UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Commission File Number 333-40495)
ICG FUNDING, LLC
(Exact name of registrant as specified in its charter)
Delaware
State or other jurisdiction of organization)
84-1434980
(I.R.S. Employer Identification No.)
161 Inverness Drive West
Englewood, Colorado 80112
(888) 424-1144 or (303) 414-5000
(Address of principal executive offices and
registrant's telephone numbers, including area codes)
ICG Funding, LLC has no securities registered pursuant to Sections 12(b) or
12(g) of the Act.
Indicate by check mark whether the registrant: (1) has 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
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes No |X|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
All of the issued and outstanding common securities of ICG Funding, LLC are
owned by ICG Communications, Inc.
<PAGE>
TABLE OF CONTENTS
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . 3
Overview . . . . . . . . . . . . . . . . . . . . . . . . . 3
Key Transactions Subsequent to December 31, 1997. . . . . . 3
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . 4
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . 4
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SECURITYHOLDER MATTERS . . . . . . . . . . . . . . . . . 5
ITEM 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . 6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. . . . . . . 11
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES . . . . . . . . . . 11
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT . . . . . 12
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . 12
PART IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . 13
Financial Statements. . . . . . . . . . . . . . . . . . . . 13
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . 14
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . 14
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . F-1
<PAGE>
3
PART I
ITEM 1. BUSINESS
Overview
ICG Funding, LLC (the "Company") is a special purpose limited liability
company formed on September 17, 1997 under the laws of the State of Delaware.
The Company's principal executive offices are located at 161 Inverness Drive
West, Englewood, Colorado 80112.
Pursuant to the terms of the Limited Liability Company Agreement of the
Company, as amended and restated, dated as of September 23, 1997 (the "LLC
Agreement"), the Company was formed solely for the purposes of: (i) issuing
common and preferred interests in the Company; (ii) using at least 85% of the
net proceeds of such issuances and related capital contributions (the "Net
Proceeds") to purchase shares of preferred stock of ICG Communications, Inc.
("ICG") ("ICG Preferred Stock") in a private placement; (iii) investing a
portion of the remaining Net Proceeds in U.S. Treasury securities, to be held in
escrow in an amount sufficient to fund the cash payments of the first thirteen
quarterly dividends on the Company's preferred interests (the "Redeemable
Preferred Securities"); and (iv) purchasing U.S. Treasury securities pending the
purchase of shares of ICG Preferred Stock. Unless previously dissolved, the
Company's term will continue until December 31, 2050.
ICG is the sole common member of the Company. ICG is also the manager of
the Company pursuant to the LLC Agreement and as such, manages the business and
affairs of the Company. ICG does not receive any compensation for performing
such management services. Additionally, all of the Company's administrative
expenses, which are insignificant, are paid by ICG.
The Company does not manufacture or sell any products, does not provide any
services to any party and does not intend to enter into any business, other than
complying with its obligations under the Redeemable Preferred Securities and
effecting the purposes as set forth in the LLC Agreement. The Company does not
have any employees.
For financial information about the Company, see the financial statements
included in response to Items 6 and 8 of Part II of this Annual Report on Form
10-K, as amended.
Key Transactions Subsequent to December 31, 1997
On February 13, 1998, ICG made a capital contribution of 126,750 shares of
common stock of ICG, $0.01 par value ("ICG Common Stock"), to the Company.
Immediately thereafter, the Company sold the contributed shares to unrelated
third parties for proceeds of approximately $3.4 million. The Company recorded
the contribution of the ICG Common Stock as additional paid-in capital at the
then fair market value and, consequently, no gain or loss was recorded by the
Company on the subsequent sale of those shares.
<PAGE>
4
Also on February 13, 1998, the Company used the remaining proceeds from the
private placement of the Redeemable Preferred Securities, which were not
restricted for the payment of cash dividends, along with the proceeds from the
sale of the contributed ICG Common Stock to purchase approximately $112.4
million of ICG Preferred Stock. The ICG Preferred Stock pays dividends each
February 15, May 15, August 15 and November 15 in additional shares of ICG
Preferred Stock through November 15, 2000. Subsequent to November 15, 2000,
dividends on the ICG Preferred Stock are payable in cash or shares of ICG Common
Stock, at the option of ICG. The ICG Preferred Stock is exchangeable, at the
option of the Company, at any time prior to November 15, 2009 into shares of ICG
Common Stock at an exchange rate based on the exchange rate of the Redeemable
Preferred Securities. The ICG Preferred Stock is subject to mandatory redemption
on November 15, 2009.
ITEM 2. PROPERTIES
At December 31, 1997, the Company's property consisted of: (i) U.S.
Treasury securities in the amount of approximately $24.6 million held in escrow
to pay quarterly cash dividends on the Redeemable Preferred Securities; and (ii)
U.S. Treasury securities in the amount of approximately $108.3 million, which
was used to purchase shares of ICG Preferred Stock. The Company does not own any
real or tangible property. See "Business - Key Transactions Subsequent to
December 31, 1997."
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Effective October 31, 1997, ICG, Sole Common Member and Manager of the
Company, caused the Company to declare a cash dividend in the amount of $0.47
per Redeemable Preferred Security to holders of record at the close of business
on November 1, 1997, which was paid on November 15, 1997.
<PAGE>
5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
To date, the one issued and outstanding common security of the Company is
held by ICG. There exists no established public trading market for the Company's
common securities ("Common Securities"). ICG purchased one share of Common
Securities on September 17, 1997 in a private placement pursuant to Section 4(2)
of the Securities Act of 1933, as amended (the "1933 Act"). No underwriters were
involved in the placement and the Company did not offer to or solicit offers
from any other parties to purchase the Common Securities. Since the formation of
the Company and ICG's initial capital investment for the Common Securities,
there have been no sales or transfers of Common Securities of the Company. No
cash dividends have been declared on the Common Securities of the Company.
On September 24 and October 3, 1997, the Company completed a private
placement of 2,645,000 shares of Exchangeable Limited Liability Company
Preferred Securities Mandatorily Redeemable 2009 (the "Redeemable Preferred
Securities") for an aggregate gross cash offering price of $132.25 million. All
of the Redeemable Preferred Securities were sold to Morgan Stanley Dean Witter
and Deutsche Morgan Grenfell (collectively, the "Placement Agents") pursuant to
Section 4(2) of the 1933 Act in a negotiated, private placement. For a
discussion of the use of proceeds from the offering, see "Business" and
"Business - Key Transactions Subsequent to December 31, 1997."
The Placement Agents thereafter resold the Redeemable Preferred Securities
pursuant to Rule 144A promulgated under the 1933 Act to Qualified Institutional
Buyers (as that term is defined in Rule 144A) and Institutional Accredited
Investors. Each purchaser of the Redeemable Preferred Securities from the
Placement Agents made certain representations and warranties to the Placement
Agents that they were qualified to purchase the unregistered Redeemable
Preferred Securities. The Company did not receive any of the proceeds from the
resale of the Redeemable Preferred Securities by the Placement Agents.
The Redeemable Preferred Securities are mandatorily redeemable by the
Company on November 15, 2009 at the liquidation preference of $50.00 per
security, plus accrued and unpaid dividends. Dividends on the Redeemable
Preferred Securities are cumulative at the rate of 6 3/4% per annum and are
payable in cash through November 15, 2000 and, thereafter, in cash or shares of
ICG Common Stock, at the option of the Company. The Redeemable Preferred
Securities are exchangeable, at the option of the holder, into ICG Common Stock
at an exchange price of $24.025 per share, subject to adjustment. The Company
may, at its option, redeem the Redeemable Preferred Securities at any time on or
after November 18, 2000. Prior to that time, the Company may redeem the
Redeemable Preferred Securities if the current market value of ICG Common Stock
equals or exceeds the exchange price, for at least 20 days of any consecutive
30-day trading period, by 170% prior to November 16, 1998; by 160% from November
16, 1998 through November 15, 1999; and by 150% from November 16, 1999 through
November 15, 2000.
<PAGE>
6
Effective January 10, 1998, all of the shares of the Redeemable Preferred
Securities and the ICG Common Stock issuable upon exchange of such securities
were registered for resale under the 1933 Act.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data for the period from September 17, 1997
(inception) to December 31, 1997 has been derived from the audited financial
statements of the Company. The information set forth below should be read in
conjunction with the financial statements of the Company and the notes thereto
included elsewhere in this Annual Report, as amended. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Period from
September 17, 1997
(inception) to
December 31,
1997
--------------------
(in thousands)
Statement of Operations Data:
Interest income and net income $ 1,949
--------------------
Preferred dividends on redeemable preferred securities,
including accretion of offering costs (2,460)
--------------------
Net loss available to common member $ (511)
====================
Other Data:
Cash provided by operating activity $ 1,949
Cash used by investing activities (132,959)
Net cash provided by financing activities 131,010
At December 31,
1997
--------------------
(in thousands)
Balance Sheet Data:
Short-term investments available for sale $ 108,310
Restricted cash 24,649
Total assets 132,959
Dividends payable 1,116
Due to ICG 4,699
Redeemable preferred securities 127,655
Accumulated deficit and total member's deficit (511)
<PAGE>
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion includes certain forward-looking statements which
are affected by important factors including, but not limited to, market
conditions affecting the price of ICG Common Stock, redemption of the Redeemable
Preferred Securities by ICG, exchange into ICG Common Stock by the Redeemable
Preferred Securityholders, the declaration and payment of preferred stock
dividends to the Company by ICG and the ability of ICG to pay the administrative
expenses of the Company, that could cause actual results to differ materially
from the forward-looking statements. The results for the period from inception
to December 31, 1997 have been derived from the Company's audited financial
statements included elsewhere herein.
Company Overview and Description of Significant Transactions
The Company was formed on September 17, 1997 as a special purpose limited
liability company existing for the exclusive purposes of: (i) issuing common and
preferred interests in the Company; (ii) using at least 85% of the Net Proceeds
of such issuances and related capital contributions to purchase shares of ICG
Preferred Stock in a private placement; (iii) investing a portion of the
remaining Net Proceeds in U.S. Treasury securities, to be held in escrow in an
amount sufficient to fund the cash payments of the first thirteen quarterly
dividends on the Company's Redeemable Preferred Securities; and (iv) purchasing
U.S. Treasury securities pending the purchase of shares of ICG Preferred Stock.
On September 24 and October 3, 1997, the Company completed a private
placement of 6 3/4% Exchangeable Limited Liability Company Preferred Securities
Mandatorily Redeemable 2009 (the "Redeemable Preferred Securities") for gross
proceeds of $132.25 million. Net proceeds from the private placement, after
offering costs of approximately $4.7 million advanced by ICG, were approximately
$127.6 million. Restricted cash at December 31, 1997 of $24.6 million consists
of the proceeds from the private placement which are designated for the payment
of cash dividends on the Redeemable Preferred Securities through November 15,
2000. Proceeds from the private placement were invested in U.S. Treasury
securities as of December 31, 1997.
The Redeemable Preferred Securities consist of 2,645,000 exchangeable
preferred securities of the Company that bear a cumulative dividend at the rate
of 6 3/4% per annum. The dividend is paid quarterly in arrears each February 15,
May 15, August 15 and November 15, and commenced November 15, 1997. The dividend
is payable in cash through November 15, 2000 and, thereafter, in cash or shares
of ICG Common Stock, at the option of the Company. The Redeemable Preferred
Securities are exchangeable, at the option of the holder, at any time prior to
November 15, 2009 into shares of ICG Common Stock at a rate of 2.0812 shares of
ICG Common Stock per preferred security, or $24.025 per share, subject to
adjustment. The Company may, at its option, redeem the Redeemable Preferred
Securities at any time on or after November 18, 2000. Prior to that time, the
Company may redeem the Redeemable Preferred Securities if the current market
value of ICG Common Stock equals or exceeds the exchange price, for at least 20
days of any consecutive 30-day trading period, by 170% prior to November 16,
1998; by 160% from November 16, 1998 through November 15, 1999; and by 150% from
November 16, 1999 through November 15, 2000. The Redeemable Preferred Securities
are subject to mandatory redemption on November 15, 2009.
<PAGE>
8
On February 13, 1998, ICG made a capital contribution of 126,750 shares of
ICG Common Stock to the Company. Immediately thereafter, the Company sold the
contributed shares to unrelated third parties for proceeds of approximately $3.4
million. The Company recorded the contribution of the ICG Common Stock as
additional paid-in capital at the then fair market value and, consequently, no
gain or loss was recorded by the Company on the subsequent sale of those shares.
Also, on February 13, 1998, the Company used the remaining proceeds from
the private placement of the Redeemable Preferred Securities, which were not
restricted for the payment of cash dividends, along with the proceeds from the
sale of the contributed ICG Common Stock to purchase approximately $112.4
million of ICG Preferred Stock which pays dividends each February 15, May 15,
August 15 and November 15 in additional shares of ICG Preferred Stock through
November 15, 2000. Subsequent to November 15, 2000, dividends on the ICG
Preferred Stock are payable in cash or shares of ICG Common Stock, at the option
of ICG. The ICG Preferred Stock is exchangeable, at the option of the Company,
at any time prior to November 15, 2009 into shares of ICG Common Stock at an
exchange rate based on the exchange rate of the Redeemable Preferred Securities.
The ICG Preferred Stock is subject to mandatory redemption on November 15, 2009.
Results of Operations
The following table presents the components of the Company's net income and
net loss available to common member for the period from September 17, 1997
(inception) to December 31, 1997 (in thousands).
Statement of Operations Data:
Interest income and net income $ 1,949
-------------
Preferred dividends on redeemable preferred
securities, including accretion of offering costs (2,460)
-------------
Net loss available to common member $ (511)
=============
Other Data:
Cash provided by operating activity $ 1,949
Cash used by investing activities (132,959)
Net cash provided by financing activities 131,010
Period from September 17, 1997 (inception) to December 31, 1997
Interest income and net income. Interest income of $1.9 million consists of
income earned on invested cash proceeds from the issuance of the Redeemable
<PAGE>
9
Preferred Securities in September and October 1997. Interest income will
decrease in subsequent periods due to decreases in invested cash balances from
the Company's purchase of approximately $112.4 million of ICG Preferred Stock on
February 13, 1998. The Company's net income for the period from inception to
December 31, 1997 consists entirely of interest income.
Preferred dividends on redeemable preferred securities, including accretion
of offering costs. Preferred dividends on redeemable preferred securities,
including accretion of offering costs was $2.5 million for the period from
September 17, 1997 (inception) to December 31, 1997 and includes approximately
$1.3 million of preferred security dividends paid on November 15, 1997, the
accrual of the preferred security dividends for the period from November 16,
1997 through December 31, 1997 of approximately $1.1 million and the accretion
of offering costs from the private placement of the Redeemable Preferred
Securities of approximately $0.1 million.
Net loss available to common member. Net loss available to common member of
$0.5 million is a result of preferred dividends on redeemable preferred
securities, offset by interest income, as noted above.
Quarterly Results
The following table presents selected unaudited operating results for
three-month quarterly periods, beginning with the inception of the Company at
September 17, 1997 and through December 31, 1997. The Company believes that the
amounts stated below present fairly the quarterly results when read in
conjunction with the Company's audited financial statements and related notes
included elsewhere in this Annual Report, as amended. Results of operations are
not necessarily indicative of results of operations for a full year or
predictive of future periods.
<TABLE>
<CAPTION>
September 17, 1997
(inception) to Three Months Ended
September 30, December 31,
1997 1997
----------------------- ---------------------
(in thousands)
(unaudited)
<S> <C> <C>
Statement of Operations Data:
Interest income and net income $ 120 1,829
----------------------- ---------------------
Preferred dividends on redeemable preferred securities,
including accretion of offering costs (129) (2,331)
======================= =====================
Net loss available to common member $ (9) (502)
======================= =====================
Other Data:
Cash provided by operating activity $ 120 1,829
Cash used by investing activities (115,120) (17,839)
Net cash provided by financing activities 115,000 16,010
</TABLE>
<PAGE>
10
Liquidity and Capital Resources
The Company's operations consist entirely of effecting the transactions
required by the terms of the Redeemable Preferred Securities issued in September
and October 1997. To date, the Company's operations have been funded through the
proceeds from the issuance of the Redeemable Preferred Securities and the sale
of ICG Common Stock which was contributed to the Company by ICG. As of December
31, 1997, the Company has assets of approximately $133.0 million, of which all
were invested in U.S. Treasury securities and of which approximately $24.6
million is restricted for cash dividends payable through November 15, 2000 on
the Redeemable Preferred Securities. The Company's liabilities at December 31,
1997 include approximately $1.1 million in preferred dividends accrued on the
Redeemable Preferred Securities and approximately $4.7 million due to ICG for
advances for the offering costs associated with the issuance of the Redeemable
Preferred Securities.
Subsequent to December 31, 1997, the Company used the remaining proceeds
from the private placement of the Redeemable Preferred Securities, which were
not restricted for the payment of cash dividends, along with the proceeds from
the sale of the contributed ICG Common Stock to purchase approximately $112.4
million of ICG Preferred Stock.
The Company is dependent upon ICG to declare and pay preferred dividends on
the ICG Preferred Stock. ICG is a Delaware corporation that files annual,
quarterly and current reports with the Securities and Exchange Commission. Its
Commission File Number is 1-11965.
Cash Provided By Operating Activity
Cash provided by operating activity was approximately $1.9 million for the
period from September 17, 1997 (inception) to December 31, 1997 and consists
entirely of interest income earned on short-term investments.
Cash Used By Investing Activities
Cash used by investing activities was approximately $133.0 million for the
period from September 17, 1997 (inception) to December 31, 1997 and consists of
the establishment of restricted cash balances for cash dividends payable through
November 15, 2000 on the Redeemable Preferred Securities and also consists of
the purchase of short-term investments. Restricted cash balances will decrease
in each future period as preferred dividends are paid. Short-term investments
were reduced to zero on February 13, 1998 when the Company used the remaining
balance in short-term investments for the purchase of approximately $112.4
million of ICG Preferred Stock.
Net Cash Provided By Financing Activities
Financing activities provided approximately $131.0 million for the period
from September 17, 1997 (inception) to December 31, 1997. Net cash provided by
<PAGE>
11
financing activities includes the net proceeds from the issuance of the
Redeemable Preferred Securities in September and October 1997 of approximately
$127.6 million and approximately $4.7 million advanced by ICG for the offering
costs associated with the issuance of the Redeemable Preferred Securities,
offset by payments of cash dividends on the Redeemable Preferred Securities of
approximately $1.3 million. The Company expects cash provided from financing
activities to decrease as future periods are not anticipated to include proceeds
from securities offerings.
Cash Commitments
The Redeemable Preferred Securities require payments of dividends to be
made in cash and are being paid currently through November 15, 2000. The Company
has cash dividend obligations on the Redeemable Preferred Securities of
approximately $8.9 million in each of 1998, 1999 and 2000. The Redeemable
Preferred Securities have a liquidation preference of $50 per security, plus
accrued and unpaid dividends, and are mandatorily redeemable in 2009. The
Company's management believes it has sufficient resources to meet these future
cash requirements.
Year 2000 Compliance
As a wholly owned subsidiary of ICG, the Company's Year 2000 compliance
plan is embedded within ICG's Year 2000 compliance plan for its consolidated
operations. It is not practicable for ICG to address the state of Year 2000
readiness, compliance costs, risks or contingency plans of the Company, or for
any other legal entity on a stand-alone basis, as ICG's plan was designed to
resolve Year 2000 compliance issues for all entities combined, the most
cost-effective manner. Moreover, as a result of the Company's and ICG's shared
management and administrative personnel and the Compan's dependence upon the
successful operations of ICG in order that ICG's Board of Directors will
continue to declare and pay dividends on the ICG Preferred Stock, evaluating the
Company's plan for Year 2000 compliance on a stand-alone basis is not
meaningful. ICG is a Delaware corporation that files annual, quarterly and
current reports with the Securities and Exchange Commission. Its Commission File
Number is 1-11965.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of the Company appear on page F-1 of this Annual
Report, as amended. Selected quarterly financial data required under this Item
is included under Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The Company has no directors or executive officers. Its business affairs
are managed by ICG, as the manager of the Company pursuant to the LLC Agreement.
ICG is a Delaware corporation that files annual, quarterly and current reports
with the Securities and Exchange Commission. Its Commission File Number is
1-11965.
ITEM 11. EXECUTIVE COMPENSATION
The Company has no executive officers. It business affairs are managed by
ICG, as the manager of the Company pursuant to the LLC Agreement. ICG does not
receive any fees or compensation as manager of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent
Title of Class of Beneficial Owner of Beneficial Ownership of Class
- -------------- ------------------- ----------------------- --------
<S> <C> <C> <C>
Common ICG Communications, Inc. 1 Common Security
Securities 161 Inverness Drive West owned beneficially 100%
Englewood, Colorado 80112 with sole voting power
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On February 13, 1998, ICG made a capital contribution of 126,750 shares of
ICG Common Stock to the Company. Immediately thereafter, the Company sold the
contributed shares to unrelated third parties for proceeds of approximately $3.4
million. The Company recorded the contribution of the ICG Common Stock as
additional paid-in capital at the then fair market value and, consequently, no
gain or loss was recorded by the Company on the subsequent sale of those shares.
Also on February 13, 1998, the Company used the remaining proceeds from the
private placement of the Redeemable Preferred Securities, which were not
restricted for the payment of cash dividends, along with the proceeds from the
sale of the contributed ICG Common Stock to purchase approximately $112.4
million of ICG Preferred Stock.
All of the Company's administrative expenses, which are insignificant, are
paid by ICG. Additionally, ICG advanced approximately $4.7 million to the
Company for the offering costs associated with the issuance of the Redeemable
Preferred Securities.
<PAGE>
13
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(A) (1) Financial Statements. The following financial statements are included
in Item 8 of Part II:
Page
------
Independent Auditors' Report . . . . . . . . . . . . . . . . F-2
Balance Sheet, December 31, 1997 . . . . . . . . . . . . . . F-3
Statement of Operations, Period from September 17, 1997
(inception) to December 31, 1997. . . . . . . . . . . . . . F-4
Statement of Member's Deficit, Period from September 17,
1997 (inception) to December 31, 1997 . . . . . . . . . . . F-5
Statement of Cash Flows, Period from September 17, 1997
(inception) to December 31, 1997. . . . . . . . . . . . . . F-6
Notes to Financial Statements, December 31, 1997 . . . . . . F-7
(2) Financial Statement Schedule.
Not Applicable
(3) List of Exhibits.
(3) Corporate Organization.
3.1: Certificate of Formation of ICG Funding, LLC filed September
17, 1997 with the Secretary of State of the State of
Delaware [Incorporated by reference to Exhibit 4.3 to
Registration Statement on Form S-3, File Number 333-40495].
3.2: Amended and Restated Limited Liability Company Agreement of
ICG Funding, LLC, dated September 23, 1997 [Incorporated by
reference to Exhibit 4.4 to Registration Statement on Form
S-3, File Number 333-40495].
(4) Instruments Defining the Rights of Security Holders, Including
Indentures.
4.1: Registration Rights Agreement, dated September 24, 1997,
among ICG Communications, Inc., ICG Funding, LLC, Morgan
Stanley & Co. Incorporated and Deutsche Morgan Grenfell,
Inc. with respect to the 6 3/4 % Exchangeable Limited
Liability Company Preferred Securities [Incorporated by
reference to Exhibit 4.5 to Registration Statement on Form
S-3, File Number 333-40495].
<PAGE>
14
4.2: Guarantee Agreement, dated September 24, 1997, between ICG
Communications, Inc. and ICG Funding, LLC [Incorporated by
reference to Exhibit 4.6 to Registration Statement on Form
S-3, File Number 333-40495].
4.3: Written Action of the Manager of ICG Funding, LLC, dated as
of September 24, 1997, with respect to the terms of the 6
3/4% Exchangeable Limited Liability Company Preferred
Securities [Incorporated by reference to Exhibit 4.8 to
Registration Statement of Form S-3, File Number 333-40495].
4.4: Escrow and Security Agreement, dated September 24, 1997
among ICG Communications Inc., ICG Funding, LLC and Norwest
Bank Colorado, National Association [Incorporated by
reference to Exhibit 4.7 to Registration Statement on Form
S-3, File Number 333-40495].
(10) Material Contracts.
10.1:Certificate of Designation, Rights and Preferences of the
Preferred Stock Mandatorily Redeemable 2009 of ICG
Communications, Inc., filed with the Secretary of State of
the State of Delaware on September 25, 1997 [Incorporated by
reference to Exhibit 4.9 to Registration Statement on Form
S-3, File Number 333-40495].
(27) Financial Data Schedule.
27.1:Financial Data Schedule of ICG Funding, LLC for the period
from September 17, 1997 (inception) to December 31, 1997.
(B) Reports on Form 8-K.
None
(C) Exhibits.The exhibits required by this Item are listed under Item 14(A)(3).
F-1
FINANCIAL STATEMENTS
Page
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheet, December 31, 1997 . . . . . . . . . . . . . . . . . . F-3
Statement of Operations, Period from September 17, 1997 (inception)
to December 31, 1997. . . . . . . . . . . . . . . . . . . . . . F-4
Statement of Member's Deficit, Period from September 17, 1997
(inception) to December 31, 1997. . . . . . . . . . . . . . . . F-5
Statement of Cash Flows, Period from September 17, 1997 (inception)
to December 31, 1997. . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements, December 31, 1997 . . . . . . . . . . F-7
<PAGE>
F-12
Independent Auditors' Report
The Common Member and Manager
ICG Funding, LLC:
We have audited the accompanying balance sheet of ICG Funding, LLC as of
December 31, 1997 and the related statements of operations, member's deficit,
and cash flows for the period from September 17, 1997 (inception) to December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ICG Funding, LLC as of December
31, 1997, and the results of its operations and its cash flows for the period
from September 17, 1997 (inception) to December 31, 1997, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Denver, Colorado
September 30, 1998
<PAGE>
F-3
ICG FUNDING, LLC
Balance Sheet
December 31, 1997
(in thousands)
- -------------------------------------------------------------------------------
Assets
Current assets:
Short-term investments available for sale $ 108,310
Restricted cash (note 3) 8,693
-------------------
Total current assets 117,003
-------------------
Restricted cash (note 3) 15,956
-------------------
Total assets $ 132,959
===================
Liabilities and Member's Deficit
Current liability - dividends payable $ 1,116
Due to ICG (note 3) 4,699
-------------------
Total liabilities 5,815
-------------------
Redeemable preferred securities ($133.4 million
liquidation value at December 31, 1997) (note 3) 127,655
Accumulated deficit and total member's deficit (511)
-------------------
Commitments and contingencies (notes 3 and 4)
Total liabilities and member's deficit $ 132,959
===================
See accompanying notes to financial statements.
<PAGE>
F-4
ICG FUNDING, LLC
Statement of Operations
Period from September 17, 1997 (inception) to December 31, 1997
(in thousands)
- -------------------------------------------------------------------------------
Interest income $ 1,949
---------------------
Net income $ 1,949
Preferred dividends on redeemable preferred
securities, including accretion of offering costs
(note 3) (2,460)
---------------------
Net loss available to common member $ (511)
=====================
See accompanying notes to financial statements.
<PAGE>
F-5
ICG FUNDING, LLC
Statement of Member's Deficit
Period from September 17, 1997 (inception) to December 31, 1997
(in thousands)
- -------------------------------------------------------------------------------
Accumulated
deficit and total
member's deficit
----------------------
Balance at September 17, 1997 (inception) $ -
Net income 1,949
Preferred dividends on redeemable preferred
securities, including accretion of offering costs (2,460)
----------------------
Balance at December 31, 1997 $ (511)
======================
See accompanying notes to financial statements.
<PAGE>
F-6
ICG FUNDING, LLC
Statement of Cash Flows
Period from September 17, 1997 (inception) to December 31, 1997
(in thousands)
- -------------------------------------------------------------------------------
Cash provided by operating activity - net income $ 1,949
------------------
Cash flows from investing activities:
Purchase of short-term investments (108,310)
Restricted cash (24,649)
------------------
Net cash used by investing activities (132,959)
------------------
Cash flows from financing activities:
Net proceeds from issuance of redeemable preferred
securities 127,551
Advances from ICG 4,699
Payment of preferred dividends on redeemable preferred
securities (1,240)
------------------
Net cash provided by financing activities 131,010
------------------
Cash and cash equivalents at inception and at
December 31, 1997 $ -
==================
See accompanying notes to financial statements.
<PAGE>
F-7
ICG FUNDING, LLC
Notes to Financial Statements
December 31, 1997
- -------------------------------------------------------------------------------
(1) Organization and Nature of Business
ICG Funding, LLC, a Delaware limited liability company (the "Company"), was
formed on September 17, 1997 as a special purpose limited liability company
existing for the exclusive purposes of: (i) issuing common and preferred
interests in the Company; (ii) using at least 85% of the net proceeds of
such issuances and related capital contributions (the "Net Proceeds") to
purchase shares of preferred stock of ICG Communications, Inc. ("ICG")
("ICG Preferred Stock") in a private placement; (iii) investing a portion
of the remaining Net Proceeds in U.S. Treasury securities, to be held in
escrow in an amount sufficient to fund the cash payments of the first
thirteen quarterly dividends on the Company's preferred interests (the
"Redeemable Preferred Securities"); and (iv) purchasing U.S. Treasury
securities pending the purchase of shares of ICG Preferred Stock. Unless
previously dissolved, the Company's term will continue until December 31,
2050.
ICG is the sole common member of the Company. The business and affairs of
the Company are conducted by ICG and ICG pays all of the Company's
administrative expenses, which are insignificant.
(2) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles.
(b) Short-term Investments Available for Sale
The Company invested the net proceeds from the private placement of
the Redeemable Preferred Securities in high grade short-term
investments which consist entirely of U.S. Treasury securities. All
short-term investments are considered to be available for sale and
matured on February 13, 1998. The Company carries short-term
investments at cost, which approximates fair value.
(c) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that
<PAGE>
F-8
ICG FUNDING, LLC
Notes to Financial Statements, Continued
- -------------------------------------------------------------------------------
(2) Summary of Significant Accounting Policies (continued)
affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and loss during the
reporting period. Actual results could differ from those estimates.
(d) Income Taxes
The Company is a U.S. limited liability company which is treated as a
partnership for U.S. federal and state income tax purposes.
Accordingly, the Company is not subject to U.S. federal and state
income taxes. The Company's results of operations are allocated and
included in the individual income tax returns of the securityholders.
(e) Net Loss Per Share
The Company's one issued and outstanding common limited liability
company security is owned directly by ICG. Accordingly, the Company
does not present net loss per share in its financial statements as
such disclosure is not considered to be meaningful.
(3) Redeemable Preferred Securities
On September 24 and October 3, 1997, the Company completed a private
placement of 6 3/4% Exchangeable Limited Liability Company Preferred
Securities Mandatorily Redeemable 2009 (the "Redeemable Preferred
Securities") for gross proceeds of $132.25 million. Net proceeds from the
private placement, after offering costs of approximately $4.7 million
advanced by ICG, were approximately $127.6 million. Restricted cash at
December 31, 1997 of $24.6 million consists of the proceeds from the
private placement which are designated for the payment of cash dividends on
the Redeemable Preferred Securities through November 15, 2000. Proceeds
from the private placement were invested in U.S. Treasury securities as of
December 31, 1997.
The Redeemable Preferred Securities consist of 2,645,000 exchangeable
preferred securities of the Company that bear a cumulative dividend at the
rate of 6 3/4% per annum. The dividend is paid quarterly in arrears each
February 15, May 15, August 15 and November 15, and commenced November 15,
1997. The dividend is payable in cash
<PAGE>
F-9
ICG FUNDING, LLC
Notes to Financial Statements, Continued
- -------------------------------------------------------------------------------
(3) Redeemable Preferred Securities (continued)
through November 15, 2000 and, thereafter, in cash or shares of common
stock of ICG ("ICG Common Stock"), at the option of the Company. The
Redeemable Preferred Securities are exchangeable, at the option of the
holder, at any time prior to November 15, 2009 into shares of ICG Common
Stock at a rate of 2.0812 shares of ICG Common Stock per preferred
security, or $24.025 per share, subject to adjustment. The Company may, at
its option, redeem the Redeemable Preferred Securities at any time on or
after November 18, 2000. Prior to that time, the Company may redeem the
Redeemable Preferred Securities if the current market value of ICG Common
Stock equals or exceeds the exchange price, for at least 20 days of any
consecutive 30-day trading period, by 170% prior to November 16, 1998; by
160% from November 16, 1998 through November 15, 1999; and by 150% from
November 16, 1999 through November 15, 2000. The Redeemable Preferred
Securities are subject to mandatory redemption on November 15, 2009.
Included in preferred dividends on redeemable preferred securities is
approximately $0.1 million associated with the accretion of offering costs
from the private placement of the Redeemable Preferred Securities.
(4) Contribution and Sale of ICG Common Stock and Purchase of ICG Preferred
Stock
On February 13, 1998, ICG made a capital contribution of 126,750 shares of
ICG Common Stock to the Company. Immediately thereafter, the Company sold
the contributed shares to unrelated third parties for proceeds of
approximately $3.4 million. The Company recorded the contribution of the
ICG Common Stock as additional paid-in capital at the then fair market
value and, consequently, no gain or loss was recorded by the Company on the
subsequent sale of those shares.
Also on February 13, 1998, the Company used the remaining proceeds from the
private placement of the Redeemable Preferred Securities, which were not
restricted for the payment of cash dividends, along with the proceeds from
the sale of the contributed ICG Common Stock to purchase approximately
$112.4 million of ICG Communications, Inc. Preferred Stock ("ICG Preferred
Stock") which pays dividends each February 15, May 15, August 15 and
November 15 in additional shares of ICG Preferred Stock through November
15, 2000. Subsequent to November 15, 2000, dividends on the ICG Preferred
Stock are payable in cash or shares of ICG Common Stock, at the option of
ICG. The ICG Preferred Stock is exchangeable, at the option of the Company,
at any time prior to November 15, 2009 into shares of ICG Common Stock at
an exchange rate based on the
<PAGE>
F-10
ICG FUNDING, LLC
Notes to Financial Statements, Continued
- -------------------------------------------------------------------------------
(4) Contribution and Sale of ICG Common Stock and Purchase of ICG Preferred
Stock (continued)
exchange rate of the Redeemable Preferred Securities. The ICG Preferred
Stock is subject to mandatory redemption on November 15, 2009.
<PAGE>
INDEX TO EXHIBITS
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
<PAGE>
EXHIBIT 27.1
Financial Data Schedule of ICG Funding, LLC for the period from
September 17, 1997 (inception) to December 31, 1997.
<PAGE>
SIGNATURE
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 November 9, 1998.
ICG Funding, LLC
By: ICG Communications, Inc.
Common Member and Manager
By: /s/ Harry R. Herbst
--------------------------------------
Harry R. Herbst
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ICG FUNDING, LLC FOR THE PERIOD FROM SEPTEMBER 17, 1997
(INCEPTION) TO DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> SEP-17-1997
<PERIOD-END> DEC-31-1997
<CASH> 24,649
<SECURITIES> 108,310
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 117,003
<PP&E> 0<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 132,959
<CURRENT-LIABILITIES> 1,116
<BONDS> 4,699
127,655
0<F1>
<COMMON> 0<F1>
<OTHER-SE> (511)
<TOTAL-LIABILITY-AND-EQUITY> 132,959
<SALES> 0<F1>
<TOTAL-REVENUES> 0<F1>
<CGS> 0<F1>
<TOTAL-COSTS> 0<F1>
<OTHER-EXPENSES> 0<F1>
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> (1,949)
<INCOME-PRETAX> 1,949
<INCOME-TAX> 0<F1>
<INCOME-CONTINUING> 1,949
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> 1,949
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1>THIS VALUE IS NOT APPLICABLE.
</FN>
</TABLE>
