, bear interest from the
Redemption Date at the dividend rate payable on the shares of Series A Preferred
Stock and such shares shall remain convertible.
(g) Any certificate that represents more than one share of Series
A Preferred Stock and is to be redeemed only in part shall be surrendered at any
office or agency of the Company designated for that purpose (with, if the
Company or the Registrar so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Registrar
duly executed by, the holder thereof or his attorney duly authorized in
writing), and the Company shall execute, and the Registrar shall countersign and
deliver to the holder of such share of Series A Preferred Stock without service
charge, a new Series A Preferred Stock certificate or certificates, representing
any number of shares of Series A Preferred Stock as requested by such holder, in
aggregate amount equal to and in exchange for the number of shares not redeemed
and represented by the Series A Preferred Stock certificate so surrendered.
(h) If a share of Series A Preferred Stock is redeemed subsequent
to a Dividend Record Date with respect to any Dividend Payment Date and on or
prior to such Dividend Payment Date, then the accrued dividends payable on such
Dividend Payment Date will be paid to the person in whose name such share of
Series A Preferred Stock is registered at the close of business on such Dividend
Record Date.
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(i) Any redemption pursuant to this Section 10 shall be made only
to the extent the Company has sufficient funds legally available therefor;
provided that if the shares of Series A Preferred Stock are not redeemed on the
Mandatory Redemption Date because sufficient funds are not available, the
Company shall have a continuing obligation to redeem such shares as and when
sufficient funds become available.
11. Method of Payments.
The Company may make any dividend payments in cash with
respect to any dividend period beginning after June 30, 2005. Any dividends not
paid in cash on a current basis on the applicable Dividend Payment Date with
respect to all periods after June 30, 2005, and all dividends with respect to
periods prior to June 30, 2005, shall not be paid in cash but rather shall
constitute Accumulated Dividends. No payment may be made in respect of
Accumulated Dividends as dividends. Rather, Accumulated Dividends shall be added
to the Liquidation Preference. Dividends may not be paid by delivery of shares
of Series A Preferred Stock.
12. Conversion.
(a) Subject to and upon compliance with the provisions of this
Certificate of Designation, at the option of the holder thereof, any share of
Series A Preferred Stock (including without limitation any share of Series A-3
Preferred Stock issued upon automatic conversion of a share of Series A-1
Preferred Stock or Series A-2 Preferred Stock pursuant to Section 12(i)) may be
converted at any time into a number of fully paid and nonassessable shares of
Common Stock (calculated as to each conversion to the nearest 1/100 of a share)
equal to (i) the then effective Liquidation Preference thereof plus accrued and
unpaid dividends to the date of conversion divided by (ii) the Conversion Price
in effect at the time of conversion. Such conversion right shall expire at the
close of business on the Business Day next preceding the Mandatory Redemption
Date. In case a share of Series A Preferred Stock is called for redemption, such
conversion right in respect of the share so called shall expire at the close of
business on the Business Day next preceding the Redemption Date, unless the
Company defaults in making the payment due upon redemption.
The Conversion Price shall initially be $28.00 per share of
Common Stock. The Conversion Price shall be adjusted in certain instances as
provided in Section 12(d) and Section 12(e).
(b) In order to exercise the conversion privilege, the holder of
any share of Series A Preferred Stock to be converted shall surrender the
certificate for such share, duly endorsed or assigned to the Company or in
blank, at any office or agency of the Company maintained for that purpose,
accompanied by written notice to the Company at such office or agency that the
holder elects to convert such share or, if fewer than all the shares of Series A
Preferred Stock represented by a single share certificate are to be converted,
the number of shares represented thereby to be converted.
Shares of Series A Preferred Stock shall be deemed to have
been converted immediately prior to the close of business on the day of
surrender of such shares for conversion in accordance with the foregoing
provisions, and at such time the rights of the holders of such shares as holders
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shall cease, and the person or persons entitled to receive the shares of Common
Stock issuable upon conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock at such time. As promptly as
practicable on or after the conversion date, the Company shall issue and shall
deliver at such office or agency a certificate or certificates for the number of
full shares of Common Stock issuable upon conversion.
In the case of any conversion of fewer than all the shares of
Series A Preferred Stock evidenced by a certificate, upon such conversion the
Company shall execute and the Registrar shall countersign and deliver to the
holder thereof, at the expense of the Company, a new certificate or certificates
representing the number of unconverted shares of Series A Preferred Stock.
(c) No fractional shares of Common Stock shall be issued upon the
conversion of a share of Series A Preferred Stock. If more than one share of
Series A Preferred Stock shall be surrendered for conversion at one time by the
same holder, the number of full shares of Common Stock which shall be issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of shares of Series A Preferred Stock so surrendered. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of any
share of Series A Preferred Stock, the Company shall round down to the nearest
whole share if such fraction is an amount less than 0.5 and round up to the
nearest whole share if such fraction is an amount equal to or greater than 0.5
and shall issue the appropriate number of full shares of Common Stock which
shall be issuable upon conversion in accordance with the foregoing.
(d) The Conversion Price shall be adjusted from time to time by
the Company as follows:
(i) If the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding shares of Common Stock in shares
of Common Stock, the Conversion Price in effect at the opening of business on
the date following the date fixed for the determination of shareholders entitled
to receive such dividend or other distribution shall be reduced by multiplying
such Conversion Price by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the Common
Stock Record Date (as defined in Section 12(d)(vi)) fixed for such determination
and the denominator shall be the sum of such number of shares and the total
number of shares constituting such dividend or other distribution, such
reduction to become effective immediately after the opening of business on the
day following the Common Stock Record Date. If any dividend or distribution of
the type described in this Section 12(d)(i) is declared but not so paid or made,
the Conversion Price shall again be adjusted to the Conversion Price which would
then be in effect if such dividend or distribution had not been declared.
(ii) (a) In case the Company shall issue or sell any Common
Stock, or securities convertible into or exercisable or exchangeable
for shares of Common Stock (other than Common Stock, or securities
convertible into or exercisable or exchangeable for shares of Common
Stock, issued (A) pursuant to the Company's existing or future stock
option plans or pursuant to any other existing or future Common
Stock-related director or employee compensation plan or arrangement of
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the Company approved by the Board of Directors (provided that, with
respect to any stock option or other right granted after April 7,
2000, the per share exercise price of such option or right is equal to
or greater than the per share Closing Price of the Common Stock on the
date of the grant thereof), (B) as consideration for the acquisition
of a business or of assets (provided that the fair market value of
such business or assets, as determined by the Board of Directors in
good faith, is equal to or greater than the aggregate Current Market
Price of the Common Stock to be issued as consideration for such
acquisition, in each case determined at the time the Company enters
into a binding agreement with respect to such acquisition), (C)
pursuant to warrants outstanding on the date hereof, (D) upon the
conversion of any shares of Series A Preferred Stock pursuant to
Section 12(a), (E) upon the automatic conversion of shares of Series
A-1 Preferred Stock or Series A-2 Preferred Stock pursuant to Section
12(i) or (F) upon exercise or conversion of any security the issuance
of which caused an adjustment under the provisions hereof or the
issuance of which did not require adjustments hereunder), for a
consideration per share (or, in the case of convertible or
exchangeable securities having a conversion or exchange price per
share of Common Stock) less than the Current Market Price of the
Common Stock on the date of such issuance the Conversion Price in
effect immediately prior to such issuance or sale shall be reduced
effective as of immediately following such issuance or sale by
multiplying such Conversion Price by a fraction, (1) the numerator of
which shall be the sum of (x) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale and (y) the
number of shares of Common Stock which the aggregate consideration
receivable by the Company for the total number of additional shares of
Common Stock so issued or sold (or issuable on conversion, exercise or
exchange) would purchase at the Current Market Price in effect
immediately prior to such issuance or sale and (2) the denominator of
which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance or sale and the number
of additional shares of Common Stock to be issued or sold (or, in the
case of convertible or exchangeable securities, issuable on
conversion, exercise or exchange);
(b) If the Company shall offer or issue rights or warrants
to all holders of its outstanding shares of Common Stock entitling
them to subscribe for or purchase shares of Common Stock at a price
per share less than the Current Market Price (as defined in Section
12 (d) (viii)) on the Common Stock Record Date fixed for the
determination of shareholders entitled to receive such rights or
warrants, the Conversion Price shall be adjusted so that the same
shall equal the price determined by multiplying the Conversion Price
in effect at the opening of business on the date after such Common
Stock Record Date by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding at the close of business
on the Common Stock Record Date plus the number of shares of Common
Stock which the aggregate offering price of the total number of shares
of Common Stock subject to such rights or warrants would purchase at
such Current Market Price and of which the denominator shall be the
number of shares of Common Stock outstanding at the close of business
on the Common Stock Record Date plus the total number of additional
shares of Common Stock subject to such rights or warrants for
subscription or purchase. Such adjustment shall become effective
immediately after the opening of business on the day following the
Common Stock Record Date fixed for determination of shareholders
entitled to purchase or receive such rights or warrants. To the extent
that shares of Common Stock are not delivered pursuant to such rights
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or warrants, upon the expiration or termination of such rights or
warrants the Conversion Price shall again be adjusted to be the
Conversion Price which would then be in effect had the adjustments
made upon the issuance of such rights or warrants been made on the
basis of delivery of only the number of shares of Common Stock
actually delivered. If such rights or warrants are not so issued, the
Conversion Price shall again be adjusted to be the Conversion Price
which would then be in effect if such date fixed for the determination
of shareholders entitled to receive such rights or warrants had not
been fixed. In determining whether any rights or warrants entitle the
holders to subscribe for or purchase shares of Common Stock at less
than such Current Market Price, and in determining the aggregate
offering price of such shares of Common Stock, there shall be taken
into account (x) any consideration received for such rights or
warrants, with the value of such consideration and the amount of such
exercise or subscription price, if other than cash, to be determined
by the Board of Directors and (y) the amount of any exercise price or
subscription price required to be paid upon exercise of such warrants
or rights.
(iii) If the outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately reduced, and, conversely, if the outstanding shares
of Common Stock shall be combined into a smaller number of shares of
Common Stock, the Conversion Price in effect at the opening of
business on the day following the day upon which such combination
becomes effective shall be proportionately increased, such reduction
or increase, as the case may be, to become effective immediately after
the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(iv) If the Company shall, by dividend or otherwise, distribute
to all holders of its shares of Common Stock any class of capital
stock of the Company (other than any dividends or distributions to
which Section 12(d)(i) applies) or evidences of its indebtedness, cash
or other assets (including securities, but excluding any rights or
warrants of a type referred to in Section 12(d)(ii)(b) and Spinoff
Securities and dividends and distributions paid exclusively in cash
and excluding any capital stock, evidences of indebtedness, cash or
assets distributed upon a merger or consolidation to which Section
12(e) applies) (the foregoing hereinafter in this Section 12(d)(iv)
called the "Distributed Securities"), then, in each such case, the
Conversion Price shall be reduced so that the same shall be equal to
the price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on the Common Stock Record
Date (as defined in Section 12(d)(viii) with respect to such
distribution by a fraction of which the numerator shall be the Current
Market Price (determined as provided in Section 12(d)(viii)) on such
date less the fair market value (as determined by the Board of
Directors, whose good faith determination shall be conclusive and
described in a resolution of the Board of Directors) on such date of
the portion of the Distributed Securities so distributed applicable to
one share of Common Stock and the denominator shall be such Current
Market Price, such reduction to become effective immediately prior to
the opening of business on the day following the Common Stock Record
Date; provided, however, that, in the event the then fair market value
(as so determined) of the portion of the Distributed Securities so
distributed applicable to one share of Common Stock is equal to or
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greater than the Current Market Price on the Common Stock Record Date,
in lieu of the foregoing adjustment, adequate provision shall be made
so that each holder of shares of Series A Preferred Stock shall have
the right to receive upon conversion of a share of Series A Preferred
Stock(or any portion thereof) the amount of Distributed Securities
such holder would have received had such holder converted such share
of Series A Preferred Stock(or portion thereof) immediately prior to
such Common Stock Record Date. If such dividend or distribution is not
so paid or made, the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect if such dividend or
distribution had not been declared. If the Board of Directors
determines the fair market value of any distribution for purposes of
this Section 12(d)(iv) by reference to the actual or when issued
trading market for any securities constituting all or part of such
distribution, it must in doing so consider the prices in such market
over the same period used in computing the Current Market Price
pursuant to Section 12(d)(vi) to the extent possible.
Rights or warrants distributed by the Company to all holders
of shares of Common Stock entitling the holders thereof to subscribe for or
purchase shares of the Company's capital stock (either initially or under
certain circumstances), which rights or warrants, until the occurrence of a
specified event or events ("Dilution Trigger Event"): (A) are deemed to be
transferred with such shares of Common Stock; (B) are not exercisable; and (C)
are also issued in respect of future issuances of shares of Common Stock, shall
be deemed not to have been distributed for purposes of this Section 12(d)(iv)
(and no adjustment to the Conversion Price under this Section 12(d)(iv) shall be
required) until the occurrence of the earliest Dilution Trigger Event, whereupon
such rights or warrants shall be deemed to have been distributed and an
appropriate adjustment to the Conversion Price under this Section 12(d)(iv)
shall be made. If any such rights or warrants, including any such existing
rights or warrants distributed prior to the first issuance of shares of Series A
Preferred Stock, are subject to subsequent events, upon the occurrence of each
of which such rights or warrants shall become exercisable to purchase
securities, evidences of indebtedness or other assets, then the occurrence of
each such event shall be deemed to be such date of issuance and record date with
respect to new rights or warrants (and a termination or expiration of the
existing rights or warrants, without exercise by the holder thereof). In
addition, in the event of any distribution (or deemed distribution) of rights or
warrants, or any Dilution Trigger Event with respect thereto, that was counted
for purposes of calculating a distribution amount for which an adjustment to the
Conversion Price under this Section 12(d)(iv) was made, (1) in the case of any
such rights or warrants which shall all have been redeemed or repurchased
without exercise by any holders thereof, the Conversion Price shall be
readjusted upon such final redemption or repurchase to give effect to such
distribution or Dilution Trigger Event, as the case may be, as though it were a
cash distribution to which this Section 12(d)(iv) were applicable, equal to the
per share redemption or repurchase price received by a holder or holders of
shares of Common Stock with respect to such rights or warrants (assuming such
holder had retained such rights or warrants), made to all holders of shares of
Common Stock as of the date of such redemption or repurchase, and (2) in the
case of such rights or warrants which shall have expired or been terminated
without exercise by any holders thereof, the Conversion Price shall be
readjusted as if such rights and warrants had not been issued.
Notwithstanding any other provision of this Section 12(d)(iv)
to the contrary, rights, warrants, evidences of indebtedness, other securities,
cash or other assets (including, without limitation, any rights distributed
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pursuant to any shareholder rights plan) shall be deemed not to have been
distributed for purposes of this Section 12(d)(iv) if the Company makes proper
provision so that each holder of shares of Series A Preferred Stock on the date
fixed for determination of shareholders entitled to receive such distribution
shall receive upon such distribution, the amount and kind of such distributions
that such holder would have been entitled to receive if such holder had,
immediately prior to such determination date, converted such share of Series A
Preferred Stock into a share of Common Stock.
For purposes of this Section 12(d)(iv) and Sections 12(d)(i)
and (ii), any dividend or distribution to which this Section 12(d)(iv) is
applicable that also includes shares of Common Stock, or rights or warrants to
subscribe for or purchase shares of Common Stock to which Section 12(d)(ii)
applies (or both), shall be deemed instead to be (A) a dividend or distribution
of the evidences of indebtedness, assets, shares of capital stock, rights or
warrants other than such shares of Common Stock or rights or warrants to which
Section 12(d)(ii) applies (and any Conversion Price reduction required by this
Section 12(d)(iv) with respect to such dividend or distribution shall then be
made) immediately followed by (B) a dividend or distribution of such shares of
Common Stock or such rights or warrants (and any further Conversion Price
reduction required by Sections 12(d)(i) or 12(d)(ii) with respect to such
dividend or distribution shall then be made), except that (1) the Common Stock
Record Date of such dividend or distribution shall be substituted as "the date
fixed for the determination of stockholders entitled to receive such dividend or
other distribution", "the Common Stock Record Date fixed for such determination"
and "the Common Stock Record Date" within the meaning of Section 12(d)(i) and as
"the date fixed for the determination of shareholders entitled to receive such
rights or warrants", "the Common Stock Record Date fixed for the determination
of the share holders entitled to receive such rights or warrants" and "such
Common Stock Record Date" for purposes of Section 12(d)(ii), and (2) any shares
of Common Stock included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such determination"
for the purposes of Section 12(d)(i).
(v) If a tender offer made by the Company or any of its
subsidiaries for all or any portion of the Common Stock expires and
such tender offer (as amended upon the expiration thereof) requires
the payment to shareholders (based on the acceptance (up to any
maximum specified in the terms of the tender offer) of Purchased
Shares) of an aggregate consideration having a fair market value (as
determined by the Board of Directors, whose good faith determination
shall be conclusive and described in a resolution of the Board of
Directors) that, combined together with the aggregate of the cash plus
the fair market value (as determined by the Board of Directors, whose
good faith determination shall be conclusive and described in a
resolution of the Board of Directors) as of the expiration of such
tender offer, of consideration payable in respect of any other tender
offers by the Company or any of its subsidiaries for all or any
portion of the shares of Common Stock expiring within the 12 months
preceding the expiration of such tender offer and in respect of which
no adjustment pursuant to this Section 12(d)(v) has been made, exceeds
5% of the net income of the Company reported for the 12 month period
ending with the fiscal quarter next preceding such payment (the "12
Month Net Income") (determined as of the last time (the "Expiration
Time") tenders could have been made pursuant to such tender offer (as
it may be amended)), then, and in each such case, immediately prior to
the opening of business on the day after the date of the Expiration
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Time, the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to the close of business on the date of the
Expiration Time by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding (including any tendered
shares) at the Expiration Time multiplied by the Current Market Price
of a share of Common Stock on the trading day next succeeding the
Expiration Time and the denominator shall be the sum of (x) the fair
market value (determined as aforesaid) of the aggregate consideration
payable to shareholders based on the acceptance (up to any maximum
specified in the terms of the tender offer) of all shares validly
tendered and not withdrawn as of the Expiration Time (the shares
deemed so accepted, up to any such maximum, being referred to as the
"Purchased Shares") and (y) the product of the number of shares of
Common Stock outstanding (less any Purchased Shares) at the Expiration
Time and the Current Market Price of the shares of Common Stock on the
trading day next succeeding the Expiration Time, such reduction (if
any) to become effective immediately prior to the opening of business
on the day following the Expiration Time. If the Company is obligated
to purchase shares pursuant to any such tender offer, but the Company
is permanently prevented by applicable law from effecting any such
purchases or all such purchases are rescinded, the Conversion Price
shall again be adjusted to be the Conversion Price which would then be
in effect if such tender offer had not been made. If the application
of this Section 12(d)(v) to any tender offer would result in an
increase in the Conversion Price, no adjustment shall be made for such
tender offer under this Section 12(d)(v).
(vi) If the Company effects a Spinoff, the Company shall make
appropriate provision so that the holders of Series A Preferred Stock
have the right to exchange their shares of Series A Preferred Stock on
the effective date of the Spinoff for (a) shares of Exchange Preferred
Stock of the Company and (b) shares of Mirror Preferred Stock of the
issuer of the Spinoff Securities. The sum of the initial liquidation
preference of the shares of Exchange Preferred Stock and Mirror
Preferred Stock delivered in exchange for a share of Series A
Preferred Stock will equal the Liquidation Preference of, plus accrued
and unpaid dividends on, a share of Series A Preferred Stock on the
effective date of the Spinoff. The Mirror Preferred Stock will have an
aggregate initial liquidation preference equal to the product of the
aggregate Liquidation Preference of, plus accrued and unpaid dividends
on, the shares of Series A Preferred Stock exchanged therefor and the
quotient of (x) the product of the number (or fraction) of Spinoff
Securities that would have been receivable upon such Spinoff by a
holder of the number of shares of Common Stock issuable upon
conversion of a share of Series A Preferred Stock immediately prior to
the record date for the Spinoff and the average of the daily Closing
Prices of the Spinoff Securities for the period of ten consecutive
trading days commencing on the tenth trading day following the
effective date of the Spinoff, divided by (y) the sum of the amount
determined pursuant to clause (x), plus the fair value of the shares
of Common Stock and other securities or property (other than Spinoff
Securities) that would have been receivable by a holder of a share of
Series A Preferred Stock upon conversion thereof immediately prior to
the record date for the Spinoff (such fair value to be determined in
the case of Common Stock or other securities with a Closing Price in
the same manner as provided in clause (x) and otherwise by the Board
of Directors in the exercise of its judgment). The shares of Exchange
Preferred Stock will have an aggregate initial liquidation preference
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equal to the difference between the aggregate Liquidation Preference
of plus accrued and unpaid dividends on the shares of Series A
Preferred Stock exchanged therefor and the aggregate initial
liquidation preference of the Mirror Preferred Stock. From and after
the effective date of such Spinoff, the holders of any shares of
Series A Preferred Stock that have not been exchanged for Mirror
Preferred Stock and Exchange Preferred Stock as provided above shall
have no conversion rights under these provisions with respect to such
Spinoff Securities.
(vii) If the Company or a subsidiary of the Company (the
applicable of the foregoing being the "Offeror") makes an Exchange
Offer, the Offeror shall concurrently therewith make an equivalent
offer to the holders of Series A Preferred Stock pursuant to which
such holders may tender Series A Preferred Stock, based upon the
number of shares of Common Stock into which such tendered shares of
Series A Preferred Stock are then convertible (and in lieu of
tendering outstanding shares of Common Stock), together with any other
consideration that may be required to be tendered pursuant to the
Exchange Offer, and receive in exchange therefor, in lieu of Exchange
Securities (and other property, if applicable), Mirror Preferred Stock
with an aggregate liquidation preference equal to the aggregate
Liquidation Preference of plus accrued and unpaid dividends on the
shares of Series A Preferred Stock exchanged therefor. Whether or not
a holder of Series A Preferred Stock elects to accept the offer and
tender Series A Preferred Stock, no adjustment to the Conversion Price
will be made in connection with the Exchange Offer. If an Exchange
Offer is made as discussed above, the Offeror shall, concurrently with
the distribution of the offering circular or prospectus and related
documents to holders of Common Stock, provide each holder of Series A
Preferred Stock with a notice setting forth the offer described herein
and describing the Exchange Offer, the Exchange Securities and the
Mirror Preferred Stock. Such notice shall be accompanied by the
offering circular, prospectus or similar document provided to holders
of Common Stock in respect of the Exchange Offer and a copy of the
certificate of designations (or similar document) proposed to be filed
by the Offeror in order to establish the Mirror Preferred Stock. No
failure to mail the notice contemplated herein or any defect therein
or in the mailing thereof shall affect the validity of the applicable
Exchange Offer.
(viii) For purposes of this Section 12(d), the following terms
shall have the meaning indicated:
"Closing Price" with respect to any securities on any day
means the closing sale price as of 4:00 p.m. Eastern Time on such day or any
earlier final closing on such day or, if no such sale takes place on such day,
the average of the reported high and low bid prices on such day, in each case on
the Nasdaq National Market, or the New York Stock Exchange, as applicable, or,
if such security is not listed or admitted to trading on such national market or
exchange, on the national stock exchange or Commission recognized trading market
in the United States on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any national
stock exchange or Commission recognized trading market in the United States, the
average of the high and low bid prices of such security on the over-the-counter
market on the day in question as reported by the National Quotation Bureau
Incorporated or a similar generally accepted reporting service in the United
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States, or, if not so available, in such manner as furnished by any New York
Stock Exchange member firm selected from time to time by the Board of Directors
for that purpose, or a price determined in good faith by the Board of Directors,
whose determination shall be conclusive and described in a resolution of the
Board of Directors.
"Common Stock Record Date" means, with respect to any
dividend, distribution or other transaction or event in which the holders of
Common Stock have the right to receive any cash, securities or other property or
in which the Common Stock (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other property, the date
fixed for determination of shareholders entitled to receive such cash,
securities or other property (whether such date is fixed by the Board of
Directors or by statute, contract or otherwise).
"Current Market Price" means the average of the daily Closing
Prices per share of Common Stock for the 10 consecutive trading days immediately
prior to the date in question; provided, however, that (A) if the "ex" date (as
hereinafter defined) for any event (other than the issuance or distribution
requiring such computation) that requires an adjustment to the Conversion Price
pursuant to Section 12(d)(i), (ii), (iii), (iv), (v) or (vi) occurs during such
10 consecutive trading days, the Closing Price for each trading day prior to the
"ex" date for such other event shall be adjusted by multiplying such Closing
Price by the same fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, (B) if the "ex" date for any event
(other than the issuance or distribution requiring such computation) that
requires an adjustment to the Conversion Price pursuant to Section 12(d)(i),
(ii), (iii), (iv),(v) or (vi) occurs on or after the "ex" date for the issuance
or distribution requiring such computation and prior to the day in question, the
Closing Price for each trading day on and after the "ex" date for such other
event shall be adjusted by multiplying such Closing Price by the reciprocal of
the fraction by which the Conversion Price is so required to be adjusted as a
result of such other event and (C) if the "ex" date for the issuance or
distribution requiring such computation is prior to the day in question, after
taking into account any adjustment required pursuant to clause (A) or (B) of
this proviso, the Closing Price for each trading day on or after such "ex" date
shall be adjusted by adding thereto the amount of any cash and the fair market
value (as determined by the Board of Directors in a manner consistent with any
good faith determination of such value for purposes of Section 12(d)(iv), whose
good faith determination shall be conclusive and described in a resolution of
the Board of Directors) of the evidences of indebtedness, shares of capital
stock or assets being distributed applicable to one share of Common Stock as of
the close of business on the day before such "ex" date. For purposes of any
computation under Section 12(d)(v), the Current Market Price on any date shall
be deemed to be the average of the daily Closing Prices per share of Common
Stock for such day and the next two succeeding trading days; provided, however,
that, if the "ex" date for any event (other than the tender offer requiring such
computation) that requires an adjustment to the Conversion Price pursuant to
Section 12(d)(i), (ii), (iii), (iv), (v) or (vi) occurs on or after the
Expiration Time for the tender or exchange offer requiring such computation and
prior to the day in question, the Closing Price for each trading day on and
after the "ex" date for such other event shall be adjusted by multiplying such
Closing Price by the reciprocal of the fraction by which the Conversion Price is
so required to be adjusted as a result of such other event. For purposes of this
paragraph, the term "ex" date (1) when used with respect to any issuance or
distribution, means the first date on which the shares of Common Stock trade
regular way on the relevant exchange or in the relevant market from which the
Closing Price was obtained without the right to receive such issuance or
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distribution, (2) when used with respect to any subdivision or combination of
shares of Common Stock, means the first date on which the shares of Common Stock
trade regular way on such exchange or in such market after the time at which
such subdivision or combination becomes effective and (3) when used with respect
to any tender or exchange offer means the first date on which the shares of
Common Stock trade regular way on such exchange or in such market after the
Expiration Time of such offer. Notwithstanding the foregoing, whenever
successive adjustments to the Conversion Price are called for pursuant to this
Section 12(d), such adjustments shall be made to the Current Market Price as may
be necessary or appropriate to effectuate the intent of this Section 12(d) and
to avoid unjust or inequitable results, as determined in good faith by the Board
of Directors.
"Exchange Offer" means an issuer tender offer (within the
meaning of Rule 13e-4(a)(2) of the rules and regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended, as such Rule is in effect on the date hereof), including, without
limitation, one that is effected through the distribution of rights or warrants,
made to holders of Common Stock (or to holders of other stock of the Company
receivable by a holder of Series A Preferred Stock upon conversion thereof), to
issue stock of the Company or of a subsidiary of the Company and/or other
property to a tendering stockholder in exchange for shares of Common Stock (or
such other stock) validly tendered pursuant to such issuer tender offer.
"Exchange Preferred Stock" means a series of convertible
preferred stock of the Company, having terms, conditions, designations, dividend
rights, voting powers, rights on liquidation and other preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof that are identical, or as nearly so as is practicable in
the judgment of the Company's Board of Directors, to those of the Series A
Preferred Stock for which such Exchange Preferred Stock is exchanged, except
that (a) the liquidation preference will be determined as provided in Section
12(d)(vi), (b) the running of any time periods pursuant to the terms of the
Series A Preferred Stock shall be tacked to the corresponding time periods in
the Exchange Preferred Stock and (c) the Exchange Preferred Stock will not be
convertible into, and the holders will have no conversion rights thereunder with
respect to the Spinoff Securities.
"Exchange Securities" means stock of the Company or of a
subsidiary of the Company that is issued in exchange for shares of Common Stock
(or other stock of the Company receivable by a holder of Series A Preferred
Stock upon conversion thereof) pursuant to an Exchange Offer.
"Fair Market Value" means the amount which a willing buyer
would pay a willing seller in an arm's-length transaction.
"Mirror Preferred Stock" means convertible preferred stock
issued by (a) in the case of a Spinoff, the issuer of the applicable Spinoff
Securities, and (b) in the case of an Exchange Offer, the issuer of the
applicable Exchange Securities, and having terms, conditions, designations,
dividend rights, voting powers, rights on liquidation and other preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof that are identical, or as nearly so as
practicable in the judgment of the Company's Board of Directors, to those of the
Series A Preferred Stock for which such Mirror Preferred Stock is exchanged,
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except that (i) the liquidation preference will be determined as provided in
Sections 12(d)(vi) or 12(d)(vii), as applicable, (ii) the running of any time
periods pursuant to the terms of the Series A Preferred Stock shall be tacked to
the corresponding time periods in the Mirror Preferred Stock, and (iii) the
Mirror Preferred Stock shall be convertible into the kind and amount of Spinoff
Securities or Exchange Securities, as applicable, and other securities and
property that the holder of Series A Preferred Stock in respect of which such
Mirror Preferred Stock is issued pursuant to the terms hereof would have
received (x) in the case of a Spinoff, in such Spinoff had such Series A
Preferred Stock been converted immediately prior to the record date for such
Spinoff and (y) in the case of an Exchange Offer, upon consummation thereof had
such Series A Preferred Stock that such holder elects to tender been converted
and the shares of Common Stock received upon such conversion been tendered in
full pursuant to such Exchange Offer prior to the expiration thereof and the
same percentage of such tendered shares had been accepted for exchange as the
percentage of validly tendered shares of Common Stock were accepted for exchange
pursuant to such Exchange Offer, as the case may be.
"Spinoff" means the distribution in a transaction that is
generally not taxable to the recipients under the Internal Revenue Code of 1986
(as amended or any equivalent successor statute) of stock of a subsidiary of the
Company as a dividend to all holders of Common Stock.
"Spinoff Securities" means stock of a subsidiary of the Company
that is distributed to holders of Common Stock in a Spinoff.
(ix) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least 1% in such price; provided, however, that any adjustments
which by reason of this Section 12(d)(ix) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 12 shall be made by the
Company and shall be made to the nearest cent. No adjustment need be
made for a change in the par value or no par value of the Common Stock.
(x) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Registrar an
Officer's Certificate setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring
such adjustment. Promptly after delivery of such certificate, the
Company shall prepare a notice of such adjustment of the Conversion
Price setting forth the adjusted Conversion Price and the date on which
each adjustment becomes effective and shall mail such notice of such
adjustment of the Conversion Price to each holder of shares of Series
A Preferred Stock at such holder's last address appearing on the
register of holders maintained for that purpose within 20 days of the
effective date of such adjustment. Failure to deliver such notice
shall not affect the legality or validity of any such adjustment.
(xi) In any case in which this Section 12(d) provides that
an adjustment shall become effective immediately after a Common Stock
Record Date for an event, the Company may defer until the occurrence
of such event issuing to the holder of any share of Series A Preferred
Stock converted after such Common Stock Record Date and before the
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occurrence of such event the additional shares of Common Stock issuable
upon such conversion by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such conversion
before giving effect to such adjustment.
(xii)For purposes of this Section 12(d), the number of
shares of Common Stock at any time outstanding shall not include shares
held in the treasury of the Company or by any of its Subsidiaries.
The Company shall not pay any dividend or make any distribution on
shares of Common Stock held in the treasury of the Company or by any
of its Subsidiaries.
(xiii) In the event that a holder of Series A Preferred
Stock would be entitled to receive upon conversion thereof any
Redeemable Capital Stock and the Company redeems, exchanges or
otherwise acquires all of the outstanding shares or other units of such
Redeemable Capital Stock (such event being a "Redemption Event"),
then, from and after the effective date of such Redemption Event,
the holders of shares of Series A Preferred Stock then outstanding
shall be entitled to receive upon conversion of such shares, in lieu of
shares or units of such Redeemable Capital Stock, the kind and amount
of shares of stock and other securities and property receivable upon
the Redemption Event by a holder of the number of shares or units of
such Redeemable Capital Stock into which such shares of Series A
Preferred Stock could have been converted immediately prior to the
effective date of such Redemption Event (assuming, to the extent
applicable, that such holder failed to exercise any rights of election
with respect thereto and received per share or unit of such Redeemable
Capital Stock the kind and amount of stock and other securities and
property received per share or unit by a plurality of the non-electing
shares or units of such Redeemable Capital Stock), and (from and after
the effective date of such Redemption Event) the holders of the Series
A Preferred Stock shall have no other conversion rights under these
provisions with respect to such Redeemable Capital Stock. For purposes
of this Section 12(d)(xiii) "Redeemable Capital Stock" means a class
or series of capital stock of the Company that provides by its terms
a right in favor of the Company to call, redeem, exchange or otherwise
acquire all of the outstanding shares or units of such class or series.
(e) In case of any consolidation of the Company with, or merger
of the Company into, any other Person, or in case of any merger of another
Person into the Company (other than a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock of the Company), or in case of any sale, conveyance or transfer of
all or substantially all the assets of the Company, the holder of each share of
Series A Preferred Stock shall have the right thereafter, during the period such
share of Series A Preferred Stock shall be convertible as specified in Section
12(a), to convert such share of Series A Preferred Stock into the kind and
amount of securities, cash and other property receivable upon such
consolidation, merger, conveyance or transfer by a holder of the number of
shares of Common Stock of the Company into which such share of Series A
Preferred Stock might have been converted immediately prior to such
consolidation, merger, conveyance or transfer, assuming such holder of shares
of Common Stock of the Company failed to exercise his rights of election,
if any, as to the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance or transfer (provided
that, if the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, conveyance or transfer is not the same for
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<PAGE>
each share of Common Stock of the Company in respect of which such rights
of election shall not have been exercised ("nonelecting share"), then for
the purpose of this Section 12 the kind and amount of securities, cash and
other property receivable upon such consolidation, merger, conveyance or
transfer by each nonelecting share shall be deemed to be the kind and amount so
receivable per share by a plurality of the nonelecting shares). Such securities
shall provide for adjustments which, for events subsequent to the effective date
of the triggering event, shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Section 12. The above provisions of this
Section 12 shall similarly apply to successive consolidations, mergers,
conveyances or transfers.
(f) In case:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock payable otherwise than in cash out of
its earned surplus; or
(ii) the Company shall authorize the granting to all holders
of its shares of Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any other
rights; or
(iii) of any reclassification of the Common Stock (other
than a subdivision or combination of the Company's outstanding shares
of Common Stock), or of any consolidation or merger to which the
Company is a party and for which approval of any shareholders of the
Company is required, or the sale, conveyance or transfer of all or
substantially all the assets of the Company; or
(iv) of the voluntary or involuntary dissolution, liquidation
or winding-up of the Company; or
(v) the Company shall take any other action referred to in
this Section 12;
then the Company shall cause to be filed with the Registrar
and at each office or agency maintained for the purpose of conversion
of shares of Series A Preferred Stock, and shall cause to be mailed to
all holders at their last addresses as they shall appear in the shares
of Series A Preferred Stock Register, at least 20 Business Days (or 10
Business Days in any case specified in clause (i) or (ii) above) prior
to the applicable date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken,
the date as of which the holders of shares of Common Stock of record to
be entitled to such dividend, distribution, rights or warrants are to
be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or
winding-up is expected to become effective, and the date as of which it
is expected that holders of shares of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities, cash
or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, dissolution, liquidation or
winding-up. Failure to give the notice required by this Section 12(f)
or any defect therein shall not affect the legality or validity of any
dividend, distribution, right, warrant, reclassification,
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consolidation, merger, sale, transfer, dissolution, liquidation or
winding-up, or the vote upon any such action.
(g) The Company shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued shares of Common
Stock, for the purpose of effecting the conversion of shares of Series A
Preferred Stock, the full number of shares of Common Stock then issuable
upon the conversion of all outstanding shares of Series A Preferred Stock.
(h) The Company will pay any and all taxes that may be payable in
respect of the issue or delivery of shares of Common Stock on conversion of
shares of Series A Preferred Stock pursuant hereto. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that of the holder of the share of Series A Preferred Stock or shares
of Series A Preferred Stock to be converted, and no such issue or delivery
shall be made unless and until the Person requesting such issue has paid to the
Company the amount of any such tax, or has established to the satisfaction
of the Company that such tax has been paid or is not payable.
(i) (i) Each share of (A) Series A-1 Preferred Stock
transferred to any person other than a member of the Liberty Group
and (B) Series A-2 Preferred Stock transferred to any person other
than a member of the HMTF Group shall be deemed to be automatically
converted into a share of Series A-3 Preferred Stock with the same
Liquidation Preference and otherwise of the same tenor (except as
provided herein) as then in effect with respect to the share of the
Series A-1 Preferred Stock or Series A-2 Preferred Stock transferred,
such conversion to be effected in accordance with this Section 12(i)
and to be effective as of the effective time of such transfer.
(ii) Upon any transfer of a share of Series A-1
Preferred Stock or Series A-2 Preferred Stock triggering an automatic
conversion into a share of Series A-3 Preferred Stock pursuant to
Section 12(i)(i), the transferor shall surrender the certificate or
certificates representing the share or shares transferred (the
"Converting Shares") at any office or agency of the Company designated
for that purpose together with written notice stating the number of
shares that are to be transferred to a person other than a member of
the Liberty Group (in the case of shares of Series A-1 Preferred Stock)
or a member of the HMTF Group (in the case of Series A-2 Preferred
Stock) and that are thus to be converted into an equal number of shares
of Series A-3 Preferred Stock (the "Converted Shares"). Such notice
shall also state the name or names (with addresses) of the transferee
and denominations in which the certificate or certificates for
Converted Shares are to be issued and shall include instructions for
the delivery thereof. Promptly after such surrender and the receipt of
such written notice, the Company will issue and deliver in accordance
with the transferor's instructions the certificate or certificates
evidencing the Converted Shares issuable upon such conversion, and the
Company will deliver to the transferor a certificate (which shall
contain such legends as were set forth on the surrendered certificate
or certificates) representing any shares which were represented by the
certificate or certificates that were delivered to the Company in
connection with such conversion, but which were not transferred. Upon
issuance of shares in accordance with this Section 12(i)(ii), such
Converted Shares shall be duly authorized, validly issued, fully paid
and non-assessable and entitled to the benefits of this Certificate of
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Designation. The Company shall take all such actions as may be
necessary to assure that all such shares of Series A-3 Preferred Stock
may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities
exchange upon which shares of Series A-3 Preferred Stock may be listed
(except for official notice of issuance which will be immediately
transmitted by the Company upon issuance).
(iii) As used in this Section 12(i), the term "transfer"
and derivatives thereof refers to any sale, gift or other transfer,
voluntary or involuntary (except for transfers, pledges and security
interests in connection with bona fide financing or hedging
transactions). A conversion of Series A-1 Preferred Stock or Series A-2
Preferred Stock into Common Stock pursuant to Section 12(a) hereof
shall not constitute a transfer for purposes of this Section 12(i).
(j) Without the unanimous consent of the holders of the Series A
Preferred Stock, the Company shall not in any manner subdivide (by stock split,
stock dividend or otherwise) or combine (by reverse stock split or otherwise)
the outstanding shares of the Series A-1 Preferred Stock, Series A-2 Preferred
Stock or Series A-3 Preferred Stock unless the outstanding shares of each other
series of Series A Preferred Stock shall be subdivided or combined, as the case
may be, to the same extent, share and share alike, and appropriate provision
shall be made for the protection of the conversion rights hereunder.
13. Change of Control.
(a) Upon the occurrence of a Change of Control, the Company shall
have the right, but not the obligation, to offer (the "Change of Control Offer")
to repurchase all, but not less than all, of the shares of Series A Preferred
Stock at a purchase price per share in cash equal to 101% of the Liquidation
Preference of each share of Series A Preferred Stock repurchased (after giving
effect to the Special Dividend, if applicable), plus an amount equal to 101% of
all dividends accrued and unpaid thereon to the date fixed for repurchase (the
"Change of Control Purchase Amount"). Within 20 days following the Change of
Control Date, the Company shall mail a notice to each holder of shares of Series
A Preferred Stock (with a copy to the Registrar) describing the transaction or
transactions that constitute the Change of Control and, if the Company so
elects, offering to repurchase shares of Series A Preferred Stock on a date
specified in such notice (the "Change of Control Purchase Date"), which date
shall be no earlier than 90 days and no later than 120 days from the date such
notice is mailed, pursuant to the procedures required by Section 10 and
described in such notice. The failure of the Company to make such Change of
Control Offer within such 20-day period shall constitute an irrevocable waiver
of the Company's right to make such Change of Control Offer solely with the
respect to the relevant Change of Control and shall result in the dividend rate
on the Series A Preferred Stock referred to in Section 6 hereof being increased
to 16% effective as of the Change of Control Date. The Company shall comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations to the extent such laws and regulations are applicable in
connection with the repurchase of the Series A Preferred Stock as a result of a
Change of Control.
29
<PAGE>
(b) On the Change of Control Purchase Date, the Company shall, to
the extent lawful:
(i) accept for payment all shares of Series A Preferred
Stock properly tendered pursuant to the Change of Control Offer;
(ii) deposit with the paying agent an amount equal to the
Change of Control Purchase Amount in respect of all shares of Series A
Preferred Stock so tendered; and
(iii)deliver or cause to be delivered to the Registrar all
certificates for shares of Series A Preferred Stock so accepted
together with an officer's certificate stating the aggregate number of
shares being purchased by the Company.
(c) The paying agent shall promptly mail to each holder of shares
of Series A Preferred Stock so tendered the Change of Control Purchase Amount
for such shares of Series A Preferred Stock, and the Registrar shall promptly
authenticate and mail (or cause to be transferred by book entry) to each holder
a new certificate for any shares of Series A Preferred Stock not tendered that
are represented by the surrendered certificate. The Company shall notify each
holder of Series A Preferred Stock the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Purchase Date.
(d) The provisions of this paragraph that permit the Company to
make a Change of Control Offer shall be applicable regardless of whether any
other provisions of this certificate are applicable. Except as set forth in this
paragraph, no holder of shares of Series A Preferred Stock shall have any right
to require the Company to repurchase or redeem the shares of Series A Preferred
Stock in the event of a takeover, recapitalization or other similar transaction.
14. Purchase Offer.
(a) If the Company shall elect not to make, or shall fail to
make, the Change of Control Offer following the occurrence of a Change of
Control pursuant to Section 13 hereof within the 20-day period specified
therein, then in addition to the redemption rights that the Company may exercise
pursuant to Section 10 hereof after June 30, 2005, the Company shall also have
the right (but not the obligation), (i) at any time and from time to time prior
to June 30, 2005, to offer (the "Purchase Offer") to repurchase all, but not
less than all, of the outstanding shares of Series A Preferred Stock at a
purchase price per share in cash equal to 101% of the Liquidation Preference
of each share of Series A Preferred Stock repurchased (after giving effect to
the Special Dividend, if any), plus an amount equal to 101% of all dividends
accrued and unpaid thereon from the last Dividend Payment Date to the date fixed
for repurchase (the "Purchase Payment") and (ii) at any time and from time to
time following June 30, 2005, to make a Purchase Offer to repurchase all, but
not less than all, of the outstanding shares of Series A Preferred Stock at a
purchase price per share in cash equal to 100% of the Liquidation Preference of
each share of Series A Preferred Stock repurchased (after giving effect to the
Special Dividend, if any), plus an amount equal to 100% of all dividends accrued
and unpaid thereon from the last Dividend Payment Date to the date fixed for
repurchase (the "Par Purchase Payment"). If the Company elects to make a
Purchase Offer, the Company shall mail a notice to each holder of shares of
30
<PAGE>
Series A Preferred Stock (with a copy to the Registrar) offering to repurchase
shares of Series A Preferred Stock on a date specified in such notice (the
"Purchase Payment Date"), which date shall be no earlier than 90 days and no
later than 120 days from the date such notice is mailed, pursuant to the
procedures required by Section 6 and described in such notice. The Company shall
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations to the extent such laws and regulations are
applicable in connection with the repurchase of the Series A Preferred Stock
hereunder.
(b) On the Purchase Payment Date, the Company shall, to the
extent lawful:
(i) accept for payment all shares of Series A Preferred
Stock properly tendered pursuant to the Purchase Offer;
(ii) deposit with the paying agent an amount equal to the
Purchase Payment or the Par Purchase Payment, as applicable, in respect
of all shares of Series A Preferred Stock so tendered; and
(iii)deliver or cause to be delivered to the Registrar all
certificates for shares of Series A Preferred Stock so accepted
together with an officer's certificate stating the aggregate number of
shares being purchased by the Company.
(c) The paying agent shall promptly mail or transmit by wire
transfer to each holder of shares of Series A Preferred Stock so tendered the
Purchase Payment or the Par Purchase Payment, as applicable, for such shares of
Series A Preferred Stock, and the Registrar shall promptly authenticate and mail
(or cause to be transferred by book entry) to each such holder a new certificate
for any shares of Series A Preferred Stock not tendered that are represented by
the surrendered certificate. The Company shall notify the holders of Series A
Preferred Stock the results of the Purchase Offer on or as soon as practicable
after the Purchase Payment Date.
(d) If a holder of shares of Series A Preferred Stock elects not
to, or otherwise fails to, properly tender shares of Series A Preferred Stock
into the Purchase Offer, then with respect to each share of Series A Preferred
Stock that such holder fails to tender, any dividends applicable to periods
following the expiration of the Purchase Offer with respect to each such share
shall be computed at a rate of eight percent (8%) per annum.
15. Special Covenant.
Without the vote or consent of the holders of a majority of
the then Outstanding shares of Series A Preferred Stock, the Company shall not
make, or permit any of its subsidiaries to make, any material capital
expenditures, acquisitions or divestitures outside the ordinary course of
business unless such expenditures, acquisitions or divestitures were otherwise
approved by the Board of Directors (including the affirmative vote of at least
one director elected by either the holders of the Series A-1 Preferred Stock or
the holders of the Series A-2 Preferred Stock).
16. SEC Reports; Reports by Company.
31
<PAGE>
So long as any shares of Series A Preferred Stock are
outstanding, the Company shall file with the SEC and, within 15 days after it
files them with the SEC, with the Registrar and, if requested, furnish to each
holder of shares of Series A Preferred Stock all annual and quarterly reports
and the information, documents, and other reports that the Company is required
to file with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act
("SEC Reports"). In the event the Company is not required or shall cease to be
required to file SEC Reports, pursuant to the Exchange Act, the Company will
nevertheless file such reports with the SEC (unless the SEC will not accept such
a filing). Whether or not required by the Exchange Act to file SEC Reports with
the SEC, so long as any shares of Series A Preferred Stock are Outstanding, the
Company will furnish or cause to be furnished reports equivalent to the SEC
Reports to the holders of shares of Series A Preferred Stock.
17. Definitions.
For purposes of this Certificate of Designation, the following
terms shall have the meaning set forth below:
"Accumulated Dividends" has the meaning set forth in Section 6.
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such Person. For the purposes of this definition,
"control" when used with respect to any 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; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing;
provided that neither AT&T Corp. ("AT&T") nor any subsidiary of AT&T which is
not included in AT&T's Liberty Media Group (as defined in AT&T's Certificate of
Incorporation) will be deemed to be an Affiliate of Liberty.
"Board of Directors" has the meaning set forth in the
Recitals.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which banking institutions in The City of New
York are authorized or obligated by law or executive order to be closed.
"By-laws" has the meaning set forth in the Recitals.
"Capital Stock" means, with respect to any person, any and all
shares, interests, participations, rights in, or other equivalents (however
designated and whether voting and/or non-voting) of such person's capital stock,
whether outstanding on the Closing Date or issued after the Closing Date, and
any and all rights (other than any evidence of indebtedness) or warrants
exercisable or exchangeable for or convertible into such capital stock.
"Certificate of Incorporation" has the meaning set forth in the
recitals.
"Change of Control" means the occurrence of any of the
following events: (a) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that a
32
<PAGE>
person shall be deemed to have "beneficial ownership" of all securities that
such person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 50% of the total Voting Capital Stock of the Company or (b) the Company
consolidates with, or merges with or into, another person or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any person, or any person consolidates with, or merges with or
into the Company, in any such event pursuant to a transaction in which the
holders of the outstanding Voting Capital Stock of the Company immediately prior
to such transaction hold less than 50% of the outstanding Voting Capital Stock
of the surviving or transferee company or its parent company immediately after
such transaction or immediately after such transaction any "person" or "group"
(as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), is the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the total Voting Capital Stock of the surviving
or transferee company or its parent company or (c) during any consecutive
two-year period, individuals who at the beginning of such period constituted the
Board of Directors (together with any new directors whose election by the Board
of Directors or whose nomination for election by the stockholders of the Company
was approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved and together with any
directors elected pursuant to Sections 8(d)(i), (ii) and (iii)) cease for any
reason to constitute a majority of the Board of Directors then in office or (d)
any transaction subject to Rule 13e-3 under the Exchange Act if following such
Rule 13e-3 transaction a person or group (as such terms are used in Section
13(d) and 14(d) of the Exchange Act) owns more than 50% of the total Voting
Capital Stock of the Company. Notwithstanding the foregoing, any form of
business combination between the Company and Teligent, Inc. within the 24 month
period following the Closing Date shall not be deemed to be a Change of Control,
unless after the date hereof and prior to such business combination, there shall
have occurred a "Teligent Change of Control." For the purposes hereof, a
Teligent Change of Control shall have the same meaning as a Change of Control,
substituting Teligent, Inc. for the Company in such definition; provided,
however, that a Teligent Change of Control shall not occur with respect to any
event or circumstance that involves an acquiror, 25% or more of the Voting
Capital Stock of which is beneficially owned by any member of the HMTF Group or
Liberty.
"Change of Control Date" has the meaning set forth in Section
6(b).
"Closing Date" means the Closing Date under the Purchase
Agreement.
"Closing Price" has the meaning set forth in Section 12(d)
(viii).
"Common Stock Record Date" has the meaning set forth in
Section 12(d)(viii).
"Common Stock" means the common stock of the Company, par
value $.01 per share and capital stock of any other class or series into which
the Common Stock may hereafter be changed.
33
<PAGE>
"Company" has the meaning set forth in the Recitals and
includes any successor to the Company hereunder.
"Company Order" means a written request or order signed in the
name of the Company by its Chairman of the Board, its President or a Vice
President and by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary.
"Conversion Agent" has the meaning set forth in Section 5(a).
"Conversion Price" means the price at which shares of Common
Stock shall be delivered upon conversion.
"Current Market Price" has the meaning set forth in Section
12(d)(viii).
"Dilution Trigger Event" has the meaning set forth in Section
12(d)(iv).
"Distributed Securities" has the meaning set forth in Section
12(d)(iv).
"Dividend Payment Date" shall mean the last day of March,
June, September and December of each year, commencing June 30, 2000, or the next
succeeding Business Day if any such day is not a Business Day.
"Dividend Period" shall mean the period from and including the
Closing Date to but excluding the first Dividend Payment Date and thereafter
each quarterly period from and including a Dividend Payment Date to but
excluding the next Dividend Payment Date.
"Dividend Record Date" has the meaning set forth in Section
7(a).
"Exchange Offer" has the meaning set forth in Section 12(d)(vi).
"Exchange Preferred Stock" has the meaning set forth in
Section 12(d)(viii).
"Exchange Securities" has the meaning set forth in Section
12(d)(viii).
"Expiration Time" has the meaning set forth in Section 12(d)(v).
"Fair Market Value" has the meaning set forth in Section
12(d)(viii).
"Junior Shares" has the meaning set forth in Section 9(a).
"Liquidation Preference" means an amount initially equal to
$10,000 per share of Series A Preferred Stock, subject to increase in accordance
with Section 6, Section 7 and Section 11 hereof, including, without limitation,
by the addition of Accumulated Dividends and, if applicable, the Special
Dividend.
"Mandatory Redemption Date" has the meaning set forth in
Section 10(b); provided, however, that if such date shall not be a Business Day,
then such date shall be the next Business Day.
34
<PAGE>
"Mirror Preferred Stock" has the meaning set forth in Section
12(d)(viii).
"Nonelecting Share" has the meaning set forth in Section 12(e).
"Odd-lot Redemption" has the meaning set forth in Section 10(c).
"Officers' Certificate" means a certificate of the Company
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President and by its Treasurer, an Assistant Treasurer, its Secretary or
an Assistant Secretary.
"Optional Redemption" has the meaning set forth in Section
10(a).
"Optional Redemption Date" has the meaning set forth in Section
10(a).
"Outstanding" means when used with respect to shares of Series
A Preferred Stock, as of the date of determination, all shares of Series A
Preferred Stock theretofore delivered under this Certificate of Designation,
except (a) shares of Series A Preferred Stock theretofore converted into shares
of Common Stock in accordance with Section 12 and shares of Series A Preferred
Stock theretofore canceled by the Registrar or delivered to the Registrar for
cancellation; (b) shares of Series A Preferred Stock for whose payment or
redemption money in the necessary amount has been theretofore deposited with the
Registrar or any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own Paying
Agent) for the holders of such shares of Series A Preferred Stock; provided
that, if such shares of Series A Preferred Stock are to be redeemed, notice of
such redemption has been duly given pursuant to this Certificate of Designation
or provision therefor satisfactory to the Registrar has been made; and (c)
shares of Series A Preferred Stock in exchange for or in lieu of which other
shares of Series A Preferred Stock have been delivered pursuant to this
Certificate of Designation; provided, however, that, in determining whether the
holders of the shares of Series A Preferred Stock have given any request,
demand, authorization, direction, notice, consent or waiver or taken any other
action hereunder, shares of Series A Preferred Stock owned by the Company or any
other obligor upon the shares of Series A Preferred Stock or any subsidiary of
the Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Registrar shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent, waiver or other action, only shares of Series A Preferred Stock
which the Registrar has actual knowledge of being so owned shall be so
disregarded.
"Parity Shares" has the meaning set forth in Section 9(a).
"Paying Agent" has the meaning set forth in Section 5(a).
"Person" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, governmental authority or other
entity of whatever nature.
"Preferred Stock" means, with respect to any person, any and
all shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such person's preferred or preference stock,
35
<PAGE>
whether now outstanding or issued after the date hereof, including all series
and classes of such preferred or preference stock.
"Purchase Agreement" means the Preferred Stock and Warrant
Purchase Agreement dated as of February 27, 2000, among the Company and the
Purchasers named therein, as it may be amended from time to time.
"Purchased Shares" has the meaning set forth in Section 12(d)
(v).
"Redemption Date" has the meaning set forth in Section 10(d).
"Redemption Notice" has the meaning set forth in Section 10(d).
"Redemption Price" has the meaning set forth in Section 10(a).
"Registrar" has the meaning set forth in Section 3.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of April 7, 2000, among the Company and the Purchasers.
"Restricted Shares Legend" has the meaning set forth in
Section 4(a).
"SEC" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the adoption of this Certificate of Designation such
commission is not existing and performing the duties now assigned to it, then
the body performing such duties at such time.
"SEC Reports" has the meaning set forth in Section 16.
"Securities Act" has the meaning set forth in Section 4(a).
"Senior Shares" has the meaning set forth in Section 9(a).
"Series A Preferred Stock" has the meaning set forth in
Section 1.
"Series A-1 Preferred Stock" has the meaning set forth in
Section 1.
"Series A-2 Preferred Stock" has the meaning set forth in
Section 1.
"Series A-3 Preferred Stock" has the meaning set forth in
Section 1.
"Special Dividend" means, with respect to each share of Series
A Preferred Stock, the difference between (i) $14,859.47 (as such number shall
be appropriately adjusted for stock splits, stock dividends or similar events
affecting the Series A Preferred Stock) and (ii) the amount of the actual
Liquidation Preference of such share immediately prior to the Change of Control
Date.
"Voting Capital Stock" means with respect to any Person,
securities of any class or classes of Capital Stock in such Person ordinarily
entitling the holders thereof (whether at all times or at the times that such
36
<PAGE>
class of Capital Stock has voting power by reason of the happening of any
contingency) to vote in the election of members of the board of directors or
comparable governing body of such Person.
18. No Reissuances.
Subject to Section 12(i), any share of Series A Preferred
Stock that is purchased, redeemed or otherwise acquired by the Company or any
subsidiary shall be cancelled and restored to the status of authorized but
unissued Preferred Stock but shall not be reissued as Series A Preferred Stock.
37
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation to be duly executed by H. Don Teague, Executive Vice President of
the Company, this 7th day of April, 2000.
ICG COMMUNICATIONS, INC.
By: /s/ H. Don Teague
--------------------------------------
Name: H. Don Teague
Title: Executive Vice President
<PAGE>
EXHIBIT A
---------
FACE OF SECURITY
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION, AND, UNLESS SO
REGISTERED, THEY MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED,
PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT AND
APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION.
Number: Number of Shares
--------- Shares
-------
8% SERIES [A-1, A-2 or A-3] CONVERTIBLE PREFERRED STOCK
DUE 2015
OF
ICG COMMUNICATIONS, INC.
ICG COMMUNICATIONS, INC., a company organized under the laws
of Delaware (the "Company"), hereby certifies that {HOLDER} (the "Holder") is
the registered owner of fully paid and non-assessable preference securities of
the Company designated the 8% Series [A-1, A-2 or A-3] Convertible Preferred
Stock due 2015, par value U.S.$0.01 and initial liquidation preference U.S.
$10,000 per share (the "Preferred Stock"). The shares of Preferred Stock are
transferable on the books and records of the Registrar, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Preferred Stock represented
hereby are issued and shall in all respects be subject to the provisions of the
Certificate of Designation of the Company dated April 7, 2000, as the same may
be amended from time to time in accordance with its terms (the "Preferred Stock
Certificate of Designation"). Capitalized terms used herein but not defined
shall have the meaning given them in the Preferred Stock Certificate of
Designation. The Company will provide a copy of the Preferred Stock Certificate
of Designation to a Holder without charge upon written request to the Company at
its principal place of business.
[THE SHARES OF PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE
SHALL BE AUTOMATICALLY CONVERTED INTO SHARES OF THE COMPANY'S 8% SERIES A-3
CONVERTIBLE PREFERRED STOCK UPON CERTAIN TRANSFERS OF SUCH SHARES AS PROVIDED IN
A-1
<PAGE>
SECTION 12(i) OF THE COMPANY'S PREFERRED STOCK CERTIFICATE OF DESIGNATION.]*
Reference is hereby made to select provisions of the Preferred
Stock set forth on the reverse hereof, and to the Preferred Stock Certificate of
Designation, which select provisions and the Preferred Stock Certificate of
Designation shall for all purposes have the same effect as if set forth at this
place.
Upon receipt of this certificate, the Holder is bound by the
Preferred Stock Certificate of Designation and is entitled to the benefits
thereunder.
Unless the Transfer Agent's valid counter-signature appears
hereon, the shares of Preferred Stock evidenced hereby shall not be entitled to
any benefit under the Preferred Stock Certificate of Designation or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has executed this certificate
as of the date set forth below.
ICG COMMUNICATIONS, INC.
By:
--------------------------------------
Name:
Title:
{Seal}
By:
--------------------------------------
Name:
Title:
Dated:
* include for Series A-1 Preferred Stock and Series A-2 Preferred Stock
A-2
<PAGE>
REVERSE OF SECURITY
ICG COMMUNICATIONS, INC.
8% Series [A-1, A-2 or A-3] Convertible Preferred Stock
due 2015
Dividends on each share of Preferred Stock shall be payable at
a rate per annum set forth on the face hereof or as provided in the Preferred
Stock Certificate of Designation. Subject to the limitations set forth in
Section 11 of the Preferred Stock Certificate of Designation, dividends may be
paid, at the option of the Company, in cash.
The shares of Preferred Stock shall be redeemable as provided
in the Preferred Stock Certificate of Designation. The shares of Preferred Stock
shall be convertible into the Company's Common Stock in the manner and according
to the terms set forth in the Preferred Stock Certification of Designation.
The Company shall furnish to any Holder upon request and
without charge, a copy of the voting rights, preferences, limitations and
special rights of the shares of each class or series authorized to be issued by
the Company so far as they have been fixed and determined and the authority of
the Board of Directors to fix and determine the designations, voting rights,
preferences, limitations and special rights of the class or series of shares of
the Company.
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers the
shares of Preferred Stock evidenced hereby to:
(Insert assignee's social security or tax identification number)
(Insert address and zip code of assignee)
and irrevocably appoints:
agent to transfer the shares of Preferred Stock evidenced hereby on the books of
the Transfer Agent and Registrar. The agent may substitute another to act for
him or her.
Date: Signature:
---------------------------- ------------------------------------
(Sign exactly as your name appears on the other side of this Convertible
Preferred Stock Certificate)
Signature Guarantee:*
------------------------------------------------
R-1
<PAGE>
*Signature must be guaranteed by an "eligible guarantor
institution" (i.e., a bank, stockbroker, savings and loan association or credit
union) meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents Medallion Program
("STAMP") or such other "signature guarantee program" as may be determined by
the Registrar in addition to, or in substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934.
R-2
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Preferred Stock)
The undersigned hereby irrevocably elects to convert (the "Conversion")
_________ shares of 8% Series [A-1, A-2 or A-3] Convertible Preferred Stock due
2015 (the "Preferred Stock"), represented by stock certificate No(s).
______________ (the "Preferred Stock Certificates") into shares of common stock,
par value U.S. $.01 per share ("Common Stock"), of ICG Communications, Inc. (the
"Company") according to the conditions of the Certificate of Designation
establishing the terms of the Preferred Stock (the "Preferred Stock Certificate
of Designation"), as of the date written below. If shares are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto and is delivering herewith such
certificates. No fee will be charged to the holder for any conversion, except
for transfer taxes, if any. A copy of each Preferred Stock Certificate is
attached hereto (or evidence of loss, theft or destruction thereof).*
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Preferred Stock shall be made pursuant to registration of the
Common Stock under the Securities Act of 1933 (the "Act"), or pursuant to an
exemption from registration under the Act.
Capitalized terms used but not defined herein shall have the meanings ascribed
thereto in or pursuant to the Preferred Stock Certificate of Designation.
Date of Conversion:
---------------------------------
Applicable Conversion Price:
------------------------
Number of shares of Preferred Stock to be Converted:
----------------------------
Number of shares of Common Stock to be Issued:
----------------------------------
Signature:
------------------------------------------
Name:
-----------------------------------------------
Address:
--------------------------------------------
Fax No.:
--------------------------------------------
*The Company is not required to issue shares of Common Stock
until the original Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Company or its Transfer
Agent. The Company shall issue and deliver shares of Common Stock to an
overnight courier not later than three business days following receipt of the
original Preferred Stock Certificate(s) to be converted.
**Address where shares of Common Stock and any other payments
or certificates shall be sent by the Company.
N-1
REGISTRATION RIGHTS AGREEMENT
between
ICG COMMUNICATIONS, INC.
AND
THE PURCHASERS LISTED ON SCHEDULE I
dated as of April 7, 2000
<PAGE>
TABLE OF CONTENTS
Article I Definitions..........................................................1
1.1 Definitions..........................................................1
1.2 Internal References..................................................3
Article II Registration Rights.................................................3
2.1 Demand Registration..................................................3
2.2 Piggyback Registration...............................................6
2.3 Shelf Registration...................................................7
Article III Registration Procedures............................................9
3.1 Filings; Information.................................................9
3.2 Registration Expenses...............................................13
Article IV Indemnification and Contribution...................................14
4.1 Indemnification by the Company......................................14
4.2 Indemnification by Selling Holders..................................15
4.3 Conduct of Indemnification Proceedings..............................15
4.4 Contribution........................................................16
Article V Miscellaneous.......................................................16
5.1 Participation in Underwritten Registrations.........................16
5.2 Rule 144............................................................17
5.3 Holdback Agreements.................................................17
5.4 Termination.........................................................18
5.5 Amendments, Waivers, Etc............................................18
5.6 Counterparts........................................................18
5.7 Entire Agreement....................................................18
5.8 Governing Law.......................................................18
5.9 Assignment of Registration Rights...................................18
<PAGE>
This REGISTRATION RIGHTS
AGREEMENT (the "Agreement"), is
made as of April 7, 2000, by
and between ICG Communications,
Inc., a Delaware corporation
(the "Company") and the entities
listed on Schedule I to this
Agreement.
WHEREAS, the Company, Liberty Media Corporation, HMTF Bridge
ICG, LLC and Gleacher/ICG Investors LLC entered into a Preferred Stock and
Warrant Purchase Agreement dated as of February 27, 2000 (the "Stock Purchase
Agreement");
WHEREAS, pursuant to an Assignment of Rights under Preferred
Stock and Warrant Purchase Agreement dated as of March 8, 2000, the remaining
Initial HMTF Holders (as defined below) became parties to the Stock Purchase
Agreement;
WHEREAS, it is a condition precedent to the closing of the
transactions contemplated in the Stock Purchase Agreement that the parties
hereto execute and deliver this Agreement;
NOW THEREFORE, in consideration of the premises, mutual
promises and covenants contained in this Agreement and intending to be legally
bound, the parties hereto hereby agree as follows:
Article I
Definitions
1.1 Definitions.
Terms defined in the Stock Purchase Agreement are used herein as
therein defined except as otherwise indicated below. In addition, the following
terms, as used herein, have the following meanings:
"Commission" means the Securities and Exchange Commission.
"Demand Registration" means a registration under the
Securities Act requested in accordance with Section 2.1.
"Gleacher Holder" means Gleacher/ICG Investors LLC.
"HMTF Holders" means the Initial HMTF Holders and any direct
or indirect transferee of any Registrable Securities initially held by the
Initial HMTF Holders.
"Holders" means, collectively, the HMTF Holders, the Liberty
Holders and the Gleacher Holder (including their respective Affiliates) and any
direct or indirect transferee of any Registrable Securities held by any of such
Persons.
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"Initial Amount," on any particular date and with respect to
the Liberty Holders or the HMTF Holders, as applicable, means the number of
shares of Common Stock that would have been issuable on such date upon
conversion of all of the shares of Series A Preferred Stock and the exercise of
all Warrants issued to the Liberty Holders or the HMTF Holders, respectively, on
the Closing Date (as adjusted for stock splits, stock dividends and similar
events affecting the Series A Preferred Stock).
"Initial HMTF Holders" means HM4 ICG Qualified Fund, LLC, HM4
ICG Private Fund, LLC, HM PG-IV ICG, LLC, HM 4-SBS ICG Coinvestors, LLC, HM 4-EQ
ICG Coinvestors, LLC, and HMTF Bridge ICG, LLC.
"Liberty Holders" means Liberty and each of its Affiliates.
"Piggyback Registration" has the meaning set forth in
Section 2.2.
"Registrable Common Stock" means (a) shares of Common Stock
issued or issuable upon conversion of the Series A Preferred Stock purchased
pursuant to the Stock Purchase Agreement, plus any additional shares of Series A
Preferred Stock issued in respect thereof in connection with any stock split,
stock dividend or similar event with respect to the Series A Preferred Stock,
plus any additional shares of Common Stock issued with respect to such issued
shares of Common Stock in connection with any stock splits, stock dividends, or
similar events with respect to the Common Stock, (b) shares of Common Stock
issued or issuable upon exercise of the Warrants, plus any additional shares of
Common Stock issued in respect of such issued shares of Common Stock in
connection with any stock split, stock dividend or similar event with respect to
the Common Stock and (c) any shares of Common Stock owned by a Holder that are
restricted securities within the meaning of Rule 144 or all such shares if such
Holder reasonably believes at such time that it may be deemed to be an
"affiliate" (as that term is defined in Rule 144) of the Company.
"Registrable Securities" means (a) the Registrable Common
Stock and (b) any securities of the Company or any successor entity into which
Registrable Common Stock may hereafter be converted or changed. As to any
particular Registrable Securities, such securities shall cease to be Registrable
Securities when (i) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act and such
securities shall have been disposed of under such registration statement, (ii)
such securities shall have been transferred pursuant to Rule 144, (iii) such
securities shall have been otherwise transferred or disposed of, and new
certificates therefor not bearing a legend restricting further transfer shall
have been delivered by the Company, and subsequent transfer or disposition of
them shall not require their registration or qualification under the Securities
Act or any similar state law then in force, or (iv) such securities shall have
ceased to be outstanding.
"Requesting Holders" means the Holders requesting a Demand
Registration, and shall include parties deemed "Requesting Holders" pursuant to
Section 2.1(a)(iv).
"Rule 144" means Rule 144 (or any successor rule of similar
effect) promulgated under the Securities Act.
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<PAGE>
"Selling Holder" means any Holder who is selling Registrable
Securities pursuant to a public offering registered hereunder.
"Series A Preferred Stock" means collectively the Company's
(i) 8% Series A-1 Convertible Preferred Stock, par value $0.01 per share, (ii)
8% Series A-2 Convertible Preferred Stock, par value $0.01 per share, and (iii)
8% Series A-3 Convertible Preferred Stock, par value $0.01 per share.
"Shelf Registration" has the meaning set forth in Section
2.3(b).
"Underwriter" means a securities dealer who purchases any
Registrable Securities as principal and not as part of such dealer's
market-making activities.
"Warrants" means the Warrants (as defined in the Stock
Purchase Agreement) to purchase Common Stock.
1.2 Internal References
Unless the context indicates otherwise, references to Articles,
Sections and paragraphs shall refer to the corresponding articles, sections and
paragraphs in this Agreement, and references to the parties shall mean the
parties to the Stock Purchase Agreement.
Article II
Registration Rights
2.1 Demand Registration
(a)
(i) Holders of a majority of the Registrable Securities held
by the HMTF Holders may make up to three (3) written requests for a
Demand Registration of all or any part of the Registrable Securities
held by the HMTF Holders and their direct or indirect transferees;
provided, that (A) each such Demand Registration by the HMTF Holders
must be in respect of Registrable Securities with a fair market value
of at least $50,000,000 or all of the Registrable Securities held by
the requesting HMTF Holders if the aggregate fair market value of all
of such Registrable Securities is less than $50,000,000 and (B) the
HMTF Holders shall not be entitled to a Demand Registration if, during
the 120 days preceding such request, the HMTF Holders had requested a
Demand Registration unless the Company preempted such Demand
Registration in accordance with Section 2.1(e) or the Company postponed
the filing thereof in accordance with Section 3.1(a) and the requesting
HMTF Holders withdrew the request for such Demand Registration. Upon
exercise of all or any portion of the Warrants held by the HMTF
Holders, the Holders of a majority of the Registrable Securities held
by the HMTF Holders may make one (1) additional written request for a
Demand Registration, subject to the proviso set forth in the foregoing
sentence.
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<PAGE>
(ii) Holders of a majority of the Registrable Securities held
by the Liberty Holders may make up to six (6) written requests for
a Demand Registration of all or any part of the Registrable Securities
held by the Liberty Holders and their direct or indirect transferees;
provided, that (A) each such Demand Registration by the Liberty
Holders must be in respect of Registrable Securities with a fair
market value of at least $50,000,000 or all of the Registrable
Securities held by the requesting Liberty Holders if the aggregate
fair market value of all of such Registrable Securities is less than
$50,000,000, and (B) the Liberty Holders shall not be entitled to a
Demand Registration if, during the 120 days preceding such request,
the Liberty Holders had requested a Demand Registration unless the
Company preempted such Demand Registration in accordance with Section
2.1(e) or the Company postponed the filing thereof in accordance with
Section 3.1(a) and the requesting Liberty Holders withdrew the request
for such Demand Registration. Upon exercise of all or any portion of
the Warrants held by the Liberty Holders, the Holders of a majority of
the Registrable Securities held by the Liberty Holders may make up to
two (2) additional written requests for a Demand Registration, subject
to the proviso set forth in the foregoing sentence.
(iii)Any request for a Demand Registration will specify
the aggregate number of shares of Registrable Securities proposed to be
sold by the Requesting Holders and will also specify the intended
method of disposition thereof. A registration will not count as a
Demand Registration until it has become effective. Should a Demand
Registration not become effective due to the failure of a Holder to
perform its obligations under this Agreement or the inability of the
Requesting Holders to reach agreement with the Underwriters for the
proposed sale on price or other customary terms for such transaction,
or in the event the Requesting Holders withdraw or do not pursue the
request for the Demand Registration (in each of the foregoing cases,
provided that at such time the Company is in compliance in all
material respects with its obligations under this Agreement), then,
subject to Section 2.1(b), such Demand Registration shall be deemed to
have been effected (provided that (i) if, the Demand Registration does
not become effective because a material adverse change has occurred,
or is reasonably likely to occur, in the condition (financial or
otherwise), business, assets or results of operations of the Company
and its subsidiaries taken as a whole subsequent to the date of the
written request made by the Requesting Holders (ii) if the Company
withdraws the Demand Registration for any reason or preempts the
request for the Demand Registration or (iii) if, after the Demand
Registration has become effective, an offering of Registrable
Securities pursuant to a registration is interfered with by any stop
order, injunction, or other order or requirement of the Commission or
other governmental agency or court or (iv) if the Demand Registration
is withdrawn at the request of the Requesting Holders pursuant to
Section 2.1(f) or Section 3.1(a), then the Demand Registration shall
not be deemed to have been effected and will not count as a Demand
Registration).
(iv) Upon receipt of any request for a Demand Registration
by holders of a majority of the Registrable Securities held by the HMTF
Holders or the Liberty Holders, as the case may be, the Company shall
promptly (but in any event within ten (10) days) give written notice
of such proposed Demand Registration to the HMTF Holders, in the case
of a request by an HMTF Holder, and to the Liberty Holders, in the
case of a request by a Liberty Holder, and all such HMTF Holders or
Liberty Holders, as the case may be (including their respective direct
4
<PAGE>
or indirect transferees) shall have the right, exercisable by written
notice to the Company within twenty (20) days of their receipt of the
Company's notice, to elect to include in such Demand Registration such
portion of their Registrable Securities as they may request. All such
Holders requesting to have their Registrable Securities included in a
Demand Registration in accordance with the preceding sentence shall be
deemed to be "Requesting Holders" for purposes of this Section 2.1.
(b) In the event that the Requesting Holders withdraw or do not
pursue a request for a Demand Registration and, pursuant to Section 2.1(a)
hereof, such Demand Registration is deemed to have been effected, the Holders
may reacquire such Demand Registration (such that the withdrawal or failure
to pursue a request will not count as a Demand Registration hereunder) if the
Selling Holders reimburse the Company for any and all Registration Expenses
incurred by the Company in connection with such request for a Demand
Registration that was withdrawn or not pursued.
(c) If the Requesting Holders so elect, the offering of such
Registrable Securities pursuant to such Demand Registration shall be in the form
of a "firm commitment" underwritten offering. A majority in interest of the
Requesting Holders shall have the right to select the managing Underwriters
and any additional investment bankers and managers to be used in connection
with any offering under this Section 2.1, subject to the Company's approval,
which approval shall not be unreasonably withheld.
(d) The Requesting Holders will inform the Company of the time
and manner of any disposition of Registrable Common Stock, and agree to
reasonably cooperate with the Company in effecting the disposition of the
Registrable Common Stock in a manner that does not unreasonably disrupt the
public trading market for the Common Stock; provided, however, that the Holders'
only right to a shelf registration statement shall be pursuant to Section
2.3.
(e) The Company will have the right to preempt any Demand
Registration with a primary registration by delivering written notice (within
seven business days after the Company has received a request for such Demand
Registration) of such intention to the Requesting Holders indicating that the
Company has identified a specific business need and use for the proceeds of the
sale of such securities and had contemplated such sale of securities prior to
receiving the Requesting Holders' notice, and the Company shall use commercially
reasonable efforts to effect a primary registration within 90 days of such
notice. In the ensuing primary registration, the Holders will have such
piggyback registration rights as are set forth in Section 2.2 hereof. Upon the
Company's preemption of a requested Demand Registration, such requested
registration will not count as the Holders' Demand Registration. If the Company
thereafter decides to abandon its intention to pursue such sale of securities,
it shall give notice thereof to any preempted Holders within two business days
following the Company's decision. The Company may exercise the right to preempt
a Demand Registration only once in any 360-day period; provided, that during any
360-day period the Company shall use its reasonable best efforts to permit
a period of at least 180 consecutive days during which the Selling Holders may
effect a Demand Registration.
5
<PAGE>
(f) Securities to be sold for the account of any Person (including
the Company) other than a Requesting Holder shall not be included in a Demand
Registration if the managing Underwriter or Underwriters shall advise the
Company and the Requesting Holders in writing that the inclusion of such
securities will materially and adversely affect the price of the offering (a
"Material Adverse Effect"). Furthermore, in the event the managing Underwriter
or Underwriters shall advise the Company or the Requesting Holders that even
after exclusion of all securities of other Persons (including the Company)
pursuant to the immediately preceding sentence, the amount of Registrable
Securities proposed to be included in such Demand Registration by Requesting
Holders is sufficiently large to cause a Material Adverse Effect, the
Registrable Securities of the Requesting Holders to be included in such Demand
Registration shall equal the number of shares which the Company and the
Requesting Holders are so advised can be sold in such offering without a
Material Adverse Effect and such shares shall be allocated pro rata among the
Requesting Holders on the basis of the number of Registrable Securities
requested to be included in such registration by each such Requesting Holder;
provided, however, that if any Registrable Securities requested to be registered
pursuant to a Demand Registration under Section 2.1 are excluded from
registration hereunder, then the Holder(s) having shares excluded ("Excluded
Holders") shall have the right to withdraw all, or any part, of their shares
from such registration and if withdrawn in full such Demand Registration shall
not be deemed to have been effected and will not count as a Demand Registration.
2.2 Piggyback Registration
(a) If the Company proposes to file a registration statement
under the Securities Act with respect to an offering of Common Stock for its own
account or for the account of another Person (other than a registration
statement on Form S-4 or S-8, or, except as provided for in Section 2.3,
pursuant to Rule 415 (or any substitute form or rule, respectively, that may be
adopted by the Commission)), the Company shall give written notice of such
proposed filing to the Holders at the address set forth in the share register
of the Company as soon as reasonably practicable (but in no event less than 15
days before the anticipated filing date), undertaking to provide each Holder the
opportunity to register on the same terms and conditions such number of shares
of Registrable Securities as such Holder may request (a "Piggyback
Registration"). Each Holder will have seven business days after receipt of any
such notice to notify the Company as to whether it wishes to participate in a
Piggyback Registration (which notice shall not be deemed to be a request for a
Demand Registration); provided that should a Holder fail to provide timely
notice to the Company, such Holder will forfeit any rights to participate in the
Piggyback Registration with respect to such proposed offering other than as
described in Section 2.1(a)(iv). In the event that the registration statement
is filed on behalf of a Person other than the Company, the Company will use its
best efforts to have the shares of Registrable Securities that the Holders
wish to sell included in the registration statement. If the Company or the
Person for whose account such offering is being made shall determine in its sole
discretion not to register or to delay the proposed offering, the Company may,
at its election, provide written notice of such determination to the Holders
and (i) in the case of a determination not to effect the proposed offering,
shall thereupon be relieved of the obligation to register such Registrable
Securities in connection therewith, and (ii) in the case of a determination to
delay a proposed offering, shall thereupon be permitted to delay registering
such Registrable Securities for the same period as the delay in respect of the
proposed offering. As between the Company and the Selling Holders, the Company
6
<PAGE>
shall be entitled to select the Underwriters in connection with any Piggyback
Registration.
(b) If the Registrable Securities requested to be included in the
Piggyback Registration by any Holder differ from the type of securities proposed
to be registered by the Company and the managing Underwriter advises the Company
that due to such differences the inclusion of such Registrable Securities would
cause a Material Adverse Effect, then (i) the number of such Holders'
Registrable Securities to be included in the Piggyback Registration shall be
reduced to an amount which, in the opinion of the managing Underwriter, would
eliminate such Material Adverse Effect or (ii) if no such reduction would, in
the opinion of the managing Underwriter, eliminate such Material Adverse Effect,
then the Company shall have the right to exclude all such Registrable Securities
from such Piggyback Registration, provided, that no other securities of such
type are included and offered for the account of any other Person in such
Piggyback Registration. Any partial reduction in number of Registrable
Securities of any Holder to be included in the Piggyback Registration pursuant
to clause (i) of the immediately preceding sentence shall be effected pro rata
based on the ratio which such Holder's requested shares bears to the total
number of shares requested to be included in such Piggyback Registration by all
Persons other than the Company who have the contractual right to request that
their shares be included in such registration statement and who have requested
that their shares be included. If the Registrable Securities requested to be
included in the registration statement are of the same type as the securities
being registered by the Company and the managing Underwriter advises the Company
that the inclusion of such Registrable Securities would cause a Material Adverse
Effect, the Company will be obligated to include in such registration statement,
as to each Holder only a portion of the shares such Holder has requested be
registered equal to the ratio which such Holder's requested shares bears to the
total number of shares requested to be included in such registration statement
by all Persons (other than the Person or Persons initiating such registration
request) who have the contractual right to request that their shares be included
in such registration statement and who have requested their shares be included.
If the Company initiated the registration, then the Company may include all of
its securities in such registration statement before any such Holder's requested
shares are included. If another security holder initiated the registration, then
the Company may not include any of its securities in such registration statement
unless all Registrable Securities requested to be included in the registration
statement by all Holders are included in such registration statement. If as a
result of the provisions of this Section 2.2(b) any Holder shall not be entitled
to include all Registrable Securities in a registration that such Holder has
requested to be so included, such Holder may withdraw such Holder's request to
include Registrable Securities in such registration statement prior to its
effectiveness.
2.3 Shelf Registration
(a) Holders of a majority of the Registrable Securities held by
the Liberty Holders ("Majority Liberty Holders") may, at any time after the
first anniversary of the Closing Date, make a written request that the Company
effect a shelf registration of a portion of the Registrable Securities held by
the Liberty Holders and their direct or indirect transferees (the "Liberty Shelf
Registration") pursuant to Rule 415; provided, that the aggregate amount of
Registrable Securities that may be included in such Liberty Shelf Registration
may not exceed 25% of the Liberty Holders' Initial Amount. Upon receipt of a
request for the Liberty Shelf Registration, the Company shall promptly (but in
7
<PAGE>
any event within 10 business days) give written notice of the proposed Liberty
Shelf Registration to all other Liberty Holders, and all such Holders (including
their direct and indirect transferees) shall have the right to include
Registrable Securities in the Liberty Shelf Registration subject to the
foregoing limitation. From and after the second anniversary of the Closing Date,
the Majority Liberty Holders may make a written request that the Company amend
the Liberty Shelf Registration to include in the Liberty Shelf Registration no
more than 50% of the Liberty Holders' Initial Amount. Upon receipt of such
request, the Company shall promptly (but in any event within 10 business days)
give written notice of the proposed amendment to all other Liberty Holders, and
all such Holders (including their direct and indirect transferees) shall have
the right to include Registrable Securities in the amended Liberty Shelf
Registration subject to the foregoing limitation. From and after the third
anniversary of the Closing Date, the Majority Liberty Holders' may make a
written request that the Company amend the Liberty Shelf Registration to include
in the Liberty Shelf Registration no more than 75% of the Liberty Holders'
Initial Amount. Upon receipt of such request, the Company shall promptly (but in
any event within 10 business days) give written notice of the proposed amendment
to all other Liberty Holders, and all such Holders (including their direct and
indirect transferees) shall have the right to include Registrable Securities in
the amended Liberty Shelf Registration subject to the foregoing limitation. From
and after the fourth anniversary of the Closing Date, the Majority Liberty
Holders may make a written request that the Company amend the Liberty Shelf
Registration to include in the Liberty Shelf Registration up to 100% of the
Liberty Holders' Initial Amount. Upon receipt of such request, the Company shall
promptly (but in any event within 10 business days) give written notice of the
proposed amendment to all other Liberty Holders, and all such Holders (including
their direct and indirect transferees) shall have the right to include
Registrable Securities in the amended Liberty Shelf Registration up to 100% of
the Liberty Holders' Initial Amount.
(b) Holders of a majority of the Registrable Securities held by
the HMTF Holders ("Majority HMTF Holders") may, at any time after the first
anniversary of the Closing Date, make a written request that the Company effect
a shelf registration of a portion of the Registrable Securities held by the HMTF
Holders and their direct or indirect transferees (the "HMTF Shelf Registration")
pursuant to Rule 415; provided, that the aggregate amount of Registrable
Securities that may be included in such HMTF Shelf Registration may not exceed
25% of the HMTF Holders' Initial Amount. Upon receipt of a request for the HMTF
Shelf Registration, the Company shall promptly (but in any event within 10
business days) give written notice of the proposed HMTF Shelf Registration to
all other HMTF Holders, and all such Holders (including their direct and
indirect transferees) shall have the right to include Registrable Securities in
the HMTF Shelf Registration subject to the foregoing limitation. From and after
the second anniversary of the Closing Date, the Majority HMTF Holders may make a
written request that the Company amend the HMTF Shelf Registration to include in
the HMTF Shelf Registration no more than 50% of the HMTF Holders' Initial
Amount. Upon receipt of such request, the Company shall promptly (but in any
event within 10 business days) give written notice of the proposed amendment to
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all other HMTF Holders, and all such Holders (including their direct and
indirect transferees) shall have the right to include Registrable Securities in
the amended HMTF Shelf Registration subject to the foregoing limitation. From
and after the third anniversary of the Closing Date, the Majority HMTF Holders'
may make a written request that the Company amend the HMTF Shelf Registration to
include in the HMTF Shelf Registration no more than 75% of the HMTF Holders'
Initial Amount. Upon receipt of such request, the Company shall promptly (but in
any event within 10 business days) give written notice of the proposed amendment
to all other HMTF Holders, and all such Holders (including their direct and
indirect transferees) shall have the right to include Registrable Securities in
the amended HMTF Shelf Registration subject to the foregoing limitation. From
and after the fourth anniversary of the Closing Date, the Majority HMTF Holders
may make a written request that the Company amend the HMTF Shelf Registration to
include in the HMTF Shelf Registration up to 100% of the HMTF Holders' Initial
Amount. Upon receipt of such request, the Company shall promptly (but in any
event within 10 business days) give written notice of the proposed amendment to
all other HMTF Holders, and all such Holders (including their direct and
indirect transferees) shall have the right to include Registrable Securities in
the amended HMTF Shelf Registration up to 100% of the HMTF Holders' Initial
Amount.
(c) If the Company's ability to amend the registration statement
for the Liberty Shelf Registration or the HMTF Shelf Registration (each, a
"Shelf Registration") to increase the number of Registrable Securities included
therein (or to file a new shelf registration statement in respect thereof) in
accordance with this Section 2.3 is subject to any contractual limitations that
could delay the Company's ability to file or cause to become effective such
registration statement, then, if requested by the Majority Liberty Holders (in
the case of Section 2.3(a)) or the Majority HMTF Holders (in the case of Section
2.3(b)) the Company shall, in lieu of following the procedure set forth in
Section 2.3(a) or Section 2.3(b), as the case may be, file a single registration
statement for the Shelf Registration referred to in the applicable provisions of
such Sections (and cause such registration statement to become and remain
effective for the period set forth in Section 3.1) that would permit the
offering of such portion of the Registrable Securities (up to 100%) as may be
requested by the Majority Liberty Holders (in the case of Section 2.3(a)) or the
Majority HMTF Holders (in the case of Section 2.3(b)), (it being understood and
agreed that the Holders of the Registrable Securities would not have the right
to offer and sell from such Shelf Registration Registrable Securities other than
in accordance with the schedule and amounts set forth in Section 2.3(a) or
Section 2.3(b), as applicable).
Article III
Registration Procedures
3.1 Filings; Information
In connection with the registration of Registrable Securities pursuant
to Section 2.1, Section 2.2 and Section 2.3 hereof, the Company will use its
reasonable best efforts to effect the registration of such Registrable
Securities as promptly as is reasonably practicable, and in connection with any
such request:
(a) The Company will expeditiously prepare and file with the
Commission a registration statement on any form for which the Company then
qualifies and which counsel for the Company shall deem appropriate and available
for the sale of the Registrable Securities to be registered thereunder in
accordance with the intended method of distribution thereof, and use its
reasonable best efforts to cause such filed registration statement to become and
remain effective (i) with respect to any Demand Registration or Piggyback
Registration, for such period, not to exceed 60 days, as may be reasonably
necessary to effect the sale of such securities, (ii) with respect to a Shelf
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Registration, until the earlier of the sale of all Registrable Securities
thereunder and the fifth anniversary of the Closing Date (or if such Shelf
Registration is filed or amended on or after the fourth anniversary of the
Closing Date, then the earlier of the sale of all Registrable Securities
thereunder and the second anniversary of the effective date of such Shelf
Registration) (it being understood that if at any time all the Registrable
Securities then permitted to be sold under such Shelf Registration pursuant to
Section 2.3 have been sold but the Holders have the right to request the
addition of additional Registrable Securities to the Shelf Registration in the
future pursuant to Section 2.3, the Company may (at its option) either cause the
registration statement to remain effective (notwithstanding the fact that all
securities then registrable on such shelf registration statement shall have been
sold) and file post-effective amendments when required to permit the sale of the
additional Registrable Securities or prepare and file, and cause to become and
remain effective, a new shelf registration statement to effect the registration
of the additional Registrable Securities when required pursuant to Section 2.3);
provided that if the Company shall furnish to the Selling Holder a certificate
signed by the Company's Chairman, President or any Executive Vice-President or
Vice-President stating that the Company's Board of Directors has determined in
good faith that it would be detrimental or otherwise disadvantageous to the
Company or its stockholders for such a registration statement to be filed as
expeditiously as possible because the sale of Registrable Securities covered by
such Registration Statement or the disclosure of information in any related
prospectus or prospectus supplement would materially interfere with any
acquisition, financing or other material event or transaction which is then
intended or the public disclosure of which at the time would be materially
prejudicial to the Company, the Company may postpone the filing or effectiveness
of a registration statement for a period of not more than 120 days; provided
that during any 360-day period the Company shall use its reasonable best efforts
to permit a period of at least 180 consecutive days during which the Company
will make a registration statement available under this Agreement; and provided
further that if (i) the effective date of any registration statement filed
pursuant to a Demand Registration would otherwise be at least 45 calendar days,
but fewer than 90 calendar days, after the end of the Company's fiscal year, and
(ii) the Securities Act requires the Company to include audited financials as of
the end of such fiscal year, the Company may delay the effectiveness of such
registration statement for such period as is reasonably necessary to include
therein its audited financial statements for such fiscal year. If the Company
exercises its right to postpone the filing or effectiveness of a registration
statement, the applicable Requesting Holders shall be entitled to withdraw their
request for such Demand Registration and it shall not count as a Demand
Registration.
(b) Anything in this Agreement to the contrary notwithstanding, it
is understood and agreed that the Company shall not be required to keep any
shelf registration effective or useable for offers and sales of the Registrable
Securities, file a post effective amendment to a shelf registration statement or
prospectus supplement or to supplement or amend any registration statement, if
the Company is then involved in discussions concerning, or otherwise engaged in,
any material financing or investment, acquisition or divestiture transaction or
other material business purpose if the Company determines in good faith that the
making of such a filing, supplement or amendment at such time would interfere
with such transaction or purpose. The Company shall promptly give the Holders of
Registrable Securities written notice of such postponement containing a general
statement of the reasons for such postponement and an approximation of the
anticipated delay. Upon receipt by a Holder of Registrable Securities of notice
of an event of the kind described in this Section 3.1(b), such Holder shall
10
<PAGE>
forthwith discontinue such Holder's disposition of Registrable Securities until
such Holder's receipt of notice from the Company that such disposition may
continue and of any supplemented or amended prospectus indicated in such notice.
The Company shall use its reasonable best efforts to permit sales of Registrable
Securities on such shelf registration statement for at least 180 days during any
360-day period. In the event the Company shall give notice of an event of the
kind described in this Section 3.1(b), the Company shall extend the period
during which the applicable registration statement shall be maintained effective
as provided in Section 3.1(a) hereof by the number of days during the period
from and including the date of the giving of such notice to the date when the
Company shall give notice to the Selling Holders that such dispositions of such
Registrable Securities may continue and shall have made available to the Selling
Holders any such supplemented or amended prospectus.
(c) The Company will, if requested, prior to filing such
registration statement or any amendment or supplement thereto, furnish to the
Selling Holders, and each applicable managing Underwriter, if any, copies
thereof, and thereafter furnish to the Selling Holders and each such
Underwriter, if any, such number of copies of such registration statement,
amendment and supplement thereto (in each case including all exhibits thereto
and documents incorporated by reference therein) and the prospectus included in
such registration statement (including each preliminary prospectus) as the
Selling Holders or each such Underwriter may reasonably request in order to
facilitate the sale of the Registrable Securities by the Selling Holders.
(d) After the filing of the registration statement, the Company
will promptly notify the Selling Holders of any stop order issued or, to the
Company's knowledge, threatened to be issued by the Commission and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered.
(e) The Company will use its commercially reasonable efforts
to qualify the Registrable Securities for offer and sale under such other
securities or blue sky laws of such jurisdictions in the United States as the
Selling Holders reasonably request; keep each such registration or qualification
(or exemption therefrom) effective during the period in which such registration
statement is required to be kept effective; and do any and all other acts and
things which may be reasonably necessary or advisable to enable each Selling
Holder to consummate the disposition of the Registrable Securities owned by such
Selling Holder in such jurisdictions; provided that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this paragraph 3.1(e), (ii)
subject itself to taxation in any such jurisdiction or (iii) consent to general
service of process in any such jurisdiction.
(f) The Company will as promptly as is practicable notify the
Selling Holders, at any time when a prospectus relating to the sale of the
Registrable Securities is required by law to be delivered in connection with
sales by an Underwriter or dealer, of the occurrence of any event requiring the
preparation of a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading and promptly make available to the Selling Holders and to
the Underwriters any such supplement or amendment. Upon receipt of any notice of
11
<PAGE>
the occurrence of any event of the kind described in the preceding sentence,
Selling Holders will forthwith discontinue the offer and sale of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until receipt by the Selling Holders and the Underwriters of the
copies of such supplemented or amended prospectus and, if so directed by the
Company, the Selling Holders will deliver to the Company all copies, other than
permanent file copies then in the possession of Selling Holders, of the most
recent prospectus covering such Registrable Securities at the time of receipt of
such notice. In the event the Company shall give such notice, the Company shall
extend the period during which such registration statement shall be maintained
effective as provided in Section 3.1(a) hereof by the number of days during the
period from and including the date of the giving of such notice to the date when
the Company shall make available to the Selling Holders such supplemented or
amended prospectus.
(g) The Company will enter into customary agreements (including an
underwriting agreement in customary form) and take such other actions
(including, without limitation, participation in road shows and investor
conference calls) as are required in order to expedite or facilitate the sale of
such Registrable Securities.
(h) At the request of any Underwriter in connection with an
underwritten offering the Company will furnish (i) an opinion of counsel,
addressed to the Underwriters, covering such customary matters as the managing
Underwriter may reasonably request and (ii) a comfort letter or comfort letters
from the Company's independent public accountants covering such customary
matters as the managing Underwriter may reasonably request.
(i) If requested by the managing Underwriter or any Selling
Holder, the Company shall promptly incorporate in a prospectus supplement or
post effective amendment such information as the managing Underwriter or any
Selling Holder reasonably requests to be included therein, including without
limitation, with respect to the Registrable Securities being sold by such
Selling Holder, the purchase price being paid therefor by the Underwriters and
with respect to any other terms of the underwritten offering of the Registrable
Securities to be sold in such offering, and promptly make all required filings
of such prospectus supplement or post effective amendment.
(j) The Company shall promptly make available for inspection by
any Selling Holder or Underwriter participating in any disposition pursuant to
any registration statement, and any attorney, accountant or other agent or
representative retained by any such Selling Holder or Underwriter (collectively,
the "Inspectors"), all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information requested by any such Inspector in connection with such
registration statement; provided, however, that unless the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in the
registration statement or the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction, the Company
shall not be required to provide any information under this subparagraph (j) if
(A) the Company believes, after consultation with counsel for the Company, that
to do so would cause the Company to forfeit an attorney-client privilege that
was applicable to such information or (B) if either (1) the Company has
requested and been granted from the Commission confidential treatment of such
information contained in any filing with the Commission or documents provided
12
<PAGE>
supplementally or otherwise or (2) the Company reasonably determines in good
faith that such Records are confidential and so notifies the Inspectors in
writing unless prior to furnishing any such information with respect to (A) or
(B) such Holder of Registrable Securities requesting such information agrees to
enter into a confidentiality agreement in customary form and subject to
customary exceptions; provided further, however, that each Holder of Registrable
Securities agrees that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the Company and
allow the Company, at its expense, to undertake appropriate action and to
prevent disclosure of the Records deemed confidential.
(k) The Company shall cause the Registrable Securities included
in any registration statement to be (A) listed on each securities exchange, if
any, on which similar securities issued by the Company are then listed,
or (B) authorized to be quoted and/or listed (to the extent applicable) on the
Nasdaq National Market if the Registrable Securities so qualify.
(l) The Company shall provide a CUSIP number for the Registrable
Securities included in any registration statement not later than the effective
date of such registration statement.
(m) The Company shall cooperate with each Selling Holder and each
Underwriter participating in the disposition of such Registrable Securities
and their respective counsel in connection with any filings required to be made
with the National Association of Securities Dealers, Inc.
(n) The Company shall during the period when the prospectus is
required to be delivered under the Securities Act, promptly file all documents
required to be filed with the Commission pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act.
(o) The Company will make generally available to its security
holders, as soon as reasonably practicable, an earnings statement covering a
period of 12 months, beginning within three months after the effective date of
the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and the rules and regulations
of the Commission thereunder.
The Company may require Selling Holders promptly to furnish in writing
to the Company such information regarding such Selling Holders, the plan of
distribution of the Registrable Securities and other information as the Company
may from time to time reasonably request or as may be legally required in
connection with such registration.
3.2 Registration Expenses
In connection with any Registration effected hereunder, the Company
shall pay the following expenses incurred in connection with such registration
(the "Registration Expenses"): (i) registration and filing fees with the
Commission and the National Association of Securities Dealers, Inc., (ii) fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) printing expenses, (iv)
fees and expenses incurred in connection with the listing or quotation of the
Registrable Securities, (v) fees and expenses of counsel to the Company and the
13
<PAGE>
reasonable fees and expenses of independent certified public accountants for the
Company (including fees and expenses associated with the special audits or the
delivery of comfort letters), (vi) the reasonable fees and expenses of any
additional experts retained by the Company in connection with such registration,
(vii) all roadshow costs and expenses not paid by the Underwriters and (viii)
the reasonable fees and expenses of one counsel for the Selling Holders.
Article IV
Indemnification and Contribution
4.1 Indemnification by the Company
The Company agrees to indemnify and hold harmless each Selling Holder
and its Affiliates and their respective officers, directors, partners,
stockholders, members, employees, agents and representatives and each Person (if
any) which controls a Selling Holder within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, from and against any and
all losses, claims, damages, liabilities, costs and expenses (including
reasonable attorneys' fees) caused by, arising out of, resulting from or related
to any untrue statement or alleged untrue statement of a material fact contained
or incorporated by reference in any registration statement or prospectus
relating to the Registrable Securities (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by or based upon any information furnished in
writing to the Company by or on behalf of such Selling Holder expressly for use
therein or by the Selling Holder's failure to deliver a copy of the registration
statement or prospectus or any amendments or supplements thereto after the
Company has furnished the Selling Holder with copies of the same; provided,
however, that the Company shall have no obligation to indemnify under this
sentence to the extent any such losses, claims, damages or liabilities have been
finally and non-appealably determined by a court to have resulted from such
Selling Holder's willful misconduct or gross negligence. The Company also agrees
to indemnify any Underwriters of the Registrable Securities, their officers and
directors and each person who controls such Underwriters on substantially the
same basis as that of the indemnification of the Selling Holders provided in
this Section 4.1, except insofar as such losses, claims, damages or liabilities
are caused by or based upon any information furnished in writing to the Company
by or on behalf of such Underwriter expressly for use therein or by the
Underwriter's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto after the Company has
furnished the Underwriter with copies of the same; provided, however, that the
Company shall have no obligation to indemnify under this sentence to the extent
any such losses, claims, damages or liabilities have been finally and
non-appealably determined by a court to have resulted from any such
Underwriter's willful misconduct or gross negligence.
14
<PAGE>
4.2 Indemnification by Selling Holders
Each Selling Holder agrees to indemnify and hold harmless the Company,
its officers and directors, and each Person, if any, which controls the Company
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to each Selling Holder, but only with reference to information furnished in
writing by or on behalf of such Selling Holder expressly for use in any
registration statement or prospectus relating to the Registrable Securities, or
any amendment or supplement thereto, or any preliminary prospectus. Each Selling
Holder also agrees to indemnify and hold harmless any Underwriters of the
Registrable Securities, their officers and directors and each person who
controls such Underwriters on substantially the same basis as that of the
indemnification of the Company provided in this Section 4.2, but only with
reference to information furnished in writing by or on behalf of such Selling
Holder expressly for use in any registration statement or prospectus relating to
the Registrable Securities, or any amendment or supplement thereto, or any
preliminary prospectus. Each such Selling Holder's liability under this Section
4.2 shall be limited to an amount equal to the net proceeds (after deducting the
underwriting discount and expenses) received by such Selling Holder from the
sale of such Registrable Securities by such Selling Holder. The obligation of
each Selling Holder shall be several and not joint.
4.3 Conduct of Indemnification Proceedings
In case any proceeding (including any governmental investigation) shall
be instituted involving any Person in respect of which indemnity may be sought
pursuant to Section 4.1 or Section 4.2, such Person (the "Indemnified Party")
shall promptly notify the Person against whom such indemnity may be sought (the
"Indemnifying Party") in writing and the Indemnifying Party, upon the request of
the Indemnified Party, shall retain counsel reasonably satisfactory to such
Indemnified Party to represent such Indemnified Party and any others the
Indemnifying Party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any Indemnified Party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the Indemnified Party and the Indemnifying Party and, in the written
opinion of counsel for the Indemnified Party, representation of both parties by
the same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Party shall not,
in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
of attorneys (in addition to any local counsel) at any time for all such
Indemnified Parties, and that all such fees and expenses shall be reimbursed as
they are incurred. In the case of any such separate firm for the Indemnified
Parties, such firm shall be designated in writing by the Indemnified Parties.
The Indemnifying Party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent (not to
be unreasonably withheld), or if there be a final judgment for the plaintiff,
the Indemnifying Party shall indemnify and hold harmless such Indemnified
Parties from and against any loss or liability (to the extent stated above) by
reason of such settlement or judgment.
15
<PAGE>
4.4 Contribution
If the indemnification provided for in this Article IV is unavailable
to an Indemnified Party in respect of any losses, claims, damages or liabilities
in respect of which indemnity is to be provided hereunder, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall to the
fullest extent permitted by law contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities in
such proportion as is appropriate to reflect the relative fault of such party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company, a Selling Holder and the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
such party and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and each Selling Holder agrees that it would not be just
and equitable if contribution pursuant to this Section 4.4 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Article IV, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission, and each Selling
Holder shall not be required to contribute any amount in excess of the amount by
which the net proceeds of the offering (before deducting expenses) received by
such Selling Holder exceeds the amount of any damages which such Selling Holder
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
Article V
Miscellaneous
5.1 Participation in Underwritten Registrations
No Person may participate in any underwritten registered offering
contemplated hereunder unless such Person (a) agrees to sell its securities on
the basis provided in any underwriting arrangements approved by the Persons
entitled hereunder to approve such arrangements, (b) completes and executes all
questionnaires, powers of attorney, custody arrangements, indemnities,
underwriting agreements and other documents reasonably required under the terms
16
<PAGE>
of such underwriting arrangements and this Agreement and (c) furnishes in
writing to the Company such information regarding such Person, the plan of
distribution of the Registrable Securities and other information as the Company
may from time to time request or as may be legally required in connection with
such registration; provided, however, that no such Person shall be required to
make any representations or warranties in connection with any such registration
other than representations and warranties as to (i) such Person's ownership of
his or its Registrable Securities to be sold or transferred free and clear of
all liens, claims and encumbrances, (ii) such Person's power and authority to
effect such transfer and (iii) such matters pertaining to compliance with
securities laws as may be reasonably requested; provided further, however, that
the obligation of such Person to indemnify pursuant to any such underwriting
agreements shall be several, not joint and several, among such Persons selling
Registrable Securities, and the liability of each such Person will be in
proportion to, and provided further that such liability will be limited to, the
net amount received by such Person from the sale of such Person's Registrable
Securities pursuant to such registration.
5.2 Rule 144
The Company covenants that it will file any reports required to be
filed by it under the Securities Act and the Exchange Act and that it will take
such further action as the Holders may reasonably request to the extent required
from time to time to enable the Holders to sell Registrable Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted by the
Commission. Upon the request of any Holder, the Company will deliver to such
Holder a written statement as to whether it has complied with such reporting
requirements.
5.3 Holdback Agreements
The Liberty Holders, for so long as they collectively own Registrable
Securities representing 10% or more of the voting power of the outstanding
voting securities of the Company, and the HMTF Holders, for so long as they
collectively own Registrable Securities representing 10% or more of the voting
power of the outstanding voting securities of the Company, severally agree, in
the event of an underwritten offering by the Company (whether for the account of
the Company or otherwise) not to offer, sell, contract to sell or otherwise
dispose of any Registrable Securities, or any securities convertible into or
exchangeable or exercisable for such securities, including any sale pursuant to
Rule 144 under the Securities Act (except as part of such underwritten
offering), during the 14 days prior to, and during the 90-day period (or such
lesser period as the lead or managing underwriters may require) beginning on,
the effective date of the registration statement for such underwritten offering
(or, in the case of an offering pursuant to an effective shelf registration
statement pursuant to Rule 415, the pricing date for such underwritten
offering), provided that in connection with such underwritten offering each
officer and director of the Company and holder of 10% or more of the Common
Stock is subject to restrictions substantially equivalent to those imposed on
the Liberty Holders and the HMTF Holders.
17
<PAGE>
5.4 Termination
The registration rights granted under this Agreement will terminate on
April 10, 2015, or such earlier time as there shall no longer be any Registrable
Securities; provided, however, that if all shares of Series A Preferred Stock
outstanding on such date shall not have been redeemed in full in accordance with
Section 10 of the Certificate of Designations, this Agreement shall remain in
full force and effect with respect to the Registrable Securities until such time
as the shares of Series A Preferred Stock have been so redeemed in full.
5.5 Amendments, Waivers, Etc.
This Agreement may not be amended, waived or otherwise modified or
terminated except by an instrument in writing signed by the Company and the
Holders of at least 50% of the Registrable Securities then held by all the
Holders, if the amendment is to be effective against the Holders.
5.6 Counterparts
This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement. Each party need not sign
the same counterpart.
5.7 Entire Agreement
This Agreement (i) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof.
5.8 Governing Law
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of New York regardless of the laws that might otherwise
govern under applicable principles of conflicts of law thereof.
5.9 Assignment of Registration Rights
Each Holder of the Registrable Securities may assign all or any part of
its rights under this Agreement to any person to whom such Holder sells,
transfers, assigns or pledges such Registrable Securities. In the event that the
Holder shall assign its rights pursuant to this Agreement in connection with the
transfer of less than all its Registrable Securities, the Holder shall also
retain its rights with respect to its remaining Registrable Securities.
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<PAGE>
IN WITNESS WHEREOF, the Company and each Holder has caused
this Agreement to be signed on its behalf by its officer thereunto duly
authorized as of the date first written above.
ICG COMMUNICATIONS, INC.
By: /s/ Don Teague
---------------------------------
Name: H. Don Teague
Title: Executive Vice President
<PAGE>
IN WITNESS WHEREOF, the Company and each Holder has caused
this Agreement to be signed on its behalf by its officer thereunto duly
authorized as of the date first written above.
HMTF BRIDGE ICG, LLC
HM 4-EQ ICG COINVESTORS, LLC
HM 4-SBS ICG COINVESTORS, LLC
HM PG-IV ICG, LLC
HM4 ICG QUALIFIED FUND, LLC
HM4 ICG PRIVATE FUND, LLC
By: /s/ David Knickel
---------------------------------
Name: David Knickel
Title: Vice President
<PAGE>
LIBERTY MEDIA CORPORATION
By: /s/ Charles Y. Tanabe
---------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
<PAGE>
GLEACHER/ICG INVESTORS LLC
By: /s/ Richard Trabulsi
---------------------------------
Name: Richard Trabulsi
Title: Member
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Purchasers Series of Number of
Preferred Preferred Number of Purchase Price
Stock Shares Warrants of the Shares
<S> <C> <C> <C> <C>
Liberty Media Corporation Series A-1 50,000 6,666,667 $500,000,000
HMTF Bridge ICG, LLC Series A-2 11,500 1,533,334 $115,000,000
HM4 ICG Qualified Fund, LLC Series A-2 10,464 1,395,253 $104,644,000
HM4 ICG Private Fund, LLC Series A-2 74 9,885 $741,000
HM PG-IV ICG, LLC Series A-2 557 74,281 $5,571,000
HM 4-SBS ICG Coinvestors, LLC Series A-2 251 33,412 $2,506,000
HM 4-EQ ICG Coinvestors, LLC Series A-2 154 20,502 $1,538,000
Gleacher/ICG Investors LLC Series A-3 2,000 266,666 $20,000,000
</TABLE>
AMENDMENT, dated as of April 10,
2000 (the "Agreement"), between ICG
Communications, Inc., a Delaware
corporation (the "Company"), and the
Purchasers whose signatures appear below
(the "Purchasers").
WHEREAS, reference is made to the Preferred Stock and Warrant
Purchase Agreement dated as of February 27, 2000 (the "Purchase Agreement"), by
and between the Company and the Purchasers. Capitalized terms used herein but
not otherwise defined shall be given the meaning ascribed to them in the
Purchase Agreement;
WHEREAS, pursuant to an Assignment of Rights Under Preferred
Stock and Warrant Purchase Agreement dated as of March 8, 2000, HM4 ICG
Qualified Fund, LLC, HM4 ICG Private Fund, LLC, HM PG-IV ICG, LLC, HM 4-SBS ICG
Coinvestors, LLC, and HM 4-EQ ICG Coinvestors became parties to the Purchase
Agreement;
WHEREAS, in accordance with Section 8.6 of the Purchase
Agreement, the parties hereto desire to amend the Purchase Agreement as more
fully set forth below in order to reflect (1) the redesignation of the Series A
Preferred Stock into Series A-1 Preferred Stock (as defined below), Series A-2
Preferred Stock (as defined below) and Series A-3 Preferred Stock (as defined
below), (2) the increase of the initial Liquidation Preference per share of
Series A Preferred Stock from $1,000 to $10,000 per share and the concomitant
reduction in the number of shares of Series A Preferred Stock being issued by
the Company and purchased by the Purchasers and (3) related conforming changes;
NOW, THEREFORE, in consideration of the foregoing, and of the
covenants and agreements contained herein, the parties hereby agree as follows:
1. Amendment of Recitals. The recitals of the Purchase Agreement
shall be amended by deleting the first "Whereas" clause in its entirety and
substituting, in lieu thereof, the following:
"WHEREAS, the Company proposes, subject to the terms and
conditions set forth herein, to issue and sell to the
Purchasers 50,000 shares of its 8% Series A-1 Convertible
Preferred Stock due 2015, initial liquidation preference
$10,000 per share, par value $0.01 per share (the "Series A-1
Preferred Stock"), 23,000 shares of its 8% Series A-2
Convertible Preferred Stock due 2015, initial liquidation
preference $10,000 per share, par value $0.01 per share (the
"Series A-2 Preferred Stock") and 2,000 shares of its 8%
Series A-3 Convertible Preferred Stock due 2015, initial
liquidation preference $10,000 per share, par value $0.01 per
share (the "Series A-3 Preferred Stock" and together with the
Series A-1 Preferred Stock and the Series A-2 Preferred Stock,
the "Series A Preferred Stock");"
<PAGE>
2. Amendment of Definitions. Section (a) of Article I is hereby
amended by inserting or amending, as the case may be, the following definitions:
""Amending Agreement" means the Amendment dated as of April
10, 2000 by and among the Company and the other parties listed on the signature
pages thereof."
""Equity Documents" means this Agreement, the Registration
Rights Agreement, the Certificate of Designation, the Management Rights
Agreements, the Share Exchange Agreement, the Warrants and the Amending
Agreement."
""HMTF Issued Series A Preferred Shares" shall mean the shares
of Series A-2 Preferred Stock issued to members of the HMTF Group on the Closing
Date under this Agreement."
""Liberty Issued Series A Preferred Shares" shall mean the
shares of Series A-1 Preferred Stock issued to members of the Liberty Group on
the Closing Date under this Agreement."
""Registration Rights Agreement" means the Registration Rights
Agreement dated as of April 7, 2000, by and among the Company and the
Purchasers, in the form attached hereto as Exhibit C."
""Series A-1 Preferred Stock" has the meaning set forth in the
first recital to this Agreement."
""Series A-2 Preferred Stock" has the meaning set forth in the
first recital to this Agreement."
""Series A-3 Preferred Stock" has the meaning set forth in the
first recital to this Agreement."
3. Amendment of Section 2.1. The Purchase Agreement is hereby amended
by deleting "one thousand dollars ($1,000) per share" in the fifth line of
Section 2.1 and substituting, in lieu thereof, "ten thousand dollars ($10,000)
per share."
4. Amendment of Section 5.2.
(a) The Purchase Agreement is hereby amended by deleting Section
5.2(a) in its entirety and substituting, in lieu thereof, the following:
" For so long as the members of the HMTF Group in the
aggregate own any combination of shares of Common Stock and
Series A-2 Preferred Stock representing an amount of Common
Stock (on an as-converted basis) that, taken together, equals
at least 4,107,143 shares of Common Stock (as adjusted for any
stock dividends, splits and combinations and similar events
affecting the Common Stock from time to time), the holders of
a majority of the then outstanding HMTF Shares shall have the
right to designate one person for election to the Company's
2
<PAGE>
Board of Directors or, if greater, such number of persons
(rounded up to the next whole number) equal to 10% of the then
authorized number of members of the Company's Board of
Directors (each such person an "HMTF Director"); provided,
however, that the right to designate an HMTF Director under
this Section 5.2 shall be suspended at any time that the
holders of the Series A-2 Preferred Stock have the right to
elect a person to the Board of Directors under the terms of
the Series A-2 Preferred Stock set forth in the Certificate of
Designation. In the event the holders of a majority of the
then outstanding HMTF Shares are entitled under this Section
5.2 to designate an HMTF Director for election to the
Company's Board of Directors and so designate an HMTF
Director, they shall so notify the Company in writing and the
Company shall use its best efforts (a) to cause the size of
the Board of Directors to be increased by one and the vacancy
created thereby to be filled by electing an HMTF Director and
(b) in connection with the meeting of stockholders of the
Company next following such election, to cause an HMTF
Director to be nominated for election as a director by the
stockholders and to cause the HMTF Director to be so elected.
If the holders of a majority of the then outstanding HMTF
Shares are entitled under this Section 5.2 to designate an
HMTF Director for election to the Company's Board of Directors
and a vacancy shall exist in the office of an HMTF Director,
the holders of a majority of the then outstanding HMTF Shares
shall be entitled to designate a successor and the Board of
Directors shall use its best efforts to (x) elect such
successor and (y) in connection with the meeting of
stockholders of the Company next following such election,
cause such successor to be nominated for election as director
by the stockholders and to be elected."
(b) The Purchase Agreement is hereby amended by deleting Section
5.2(b)(i) in its entirety and substituting, in lieu thereof, the following:
" For so long as the members of the Liberty Group in the
aggregate own any combination of shares of Common Stock and
Series A-1 Preferred Stock representing an amount of Common
Stock (on an as-converted basis) that, taken together, equals
at least 2,687,571 shares of Common Stock (as adjusted for any
stock dividends, splits and combinations and similar events
affecting the Common Stock from time to time), the members of
the Liberty Group, voting together as a single class by a
plurality of the votes cast or by the written consent of a
majority in interest of such members, shall have a right to
designate one person for election to the Company's Board of
Directors or, if greater, such number of persons (rounded up
to the next whole number) equal to 10% of the then authorized
number of members of the Company's Board of Directors (each
3
<PAGE>
such person a "Liberty Director"); provided, however, that the
right to designate a Liberty Director under this Section 5.2
shall be suspended at any time that the holders of the Series
A-1 Preferred Stock have the right to elect a person to the
Board of Directors under the terms of the Series A-1 Preferred
Stock set forth in the Certificate of Designation. In the
event the members of the Liberty Group are entitled under this
Section 5.2 to designate the Liberty Director for election to
the Company's Board of Directors and elect to so designate a
Liberty Director, they shall so notify the Company in writing
and the Company shall use its best efforts (a) to cause the
size of the Board of Directors to be increased by one and the
vacancy created thereby to be filled by electing a Liberty
Director and (b) in connection with the meeting of
stockholders of the Company next following such election, to
cause a Liberty Director to be nominated for election as
director by the stockholders and to cause the Liberty Director
to be so elected. If the members of the Liberty Group are
entitled under this Section 5.2 to designate a Liberty
Director for election to the Company's Board of Directors and
a vacancy shall exist in the office of a Liberty Director, the
members of the Liberty Group, voting together as a single
class by a plurality of the votes cast or by the written
consent of a majority in interest of such members, shall be
entitled to designate a successor and the Board of Directors
shall use its best efforts to (x) elect such successor and (y)
in connection with the meeting of stockholders of the Company
next following such election, cause such successor to be
nominated for election as director by the stockholders and to
be elected."
(c) The Purchase Agreement is hereby amended by deleting Section
5.2(b)(ii) in its entirety and substituting, in lieu thereof, the following:
" For so long as the members of the Liberty Group own any
combination of shares of Common Stock and Series A-1 Preferred
Shares representing an amount of Common Stock (on an
as-converted basis) that, taken together, equals 8,928,571
shares of Common Stock (as adjusted for any stock dividends,
splits and combinations and similar events affecting the
Common Stock from time to time), the members of the Liberty
Group, voting together as a single class by a plurality of the
votes cast or by the written consent of a majority in interest
of such members, shall have a right, in addition to the rights
set forth in clause (i) above, to designate one additional
person for election to the Company's Board of Directors or, if
greater, such number of additional persons (rounded up to the
next whole number) equal to 10% of the then authorized number
of members of the Company's Board of Directors (each such
person an "Additional Liberty Director"); provided, however,
4
<PAGE>
that the right to designate an Additional Liberty Director
under this Section 5.2 shall be suspended at any time that the
holders of the Series A-1 Preferred Stock have the right to
elect a person to the Board of Directors under the terms of
the Series A-1 Preferred Stock set forth in the Certificate of
Designation. In the event the members of the Liberty Group are
entitled under this Section 5.2 to designate an Additional
Liberty Director for election to the Company's Board of
Directors and elect to so designate an Additional Liberty
Director, they shall so notify the Company in writing and the
Company shall use its best efforts (a) to cause the size of
the Board of Directors to be increased by one and the vacancy
created thereby to be filled by electing an Additional Liberty
Director and (b) in connection with the meeting of
stockholders of the Company next following such election, to
cause an Additional Liberty Director to be nominated for
election as director by the stockholders and to cause an
Additional Liberty Director to be so elected. If the members
of the Liberty Group are entitled under this Section 5.2 to
designate an Additional Liberty Director for election to the
Company's Board of Directors and a vacancy shall exist in the
office of an Additional Liberty Director, the members of the
Liberty Group, voting together as a single class by a
plurality of the votes cast or by the written consent of a
majority in interest of such members, shall be entitled to
designate a successor and the Board of Directors shall use its
best efforts to (x) elect such successor and (y) in connection
with the meeting of stockholders of the Company next following
such election, cause such successor to be nominated for
election as director by the stockholders and to be elected."
5. Amendment of Section 5.16. Section 5.16 of the Purchase Agreement
is hereby amended by deleting the third sentence in it entirety and
substituting, in lieu thereof, the following sentence:
" This proportional purchase right shall not apply to shares
issued pursuant to the Share Exchange Agreement, any rights or
obligations referenced on Schedule 3.2, any shares of capital
stock issued by the Company in lieu of any fees payable in
connection with the Transaction to the Company's financial
advisors, any shares issued pursuant to any stock option plan
or arrangement or employee benefit plan or arrangement
existing as of the date hereof or hereafter approved by the
Board of Directors of the Company or the shares of Common
Stock issued from time to time upon conversion of the Series A
Preferred Stock or upon exercise of the Warrants."
6. Amendment of Schedule I. Schedule I to the Purchase Agreement is
hereby amended by deleting it in its entirety and substituting, in lieu thereof,
Schedule I attached hereto.
5
<PAGE>
7. No Other Waivers. Except as expressly provided in this Agreement,
each of the terms and provisions of the Purchase Agreement shall remain in full
force and effect in accordance with its terms.
8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same instrument.
9. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York (without giving effect to
principles of conflicts of law).
10. Headings. The headings used herein are for convenience of
reference only and shall not affect the construction of, nor shall they be taken
in consideration in interpreting, this Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed and
delivered this Amendment as of the date first written above.
ICG COMMUNICATIONS, INC.
By: /s/ H. Don Teague
--------------------------------
Name: H. Don Teague
Title: Executive Vice President
<PAGE>
HMTF BRIDGE ICG, LLC
HM4 ICG QUALIFIED FUND, LLC
HM4 ICG PRIVATE FUND, LLC
HM PG-IV ICG, LLC
HM 4-SBS ICG COINVESTORS, LLC
HM 4-EQ ICG COINVESTORS, LLC
By: /s/ David W. Knickel
--------------------------------
Name: David W. Knickel
Title: President
<PAGE>
Liberty Media Corporation
By: /s/ Charles Y. Tanabe
--------------------------------
Name: Charles Y. Tanabe
Title: Senior Vice President
<PAGE>
GLEACHER/ICG INVESTORS, LLC
By: /s/ Richard Trabulsi
--------------------------------
Name: Richard Trabulsi
Title: Member
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Purchasers Series of Preferred Number of Purchase Price
Preferred Shares Warrants of the Shares
<S> <C> <C> <C> <C>
Liberty Media Corporation Series A-1 50,000 6,666,667 $500,000,000
HMTF Bridge ICG, LLC Series A-2 11,500 1,533,334 $115,000,000
HM4 ICG Qualified Fund, LLC Series A-2 10,464 1,395,253 $104,644,000
HM4 ICG Private Fund, LLC Series A-2 74 9,885 $741,000
HM PG-IV ICG, LLC Series A-2 557 74,281 $5,571,000
HM 4-SBS ICG Coinvestors, LLC Series A-2 251 33,412 $2,506,000
HM 4-EQ ICG Coinvestors, LLC Series A-2 154 20,502 $1,538,000
Gleacher/ICG Investors LLC Series A-3 2,000 266,666 $20,000,000
</TABLE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES. SUCH SECURITIES MAY NOT BE OFFERED,
SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE
OF SUCH REGISTRATION OTHER THAN PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENTS.
[[Name]]
COMMON STOCK WARRANT
Void after April 10, 2005
Warrant No. [[Certificate]]
April 10, 2000
This certifies that, for value received, [[Name]] or its permitted
assigns is entitled, subject to the terms and conditions set forth herein
(including the exercise conditions of Section 2), to purchase from ICG
Communications, Inc., a Delaware corporation, up to [[No]] fully paid and
nonassessable shares (the "Shares") of Common Stock (as defined herein) at
the exercise price of $34.00 per share (the "Exercise Price"). The Exercise
Price and number of Shares is subject to adjustment as provided in this
Warrant. The term "Warrant" as used herein shall include this Warrant and
any warrants delivered in substitution or exchange therefor as provided herein.
Section 1. Definitions.
As used in this Warrant, the following terms, unless the context
otherwise requires, have the following meanings:
(a) "Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in the City of New York
are authorized or obligated by law or executive order to be closed.
(b) "Capital Stock" or "capital stock" means, with respect to any
Person, any and all shares, interests, participations, rights in, or other
equivalents (however designated and whether voting and/or non-voting) of such
Person's capital stock, whether outstanding on the date of the Warrant or issued
after the date of the Warrant, and any and all rights (other than any evidence
of indebtedness) or warrants exercisable or exchangeable for or convertible into
such capital stock.
(c) "Certificate of Designation" means the Certificate of Designation
of the Powers, Preferences and Relative, Participating, Optional and Other
Special Rights, Qualifications, Limitations and Restrictions thereof relating to
the Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series A-3
Preferred Stock.
1
<PAGE>
(d) "Common Stock" means shares of the Company's common stock, par
value $0.01 per share, and capital stock of any other class or series into which
the Common Stock may hereafter be changed.
(e) "Company" means ICG Communications, Inc. and any Person that shall
succeed to or assume the obligations of the Company under this Warrant.
(f) "Person" means any individual, partnership, corporation, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization, government or agency or political subdivision
thereof, or other entity.
(g) "Series A Preferred Stock" means the Series A-1 Preferred Stock,
the Series A-2 Preferred Stock and the Series A-3 Preferred Stock.
(h) Series A-1 Preferred Stock" means the 8% Series A-1 Convertible
Preferred Stock due 2015, initial liquidation preference $10,000 per share,
par value $0.01 per share, of the Company.
(i) "Series A-2 Preferred Stock" means the 8% Series A-2 Convertible
Preferred Stock due 2015, initial liquidation preference $10,000 per share,
par value $0.01 per share, of the Company.
(j) "Series A-3 Preferred Stock" means the 8% Series A-3 Convertible
Preferred Stock due 2015, initial liquidation preference $10,000 per share,
par value $0.01 per share, of the Company.
(k) "Warrantholder", "holder of Warrant", "holder", or similar terms
refers to the holder of this Warrant.
Section 2. Exercise Provisions.
(a) Exercisability.
The holder of this Warrant may exercise it in whole or in part to
the extent then exercisable by surrender of this Warrant, with the form of
subscription at the end of this Warrant duly executed by the holder, to the
Company at its principal office (or to the office of the Warrant Agent as
contemplated in Section 6(b), if applicable), accompanied by payment, in lawful
money of the United States, of the amount obtained by multiplying the Exercise
Price (as adjusted from time to time pursuant to the terms of this Warrant) by
the number of shares of Common Stock designated in such completed subscription
form. This Warrant shall be deemed to have been exercised immediately prior to
the close of business on the day of surrender of such Warrant, and the person or
persons entitled to receive shares of Common Stock issuable upon exercise of
this Warrant shall be treated for all purposes as the record holder or holders
of such shares of Common Stock at such time.
(b) Payment of Exercise Price.
Payment shall be made by check payable to the Company.
2
<PAGE>
(c) Net Issue Exercise.
Notwithstanding any provisions herein to the contrary, if the
fair market value (as defined below) of one share of Common Stock is greater
than the Exercise Price (on the date of exercise of this Warrant), in lieu of
exercising this Warrant in exchange for cash, the holder may elect to exercise
all or a portion of this Warrant by canceling all or a portion of this Warrant
and receiving in exchange therefor shares of Common Stock (as determined below)
equal to the value of this Warrant, or the portion thereof being canceled, by
surrender of this Warrant at the principal office of the Company (or the office
of the Warrant Agent contemplated by Section 6(b), if applicable) together with
a duly executed form of subscription, in which event the Company shall issue to
the holder a number of shares of Common Stock computed using the following
formula:
X=Y(A-B)
------
A
Where X = the number of shares of Common Stock to
be issued to the holder
Y = the number of shares of Common Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised,
under the portion of the Warrant being
exercised (on the date of exercise)
A = the fair market value of one share of
the Common Stock (on the date of
exercise)
B = the Exercise Price (as adjusted to the
date of exercise)
For purposes of the above calculation, "fair market value" of one share of
Common Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, where a public market exists for the Common Stock at
the time of such exercise, the "fair market value", per share shall be equal to
the average for the five (5) trading days prior to the date of such exercise of
the average of the closing bid and asked prices of the Common Stock quoted in
the Over-The-Counter Market Summary or the last reported sale price of the
Common Stock quoted on the Nasdaq National Market System or the principal
exchange on which the Common Stock is then listed, whichever is applicable, as
published in The Wall Street Journal.
(d) Restrictions on Exercise.
This Warrant is exercisable at any time and from time to time
from the date hereof, provided this Warrant has not terminated pursuant to
Section 10.
3
<PAGE>
Section 3. Delivery of Stock Certificates.
As soon as possible after full or partial exercise of this
Warrant in accordance with the terms hereof and in any event within ten (10)
days after such exercise, the Company, at its expense, will cause to be issued
in the name of and delivered to the holder of this Warrant, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock to which that holder shall be entitled upon such exercise. In the event
that this Warrant is exercised in part, the Company at its expense will also
execute and deliver a new Warrant of like tenor exercisable for the number of
Shares for which this Warrant may then be exercised. No fractional shares or
scrip representing fractional shares will be issued upon exercise of this
Warrant. If upon any exercise of this Warrant a fraction of a share would
otherwise be issuable, the Company will, in lieu of issuing such fraction of a
share, round down to the nearest whole share if such fraction is an amount less
than 0.5 and round up to the nearest whole share if such fraction is an amount
equal to or greater than 0.5 and shall issue the appropriate number of full
shares of Common Stock that shall be issuable upon exercise of this Warrant.
Section 4. Adjustment Provisions.
The Exercise Price shall be adjusted from time to time by the
Company as follows:
(a) If the Company shall hereafter pay a dividend or make a
distribution to all holders of the outstanding shares of Common Stock in shares
of Common Stock, the Exercise Price in effect at the opening of business on the
date following the date fixed for the determination of shareholders entitled to
receive such dividend or other distribution shall be reduced by multiplying
such Exercise Price by a fraction the numerator of which shall be the number of
shares of Common Stock outstanding at the close of business on the Common Stock
Record Date (as defined in Section 4(f)) fixed for such determination and the
denominator of which shall be the sum of such number of shares and the total
number of shares constituting such dividend or other distribution, such
reduction to become effective immediately after the opening of business on the
day following the Common Stock Record Date. If any dividend or distribution of
the type described in this Section 4(a) is declared but not so paid or made, the
Exercise Price shall again be adjusted to the Exercise Price which would then be
in effect if such dividend or distribution had not been declared.
(b)
(i) In case the Company shall issue or sell any Common Stock, or
securities convertible into or exercisable or exchangeable for shares of
Common Stock (other than Common Stock, or securities convertible into or
exercisable or exchangeable for shares of Common Stock, issued (A) pursuant
to the Company's existing or future stock option plans or pursuant to any
other existing or future Common Stock-related director or employee
compensation plan or arrangement of the Company approved by the Board of
Directors (provided that, with respect to any stock option or other right
granted after April 7, 2000, the per share exercise price of such option or
right is equal to or greater than the per share Closing Price of the Common
Stock on the date of the grant thereof), (B) as consideration for the
acquisition of a business or of assets (provided that the fair market value
4
<PAGE>
of such business or assets, as determined by the Board of Directors in good
faith, is equal to or greater than the aggregate Current Market Price of
the Common Stock to be issued as consideration for such acquisition, in
each case determined at the time the Company enters into a binding
agreement with respect to such acquisition), (C) pursuant to warrants
outstanding on the date hereof, (D) upon the conversion of any shares of
Series A Preferred Stock pursuant to Section 12(a) of the Certificate of
Designation, (E) upon the automatic conversion of shares of Series A-1
Preferred Stock or Series A-2 Preferred Stock pursuant to Section 12(i) of
the Certificate of Designation, or (F) upon exercise or conversion of any
security the issuance of which caused an adjustment under the provisions
hereof or the issuance of which did not require adjustments hereunder), for
a consideration per share (or, in the case of convertible or exchangeable
securities having a conversion or exercise price per share of Common Stock)
less than the Current Market Price of the Common Stock on the date of such
issuance, the Exercise Price in effect immediately prior to such issuance
or sale shall be reduced effective as of immediately following such
issuance or sale by multiplying such Exercise Price by a fraction, (1) the
numerator of which shall be the sum of (x) the number of shares of Common
Stock outstanding immediately prior to such issuance or sale and (y) the
number of shares of Common Stock which the aggregate consideration
receivable by the Company for the total number of additional shares of
Common Stock so issued or sold (or issuable on conversion, exercise or
exchange) would purchase at the Current Market Price in effect immediately
prior to such issuance or sale and (2) the denominator of which shall be
the sum of the number of shares of Common Stock outstanding immediately
prior to such issuance or sale and the number of additional shares of
Common Stock to be issued or sold (or, in the case of convertible or
exchangeable securities, issuable on conversion, exercise or exchange).
(ii) If the Company shall offer or issue rights or warrants to all
holders of its outstanding shares of Common Stock entitling them to
subscribe for or purchase shares of Common Stock at a price per share less
than the Current Market Price (as defined in Section 4(f)) on the Common
Stock Record Date fixed for the determination of shareholders entitled to
receive such rights or warrants, the Exercise Price shall be adjusted so
that the same shall equal the price determined by multiplying the Exercise
Price in effect at the opening of business on the date after such Common
Stock Record Date by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the
Common Stock Record Date plus the number of shares of Common Stock which
the aggregate offering price of the total number of shares of Common Stock
subject to such rights or warrants would purchase at such Current Market
Price and of which the denominator shall be the number of shares of Common
Stock outstanding at the close of business on the Common Stock Record Date
plus the total number of additional shares of Common Stock subject to such
rights or warrants for subscription or purchase. Such adjustment shall
become effective immediately after the opening of business on the day
following the Common Stock Record Date fixed for determination of
shareholders entitled to purchase or receive such rights or warrants. To
the extent that shares of Common Stock are not delivered pursuant to such
rights or warrants, upon the expiration or termination of such rights or
warrants the Exercise Price shall again be adjusted to be the Exercise
Price which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made on the basis of delivery of
5
<PAGE>
only the number of shares of Common Stock actually delivered. If such
rights or warrants are not so issued, the Exercise Price shall again be
adjusted to be the Exercise Price which would then be in effect if such
date fixed for the determination of shareholders entitled to receive such
rights or warrants had not been fixed. In determining whether any rights or
warrants entitle the holders to subscribe for or purchase shares of Common
Stock at less than such Current Market Price, and in determining the
aggregate offering price of such shares of Common Stock, there shall be
taken into account (x) any consideration received for such rights or
warrants, with the value of such consideration and the amount of such
exercise or subscription price, if other than cash, to be determined by the
Board of Directors and (y) the amount of any exercise price or subscription
price required to be paid upon exercise of such warrants or rights.
(c) If the outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, the Exercise Price in effect at the
opening of business on the day following the day upon which such subdivision
becomes effective shall be proportionately reduced, and, conversely, if the
outstanding shares of Common Stock shall be combined into a smaller number of
shares of Common Stock, the Exercise Price in effect at the opening of business
on the day following the day upon which such combination becomes effective shall
be proportionately increased, such reduction or increase, as the case may be, to
become effective immediately after the opening of business on the day following
the day upon which such subdivision or combination becomes effective.
(d)
(i) If the Company shall, by dividend or otherwise, distribute to
all holders of its shares of Common Stock any class of capital stock of the
Company (other than any dividends or distributions to which Section 4(a)
applies) or evidences of its indebtedness, cash or other assets (including
securities, but excluding any rights or warrants of a type referred to in
Section 4(b)(ii) and dividends and distributions paid exclusively in cash
and excluding any capital stock, evidences of indebtedness, cash or assets
distributed upon a merger or consolidation to which Section 4(k) applies)
(the foregoing hereinafter in this Section 4(d) called the "Distributed
Securities"), then, in each such case, the Exercise Price shall be reduced
so that the same shall be equal to the price determined by multiplying the
Exercise Price in effect immediately prior to the close of business on the
Common Stock Record Date (as defined in Section 4(f)) with respect to such
distribution by a fraction of which the numerator shall be the Current
Market Price (determined as provided in Section 4(f)) on such date less the
fair market value (as determined by the Board of Directors, whose good
faith determination shall be conclusive and described in a resolution of
the Board of Directors) on such date of the portion of the Distributed
Securities so distributed applicable to one share of Common Stock and the
denominator shall be such Current Market Price, such reduction to become
effective immediately prior to the opening of business on the day following
the Common Stock Record Date; provided, however, that, in the event the
then fair market value (as so determined) of the portion of the Distributed
Securities so distributed applicable to one share of Common Stock is equal
to or greater than the Current Market Price on the Common Stock Record
Date, in lieu of the foregoing adjustment, adequate provision shall be made
so that a Warrantholder shall have the right to receive upon exercise of
6
<PAGE>
this Warrant (or any portion thereof) the amount of Distributed Securities
such holder would have received had such holder exercised this Warrant (or
portion thereof) immediately prior to such Common Stock Record Date. If
such dividend or distribution is not so paid or made, the Exercise Price
shall again be adjusted to be the Exercise Price which would then be in
effect if such dividend or distribution had not been declared. If the Board
of Directors determines the fair market value of any distribution for
purposes of this Section 4(d) by reference to the actual or when issued
trading market for any securities constituting all or part of such
distribution, it must in doing so consider the prices in such market over
the same period used in computing the Current Market Price pursuant to
Section 4(f)) to the extent possible.
(ii) Rights or warrants distributed by the Company to all holders
of shares of Common Stock entitling the holders thereof to subscribe for or
purchase shares of the Company's capital stock (either initially or under
certain circumstances), which rights or warrants, until the occurrence of a
specified event or events ("Dilution Trigger Event"): (A) are deemed to be
transferred with such shares of Common Stock; (B) are not exercisable; and
(C) are also issued in respect of future issuances of shares of Common
Stock, shall be deemed not to have been distributed for purposes of this
Section 4(d) (and no adjustment to the Exercise Price under this Section
4(d) shall be required) until the occurrence of the earliest Dilution
Trigger Event, whereupon such rights and warrants shall be deemed to have
been distributed and an appropriate adjustment to the Exercise Price under
this Section 4(d) shall be made. If any such rights or warrants, including
any such existing rights or warrants distributed prior to the first
issuance of the Warrants, are subject to subsequent events, upon the
occurrence of each of which such rights or warrants shall become
exercisable to purchase securities, evidences of indebtedness or other
assets, then the occurrence of each such event shall be deemed to be such
date of issuance and record date with respect to new rights or warrants
(and a termination or expiration of the existing rights or warrants,
without exercise by the holder thereof). In addition, in the event of any
distribution (or deemed distribution) of rights or warrants, or any
Dilution Trigger Event with respect thereto, that was counted for purposes
of calculating a distribution amount for which an adjustment to the
Exercise Price under this Section 4(d) was made, (1) in the case of any
such rights or warrants which shall all have been redeemed or repurchased
without exercise by any holders thereof, the Exercise Price shall be
readjusted upon such final redemption or repurchase to give effect to such
distribution or Dilution Trigger Event, as the case may be, as though it
were a cash distribution to which this Section 4(d) were applicable, equal
to the per share redemption or repurchase price received by a holder or
holders of shares of Common Stock with respect to such rights or warrants
(assuming such holder had retained such rights or warrants), made to all
holders of shares of Common Stock as of the date of such redemption or
repurchase, and (2) in the case of such rights or warrants which shall have
expired or been terminated without exercise by any holders thereof, the
Exercise Price shall be readjusted as if such rights and warrants had not
been issued.
(iii) Notwithstanding any other provision of this Section 4(d) to
the contrary, rights, warrants, evidences of indebtedness, other securities
cash or other assets (including, without limitation, any rights distributed
pursuant to any shareholder rights plan) shall be deemed not to have been
distributed for purposes of this Section 4(d) if the Company makes proper
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provision so that a Warrantholder who exercises this Warrant (or any
portion thereof) after the date fixed for determination of shareholders
entitled to receive such distribution shall be entitled to receive upon
such exercise, in addition to the shares of Common Stock issuable upon such
exercise, the amount and kind of such distributions that such Warrantholder
would have been entitled to receive if such holder had immediately prior to
such determination date, exercised this Warrant.
(iv) For purposes of this Section 4(d) and Sections 4(a) and 4(b),
any dividend or distribution to which this Section 4(d) is applicable that
also includes shares of Common Stock, or rights or warrants to subscribe
for or purchase shares of Common Stock to which 4(b) applies (or both),
shall be deemed instead to be (A) a dividend or distribution of the
evidences of indebtedness, assets, shares of capital stock, rights or
warrants other than such shares of Common Stock or rights or warrants to
which Section 4(b) applies (and any Exercise Price reduction required by
this Section 4(d) with respect to such dividend or distribution shall
then be made) immediately followed by (B) a dividend or distribution of
such shares of Common Stock or such rights or warrants (and any further
Exercise Price reduction required by Sections 4(a) or 4(b) with respect to
such dividend or distribution shall then be made), except that (1) the
Common Stock Record Date of such dividend or distribution shall be
substituted as "the date fixed for the determination of shareholders
entitled to receive such dividend or other distribution", "the Common Stock
Record Date fixed for such determination" and "the Common Stock Record
Date" within the meaning of Section 4(a) and as "the date fixed for the
determination of shareholders entitled to receive such rights or warrants",
"the Common Stock Record Date fixed for the determination of the
shareholders entitled to receive such rights or warrants" and "such Common
Stock Record Date" for purposes of Section 4(b), and (2) any shares of
Common Stock included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such
determination" for the purposes of Section 4(a).
(e) If a tender offer made by the Company or any of its subsidiaries
for all or any portion of the Common Stock expires and such tender offer (as
amended upon the expiration thereof) requires the payment to shareholders (based
on the acceptance (up to any maximum specified in the terms of the tender offer)
of Purchased Shares) of an aggregate consideration having a fair market value
(as determined by the Board of Directors, whose good faith determination shall
be conclusive and described in a resolution of the Board of Directors) that,
combined together with the aggregate of the cash plus the fair market value (as
determined by the Board of Directors, whose good faith determination shall be
conclusive and described in a resolution of the Board of Directors) as of the
expiration of such tender offer, of consideration payable in respect of any
other tender offers by the Company or any of its subsidiaries for all or any
portion of the shares of Common Stock expiring within the 12 months preceding
the expiration of such tender offer and in respect of which no adjustment
pursuant to this Section 4(e) has been made, exceeds 5% of the net income of the
Company reported for the 12 month period ending with the fiscal quarter next
preceding such payment (the "12 Month Net Income") (determined as of the last
time (the "Expiration Time") tenders could have been made pursuant to such
tender offer (as it may be amended)), then, and in each such case, immediately
prior to the opening of business on the day after the date of the Expiration
Time, the Exercise Price shall be adjusted so that the same shall equal the
price determined by multiplying the Exercise Price in effect immediately prior
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to the close of business on the date of the Expiration Time by a fraction of
which the numerator shall be the number of shares of Common Stock outstanding
(including any tendered shares) at the Expiration Time multiplied by the Current
Market Price of a share of Common Stock on the trading day next succeeding the
Expiration Time and the denominator shall be the sum of (x) the fair market
value (determined as aforesaid) of the aggregate consideration payable to
shareholders based on the acceptance (up to any maximum specified in the terms
of the tender offer) of all shares validly tendered and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum, being
referred to as the "Purchased Shares") and (y) the product of the number of
shares of Common Stock outstanding (less any Purchased Shares) at the Expiration
Time and the Current Market Price of the shares of Common Stock on the trading
day next succeeding the Expiration Time, such reduction (if any) to become
effective immediately prior to the opening of business on the day following the
Expiration Time. If the Company is obligated to purchase shares pursuant to any
such tender offer, but the Company is permanently prevented by applicable law
from effecting any such purchases or all such purchases are rescinded, the
Exercise Price shall again be adjusted to be the Exercise Price which would then
be in effect if such tender offer had not been made. If the application of this
Section 4(e) to any tender offer would result in an increase in the Exercise
Price, no adjustment shall be made for such tender offer under this Section
4(e).
(f) For purposes of this Section 4, the following terms shall have the
meaning indicated:
"Closing Price" with respect to any securities on any
day means the closing sale price as of 4:00 p.m. Eastern Time on such
day or any earlier final closing on such day or, if no such sale takes
place on such day, the average of the reported high and low bid prices
on such day, in each case on the Nasdaq National Market, or the New York
Stock Exchange, as applicable, or, if such security is not listed or
admitted to trading on such national market or exchange, on the national
stock exchange or Commission recognized trading market in the United
States on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any
national stock exchange or Commission recognized trading market in the
United States, the average of the high and low bid prices of such
security on the over-the-counter market on the day in question as
reported by the National Quotation Bureau Incorporated or a similar
generally accepted reporting service in the United States, or, if not so
available, in such manner as furnished by any New York Stock Exchange
member firm selected from time to time by the Board of Directors for
that purpose, or a price determined in good faith by the Board of
Directors, whose determination shall be conclusive and described in a
resolution of the Board of Directors.
"Common Stock Record Date" means, with respect to any
dividend, distribution or other transaction or event in which the
holders of Common Stock have the right to receive any cash, securities
or other property or in which the Common Stock (or other applicable
security) is exchanged for or converted into any combination of cash,
securities or other property, the date fixed for determination of
shareholders entitled to receive such cash, securities or other property
(whether such date is fixed by the Board of Directors or by statute,
contract or otherwise).
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"Current Market Price" means the average of the daily
Closing Prices per share of Common Stock for the 10 consecutive trading
days immediately prior to the date in question; provided, however, that
(A) if the "ex" date (as hereinafter defined) for any event (other than
the issuance or distribution requiring such computation) that requires
an adjustment to the Exercise Price pursuant to Section 4(a), 4(b),
4(c), 4(d) or 4(e) occurs during such 10 consecutive trading days, the
Closing Price for each trading day prior to the "ex" date for such other
event shall be adjusted by multiplying such Closing Price by the same
fraction by which the Exercise Price is so required to be adjusted as a
result of such other event, (B) if the "ex" date for any event (other
than the issuance or distribution requiring such computation) that
requires an adjustment to the Exercise Price pursuant to Section 4(a),
4(b), 4(c), 4(d) or 4(e) occurs on or after the "ex" date for the
issuance or distribution requiring such computation and prior to the day
in question, the Closing Price for each trading day on and after the
"ex" date for such other event shall be adjusted by multiplying such
Closing Price by the reciprocal of the fraction by which the Exercise
Price is so required to be adjusted as a result of such other event and
(C) if the "ex" date for the issuance or distribution requiring such
computation is prior to the day in question, after taking into account
any adjustment required pursuant to clause (A) or (B) of this proviso,
the Closing Price for each trading day on or after such "ex" date shall
be adjusted by adding thereto the amount of any cash and the fair market
value (as determined by the Board of Directors in a manner consistent
with any good faith determination of such value for purposes of Section
4(d), whose good faith determination shall be conclusive and described
in a resolution of the Board of Directors) of the evidences of
indebtedness, shares of capital stock or assets being distributed
applicable to one share of Common Stock as of the close of business on
the day before such "ex" date. For purposes of any computation under
Section 4(e), the Current Market Price on any date shall be deemed to be
the average of the daily Closing Prices per share of Common Stock for
such day and the next two succeeding trading days; provided, however,
that, if the "ex" date for any event (other than the tender offer
requiring such computation) that requires an adjustment to the Exercise
Price pursuant to Section 4(a), 4(b), 4(c), 4(d) or 4(e) occurs on or
after the Expiration Time for the tender or exchange offer requiring
such computation and prior to the day in question, the Closing Price for
each trading day on and after the "ex" date for such other event shall
be adjusted by multiplying such Closing Price by the reciprocal of the
fraction by which the Exercise Price is so required to be adjusted as a
result of such other event. For purposes of this paragraph, the term
"ex" date (1) when used with respect to any issuance or distribution,
means the first date on which the shares of Common Stock trade regular
way on the relevant exchange or in the relevant market from which the
Closing Price was obtained without the right to receive such issuance or
distribution, (2) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date on which the
shares of Common Stock trade regular way on such exchange or in such
market after the time at which such subdivision or combination becomes
effective and (3) when used with respect to any tender or exchange offer
means the first date on which the shares of Common Stock trade regular
way on such exchange or in such market after the Expiration Time of such
offer. Notwithstanding the foregoing, whenever successive adjustments to
the Exercise Price are called for pursuant to this Section 4, such
adjustments shall be made to the Current Market Price as may be
necessary or appropriate to effectuate the intent of this Section 4 and
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<PAGE>
to avoid unjust or inequitable results, as determined in good faith by
the Board of Directors.
"Fair Market Value" means the amount which a willing
buyer would pay a willing seller in an arm's-length transaction.
(g) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this Section 4(g)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 4 shall be made
by the Company and shall be made to the nearest cent. No adjustment need be made
for a change in the par value or no par value of the Common Stock.
(h) Whenever the Exercise Price is adjusted as herein provided, the
Company shall promptly file with the Warrant Agent an Officer's Certificate
setting forth the Exercise Price after such adjustment and the number of shares
of Common Stock for which this Warrant will be exercisable after such adjustment
pursuant to Section 4(l) and setting forth a brief statement of the facts
requiring such adjustment. Promptly after delivery of such certificate, the
Company shall prepare a notice of such adjustment of the Exercise Price setting
forth the adjusted Exercise Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the Exercise Price to
each Warrantholder at such holder's last address appearing on the register of
holders maintained for that purpose within 20 days of the effective date of such
adjustment. Failure to deliver such notice shall not affect the legality or
validity of any such adjustment.
(i) In any case in which this Section 4 provides that an adjustment
shall become effective immediately after a Common Stock Record Date for an
event, the Company may defer until the occurrence of such event issuing to the
holder of any Warrant exercised after such Common Stock Record Date and before
the occurrence of such event the additional shares of Common Stock issuable upon
such exercise by reason of the adjustment required by such event over and above
the shares of Common Stock issuable upon such exercise before giving effect to
such adjustment.
(j) For purposes of this Section 4, the number of shares of Common
Stock at any time outstanding shall not include shares held in the treasury of
the Company or by any of its subsidiaries. The Company shall not pay any
dividend or make any distribution on shares of Common Stock held in the treasury
of the Company or by any of its subsidiaries.
(k) In case of any consolidation of the Company with, or merger of the
Company into, any other Person, or in case of any merger of another Person into
the Company (other than a merger that does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock of
the Company), or in case of any sale, conveyance or transfer of all or
substantially all the assets of the Company, the Warrantholders shall have the
right thereafter, during the period such Warrant shall be exercisable as
specified in Section 2(d), to convert such Warrants into the kind and amount of
securities, cash and other property receivable upon such consolidation, merger,
conveyance or transfer by a holder of the number of shares of Common Stock of
the Company for which the Warrants might have been exercised immediately prior
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to such consolidation, merger, conveyance or transfer, assuming such holder of
shares of Common Stock of the Company failed to exercise his rights of election,
if any, as to the kind or amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance or transfer (provided
that, if the kind or amount of securities, cash and other property receivable
upon such consolidation, merger, conveyance or transfer is not the same for each
share of Common Stock of the Company in respect of which such rights of election
shall not have been exercised ("nonelecting share"), then for the purpose of
this Section 4(k) the kind and amount of securities, cash and other property
receivable upon such consolidation, merger, conveyance or transfer by each
nonelecting share shall be deemed to be the kind and amount so receivable per
share by a plurality of the nonelecting shares). Such securities shall provide
for adjustments which, for events subsequent to the effective date of the
triggering event, shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 4(k). The above provisions of this
Section 4(k) shall similarly apply to successive consolidations, mergers,
conveyances or transfers.
(l) Upon each adjustment of the Exercise Price as a result of the
operation of this Section 4, this Warrant shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of shares of Common Stock
obtained by multiplying the number of shares covered by this Warrant immediately
prior to this adjustment by the Exercise Price in effect immediately prior to
such adjustment and dividing the product so obtained by the Exercise Price in
effect immediately after such adjustment of the Exercise Price.
(m) In the event that a Warrantholder would be entitled to receive
upon exercise hereof any Redeemable Capital Stock and the Company redeems,
exchanges or otherwise acquires all of the outstanding shares or other units of
such Redeemable Capital Stock (such event being a "Redemption Event"), then,
from and after the effective date of such Redemption Event, the Warrantholder
shall be entitled to receive upon exercise, in lieu of shares or units of such
Redeemable Capital Stock, the kind and amount of shares of stock and other
securities and property receivable upon the Redemption Event by a holder of the
number of shares or units of such Redeemable Capital Stock for which this
Warrant could have been exercised immediately prior to the effective date of
such Redemption Event (assuming, to the extent applicable, that such holder
failed to exercise any rights of election with respect thereto and received per
share or unit of such Redeemable Capital Stock the kind and amount of stock and
other securities and property received per share or unit by a plurality of the
non-electing shares or units of such Redeemable Capital Stock), and (from
and after the effective date of such Redemption Event) the Warrantholder shall
have no other purchase rights under this Warrant with respect to such Redeemable
Capital Stock. For purposes of this Section 4(m) "Redeemable Capital Stock"
means a class or series of capital stock of the Company that provides by its
terms a right in favor of the Company to call, redeem, exchange or otherwise
acquire all of the outstanding shares or units of such class or series.
Section 5. Notice of Certain Events.
In case:
(a) the Company shall declare a dividend (or any other distribution)
on its Common Stock payable otherwise than in cash out of its earned surplus; or
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(b) the Company shall authorize the granting to all holders of its
shares of Common Stock of rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any other rights; or
(c) of any reclassification of the Common Stock (other than a
subdivision or combination of the Company's outstanding shares of Common Stock),
or of any consolidation or merger to which the Company is a party and for which
approval of any shareholders of the Company is required, or the sale, conveyance
or transfer of all or substantially all the assets of the Company;
(d) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(e) of the taking of any other action referred to in Section 4;
then the Company shall cause to be mailed to all Warrantholders at their last
addresses as they shall appear on the books of the Company, at least 20 Business
Days (or 10 Business Days in any case specified in clause (a) or (b) above)
prior to the applicable date hereinafter specified, a notice stating (x) the
date on which a record is to be taken for the purpose of such dividend,
distribution, rights or warrants, or, if a record is not to be taken, the date
as of which the holders of shares of Common Stock of record to be entitled to
such dividend, distribution, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of shares of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities, cash
or other property deliverable upon such reclassification, consolidation, merger,
sale, transfer, dissolution, liquidation or winding-up. Failure to give the
notice required by this Section 5 or any defect therein shall not affect the
legality or validity of any dividend, distribution, right, warrant,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up, or the vote upon any such action.
Section 6. Transfer of Warrants.
(a) Warrant Register.
The Company shall maintain a register (the "Warrant Register")
containing the names, addresses and facsimile numbers of the holder(s). Any
holder of this Warrant or any portion thereof may change its address as shown on
the Warrant Register by written notice to the Company requesting such a change.
Until this Warrant is transferred on the Warrant Register, the Company may treat
the holder as shown on the Warrant Register as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary.
(b) Warrant Agent.
The Company may, by written notice to the holder, appoint an
agent for the purpose of maintaining the Warrant Register referred to in Section
6(a) above, issuing any other securities then issuable upon the exercise of this
Warrant, exchanging this Warrant, replacing this Warrant or any or all of the
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foregoing. Thereafter, any such registration, issuance or replacement, as the
case may be, shall be made at the office of such agent.
(c) Transferability and Negotiability of Warrant.
Title to this Warrant may be transferred by endorsement (by the
holder executing the Assignment Form attached hereto) and delivery in the same
manner as negotiable instruments transferable by endorsement and delivery.
(d) Exchange of Warrant Upon a Transfer.
On surrender of this Warrant for exchange, properly endorsed on
the Assignment Form and subject to the provisions of this Warrant with respect
to compliance with the Securities Act, the Company at its expense shall issue to
or on the order of the holder a new warrant or warrants of like tenor, in the
name of the holder or as the holders (on payment by the holder of any applicable
transfer taxes) may direct, exercisable for the number of Shares issuable upon
the exercise hereof.
Section 7. Registration Rights.
If the holder of this Warrant is a party to, or an assignee of
rights under, that certain Registration Rights Agreement, dated April 7, 2000
(the "Registration Rights Agreement"), such holder shall be entitled to include
any shares of Common Stock or other securities received upon exercise of the
Warrant with such holder's Registrable Securities (as such term is defined in
the Registration Rights Agreement), on the terms and conditions as set forth in
the Registration Rights Agreement.
Section 8. Amendment and Waivers.
No amendment, modification or termination of this Warrant shall
be binding unless executed in writing by the Company and the Warrantholder
intending to be bound thereby.
Section 9. Waivers and Extensions.
Any provision of this Warrant may be amended, waived or modified
only if such amendment, waiver or modification is in writing, is signed by the
party intending to be bound, and specifically refers to this Warrant. Waivers
may be made in advance or after the right waived has arisen or the breach or
default waived has occurred. Any waiver may be conditional. No waiver of any
breach of any agreement or provision herein contained shall be deemed a waiver
of any preceding or succeeding breach thereof nor of any other agreement or
provision herein contained. No waiver or extension of time for performance of
any obligations or acts shall be deemed a waiver or extension of the time for
performance of any other obligations or acts.
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Section 10. Termination.
The right to exercise this Warrant shall expire and shall be void
at 5:00 p.m., New York City time on April 10, 2005.
Section 11. Reservation of Stock.
The Company covenants that it will at all times reserve and keep
available, solely for issuance upon exercise of this Warrant, all shares of
Common Stock or other securities from time to time issuable upon exercise of
this Warrant and, subject to any existing contractual limitations, from time to
time, will take all steps necessary to amend its Certificate of Incorporation to
provide sufficient reserves of shares of Common Stock or other securities
issuable upon exercise of this Warrant. The Company further covenants that all
shares that may be issued upon the exercise of rights represented by this
Warrant and payment of the Exercise Price, as set forth herein, will be fully
paid and non-assessable and free from all taxes, liens and charges in respect of
the issue thereof. The Company also agrees that its issuance of this Warrant
shall constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon exercise of this Warrant.
Section 12. Replacement.
On receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
loss, theft, or destruction, on delivery of any indemnity agreement or bond
reasonably satisfactory in form and amount to the Company or, in the case of
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu of this Warrant, a new Warrant of like
tenor.
Section 13. No Rights as Stockholder.
Except as provided in Section 2 or Section 4, no holder of this
Warrant, as such, shall be entitled to vote or receive dividends or be
considered a stockholder of the Company for any purpose, nor shall anything in
this Warrant be construed to confer on any holder of this Warrant as such, any
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action, to receive notice of meeting of stockholders,
to receive dividends or subscription rights or otherwise.
Section 14. Miscellaneous Provisions.
(a) Governing Law.
This Warrant shall be governed by, interpreted under, and
construed in accordance with the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
(b) Notices.
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All notices, demands, requests, consents, approvals or other
communications (collectively, "Notices") required or permitted to be given
hereunder or which are given with respect to this Warrant shall be in writing
and shall be personally served, delivered by reputable air courier service with
charges prepaid, or transmitted by hand delivery, telegram, telex or facsimile,
to such address as such party shall have specified most recently by written
notice. Notice shall be deemed given on the date of service or transmission if
personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given on the next business day
following delivery of such notice to a reputable air courier service.
(c) Binding Effect.
The provisions of this Warrant shall be binding upon the Company
and its successors and assigns.
(d) Remedies.
In the event of a breach of this Warrant, the holder shall be
entitled to injunctive relief and specific performance of its rights under this
Warrant, in addition to all of its rights granted by law, including, without
limitation, recovery of damages. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach of this
Warrant by the Company and hereby waives any defense in any action for
injunctive relief or specific performance that a remedy at law would be
adequate.
(e) Headings.
Titles and headings of sections of this Warrant are for
convenience only and shall not affect the construction of any provision of this
Warrant.
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IN WITNESS WHEREOF, the Company has executed this Warrant as of
the date set forth above.
ICG COMMUNICATIONS, INC.
By:_____________________________
Name: H. Don Teague
Title: Executive Vice President
<PAGE>
SUBSCRIPTION FORM
(To be signed only upon exercise of Warrant)
To: ICG Communications, Inc.
Attention: Secretary
1. The undersigned, the holder of the attached Warrant, hereby irrevocably
elects to [exercise the purchase right represented by that Warrant for, and to
purchase under that Warrant, ___________1 shares of Common Stock and herewith
tenders any necessary payment of the purchase price in such number of shares in
full.] [to exercise [all][a portion] of the purchase right represented by
that Warrant by canceling the Warrant with respect to ___________ shares
of Common Stock in exchange for a number of shares of Common Stock equal to the
value [as determined pursuant to the Warrant] as the [portion of the] Warrant
[being canceled].
2. In exercising the Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock or other securities to be issued
upon exercise thereof are being acquired solely for the account of the
undersigned and not as a nominee for any other party, and that the undersigned
will not sell, offer for sale, pledge, hypothecate or otherwise dispose of any
shares of Common Stock, except under circumstances that will not result in a
violation of the Securities Act of 1933, as amended, or any applicable state
securities laws.
3. Please issue a certificate(s) representing said shares of Common Stock
in the name of the undersigned or in the name of the transferee specified below.
4. Please issue a new Warrant for the unexercised portion in the name of
the undersigned or in the name of the permitted transferee specified below.
5. Please deliver any certificate(s) or Warrant to the following address.
Name:___________________________
Address:_________________________
Attention:________________________
Dated:
By: ______________________________
Name
1 Insert here the number of shares called for on the face of the Warrant (or, in
the case of partial exercise, the portion as to which the Warrant is being
exercised), without making any adjustment for additional shares of Common Stock
or any other securities or property which, under the adjustment provisions of
the Warrant, may be deliverable upon exercise.
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
Name and Address of Assignee No. of Shares of
Common Stock
and does hereby irrevocably constitute and appoint _______________________
attorney-in-fact to register such transfer onto the books of ICG Communications,
Inc. maintained for the purpose, with full power of substitution in the
premises.
Date: Print Name:
Signature:
Witness:
NOTICE: The signature on this assignment must correspond with the name as
written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement ("Amendment") is made as of the
13th day of April, 2000 by and between ICG Communications, Inc., a Delaware
corporation ("Company") and William S. Beans, Jr. ("Employee").
R E C I T A L S
WHEREAS, the Company and Employee previously entered into that certain
Employment Agreement dated as of December 22, 1999 (the "Employment Agreement");
WHEREAS, the Company and Employee desire to amend and modify certain
terms and conditions of the Employment Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein the parties agree as follows:
1. Compensation and Benefits. Section 3.5 (1) of the Employment
Agreement is hereby amended, to read as follows: "14,814 stock options under the
Company's 1998 Stock Option Plan with an exercise price equal to the closing
stock price of the Company's common stock on June 28, 1999 vesting in equal
increments over three (3) years."
2. 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.
3. Capitalized Terms. Capitalized and defined terms shall have the same
meaning as that accorded them in the Employment Agreement, unless the context
requires otherwise.
4. 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 written above.
ICG COMMUNICATIONS, INC. Williams S. Beans, Jr.
/s/ J. Shelby Bryan /s/ William S. Beans, Jr.
- ---------------------------- ------------------------------
Name: J. Shelby Bryan
-----------------------
Title: Chairman and CEO
----------------------
<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, 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 40,699
<SECURITIES> 31,115
<RECEIVABLES> 156,511
<ALLOWANCES> 57,160
<INVENTORY> 2,199
<CURRENT-ASSETS> 238,995
<PP&E> 2,017,958
<DEPRECIATION> 336,090
<TOTAL-ASSETS> 2,075,337
<CURRENT-LIABILITIES> 363,032
<BONDS> 2,052,761
533,727
0
<COMMON> 486
<OTHER-SE> (950,511)
<TOTAL-LIABILITY-AND-EQUITY> 2,075,337
<SALES> 0
<TOTAL-REVENUES> 157,224
<CGS> 0
<TOTAL-COSTS> 82,902
<OTHER-EXPENSES> 120,120
<LOSS-PROVISION> 3,830
<INTEREST-EXPENSE> 62,634
<INCOME-PRETAX> (104,997)
<INCOME-TAX> 0
<INCOME-CONTINUING> (121,634)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (121,634)
<EPS-BASIC> (2.52)
<EPS-DILUTED> 0
</TABLE>
