AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 24, 1998
REGISTRATION NO. 333-
-----
========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------
ICG SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
DELAWARE 84-1448147
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
--------------
161 INVERNESS DRIVE WEST
ENGLEWOOD, COLORADO 80112
(303) 414-5000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
WITH A COPY TO:
H. DON TEAGUE, EXECUTIVE VICE PRESIDENT
GENERAL COUNSEL AND SECRETARY AUDREY A. ROHAN, ESQ.
ICG SERVICES, INC. REID & PRIEST LLP
161 INVERNESS DRIVE WEST 40 WEST 57TH STREET
ENGLEWOOD, COLORADO 80112 NEW YORK, NEW YORK 10019
(303) 414-5000 (212) 603-2000
(Name, address, including zip code, and
telephone number, including area code,
of agent for service for registrant)
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE
PUBLIC: AS SOON AS PRACTICABLE AFTER THE REGISTRATION STATEMENT
BECOMES EFFECTIVE.
IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING
OFFERED IN CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND
THERE IS COMPLIANCE WITH GENERAL INSTRUCTION G, CHECK THE
FOLLOWING BOX: [ ]
--------------
CALCULATION OF REGISTRATION FEE
=========================================================================
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM
TITLE OF EACH CLASS AMOUNT PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED SECURITY(1) PRICE(1) FEE
--------------------------------------------------------------------------
10% SENIOR
EXCHANGE
DISCOUNT
NOTES DUE 2008 490,000 $613.41 $300,570,900 $88,668.42
==========================================================================
(1) DETERMINED SOLELY FOR THE PURPOSES OF CALCULATING THE
REGISTRATION FEE IN ACCORDANCE WITH RULE 457(F)(2) PROMULGATED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
========================================================================
<PAGE>
THIS PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT
TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO
THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO
BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION. DATED , 1998.
------
OFFER TO EXCHANGE
ALL OUTSTANDING
10% SENIOR DISCOUNT NOTES DUE 2008
FOR
10% SENIOR EXCHANGE DISCOUNT NOTES DUE 2008
OF
ICG SERVICES, INC.
---------------------------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998 UNLESS EXTENDED
----------
-------------------------------
ICG Services, Inc., a Delaware corporation (the "Company"),
hereby offers upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange (the
"Exchange Offer") its outstanding 10% Senior Discount Notes due
2008 (the "Old Notes"), of which an aggregate of $490,000,000 in
principal amount at maturity is outstanding as of the date
hereof, for an equal principal amount of newly issued 10% Senior
Exchange Discount Notes due 2008 (the "New Notes"). The form and
terms of the New Notes will be the same as the form and terms of
the Old Notes except that the New Notes will be registered under
the Securities Act of 1933, as amended (the "Securities Act"),
and will not bear legends restricting the transfer thereof. The
New Notes will be entitled to the benefits of the Indenture,
dated as of February 12, 1998, governing the Notes (the
"Indenture"). The New Notes and the Old Notes are sometimes
referred to herein collectively as the "Notes" or the "Senior
Discount Notes."
(Continued on next page)
------------
SEE "RISK FACTORS" AT PAGE 14 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE
EXCHANGE OFFER.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
There will not be any payment of interest on the New Notes prior
to August 15, 2003. Interest on the New Notes will be paid in
cash at the rate of 10% per annum on each February 15 and August
15, commencing August 15, 2003, to holders of record on the
immediately preceding February 1 and August 1, respectively. The
Company is a wholly owned subsidiary of ICG Communications, Inc.,
a Delaware corporation ("ICG"). Prior to this Exchange Offer
there has been no public market for any securities of the Company
and there can be no assurance that such a market will develop.
See "Description of the New Notes."
On or after February 15, 2003, the New Notes are redeemable, at
the option of the Company, in whole or in part from time to time,
at the redemption prices set forth herein, plus accrued and
unpaid interest to the date of redemption. Upon a Change of
Control (as herein defined), the Company is required to make an
offer to purchase the Notes at a purchase price equal to 101% of
their Accreted Value on the date of purchase plus accrued
interest. At March 31, 1998, the Company had, on an
unconsolidated basis, approximately $304.4 million of senior
indebtedness including the New Notes, and the subsidiaries of the
Company had, on an unconsolidated basis, an aggregate of
approximately $6.1 million of senior indebtedness, consisting
solely of capital lease obligations.
At any time prior to February 15, 2001, the Company may, at its
option, redeem New Notes having an aggregate principal amount of
up to 35% of the aggregate principal amount of all New Notes
originally issued, at a redemption price equal to 110% of the
Accreted Value thereof on the date of redemption, plus accrued
and unpaid interest, with the proceeds of one or more public or
private Equity Offerings (as defined herein), provided that after
any such redemption at least 65% of the aggregate principal
amount of the New Notes initially used remains outstanding.
The Company will accept for exchange any and all Old Notes
which are properly tendered in the Exchange Offer prior to 5:00
p.m., New York City time, on , 1998 (if and as
----------
extended, the "Expiration Date"). Tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date. Old Notes may be tendered only in integral
multiples of $1,000.
Based on a previous interpretation by the staff of the
Securities and Exchange Commission (the "Commission") set forth
in no-action letters to third parties, the Company believes that
the New Notes pursuant to the Exchange Offer may be offered for
resale, resold and otherwise transferred by a holder thereof
(other than (i) a broker-dealer who purchases such New Notes
directly from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company (within the meaning of
Rule 405 under the Securities Act)) without compliance with the
registration and prospectus delivery provisions of the Securities
Act, provided that the holder or any other such person is
acquiring the New Notes in its ordinary course of business and is
not participating, and has no arrangement or understanding with
any person to participate, in the distribution of the New Notes.
Holders of Old Notes wishing to accept the Exchange Offer must
represent to the Company that such conditions have been met.
Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will
deliver a Prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter," within the meaning
of the Securities Act, in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were
acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed
that, for a period of 90 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
The Company believes that none of the registered holders of the
Old Notes is an affiliate (as such term is defined in Rule 405
under the Securities Act) of the Company. Prior to this Exchange
Offer, there has been no public market for the Old Notes. The
Company does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated
quotation system. There can be no assurance that an active market
for the New Notes will develop. To the extent that a market for
the New Notes does develop, the market value of the New Notes
will depend on market conditions (including yields on alternative
investments), general economic conditions, the Company's
financial condition and other conditions. Such conditions might
cause the New Notes, to the extent that they are actively traded,
to trade at a significant discount from face value. The Company
2
<PAGE>
has not entered into any arrangement or understanding with any
person to distribute the New Notes to be received in the Exchange
Offer.
The Company will not receive any proceeds from the Exchange
Offer. The Company has agreed to bear the expenses of the
Exchange Offer. No underwriter is being used in connection with
the Exchange Offer. The New Notes have not been rated by a
nationally recognized statistical rating organization.
The date of this Prospectus is , 1998.
-----------
TABLE OF CONTENTS
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . 2
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . 14
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . 30
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . 36
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 49
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . 50
SOLE STOCKHOLDER OF THE COMPANY . . . . . . . . . . . . . . . 50
THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . 51
DESCRIPTION OF THE NEW NOTES . . . . . . . . . . . . . . . . 58
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS . . . 87
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . 93
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 93
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . 94
---------------
No person has been authorized to give any information or to make
any representations other than those contained in this
Prospectus, and, if given or made, such information or
representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell
or the solicitation of an offer to buy any securities other than
the securities to which it related or any offer to sell or the
solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create any implication
that there has been no change in the affairs of the Company since
the date hereof or that the information contained herein is
correct as of any time subsequent to its date.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration
Statement on Form S-4 (together with any amendments thereto, the
"Registration Statement") under the Securities Act with respect
to the New Notes offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus omits certain
information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to
the Company and the New Notes offered hereby, reference is made
to the Registration Statement, including the exhibits thereto and
the financial statements, notes and schedules filed as a part
thereof. The Registration Statement, including the exhibits
thereto and the financial statements, and other information filed
by the Company with the Commission can be inspected and copied
(at prescribed rates) at the Commission's Public Reference
Section, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the
Commission located at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Such material may
also be accessed electronically by means of the Commission's home
page on the Internet at http://www.sec.gov. The Company is not
currently subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
Upon effectiveness of the Registration Statement of which this
Prospectus is a part, the Company will become subject to the
informational requirements of the Exchange Act.
Pursuant to the Indenture, the Company has agreed to supply, or
cause the Trustee to supply, to each holder of Notes, without
cost, copies of all reports and other information that would be
required to be filed by the Company with the Commission under the
Exchange Act, whether or not the Company is then required to file
reports with the Commission.
-------------------
No person is authorized in connection with any offering made
hereby to give any information or to make any representation
other than as contained in this Prospectus or the accompanying
Letter of Transmittal, and, if given or made, such information or
representation must not be relied upon as having been authorized
by the Company. Neither this Prospectus nor the accompanying
Letter of Transmittal or both together constitute an offer to
sell or a solicitation of an offer to buy any security other than
the New Notes offered hereby, nor does it constitute an offer to
sell or a solicitation of an offer to buy any securities offered
hereby to any person in any jurisdiction in which it is unlawful
to make such offer or solicitation to such person. Neither the
delivery of this Prospectus or the accompanying Letter of
Transmittal or both together, nor any sale made hereunder shall
under any circumstances imply that the information contained
herein is correct as of any date subsequent to the date hereof.
Until , 1998 (90 days after the date of the Exchange
-----------
Offer), all dealers offering transactions in the New Notes,
whether or not participating in the Exchange Offer, may be
required to deliver a Prospectus.
--------------------
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN
APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF
THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW
HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED
OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES
A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER
CHAPTER 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY
SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS
AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE
SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR
QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY
PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR
CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER, OR
CLIENT ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF
THIS PARAGRAPH.
--------------------
NETCOM, NETCOMplete, NETCOMplete Advantage and NETCOM Identity
Pack are trademarks of NETCOM On-Line Communication Services,
Inc. All other products, company names and logos are trademarks
of their respective companies.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and consolidated financial statements, and
notes thereto, appearing elsewhere in this Prospectus. References
herein to the "Company" refer to ICG Services, Inc. and, where
appropriate, its subsidiaries, including NETCOM On-Line
Communication Services, Inc., a Delaware corporation ("NETCOM"),
and ICG Equipment, Inc., a Colorado corporation ("ICG
Equipment"), and references herein to "ICG" refer to ICG
Communications, Inc., a Delaware corporation, and, where
appropriate, its subsidiaries. The terms "fiscal" or "fiscal
year," unless otherwise defined, refer to the Company's and
NETCOM's fiscal year ended December 31. Certain statements
contained in this Prospectus with respect to the Company's plans
and strategy for its business and related financing are forward-
looking statements (as such term is defined in the Private
Securities Litigation Reform Act). Such statements are subject to
risks and uncertainties and, as a result, actual results may
differ materially from those expressed in or implied by such
forward-looking statements. For a discussion of important risks
of an investment in the Notes, including factors that could cause
actual results to differ materially from results referred to in
the forward-looking statements, see "Risk Factors." Investors
should carefully consider the information set forth under the
caption "Risk Factors," including the risks relating to lack of
operating history, historical operating losses of NETCOM and lack
of credit support from ICG.
THE COMPANY
ICG Services, Inc. provides Internet services, through its
subsidiary, NETCOM, to individuals and to small and medium-sized
businesses. The Company also acquires telecommunications
equipment, software and capacity for lease or sale to other
subsidiaries of ICG. In addition to providing these services, the
Company intends to grow through acquisitions of
telecommunications, Internet and related businesses that
complement ICG's business strategy.
The Company is a wholly owned subsidiary of ICG, one of the
nation's leading integrated communications providers ("ICPs") of
competitive communications services, based on estimates of the
industry's 1997 revenue. ICPs seek to provide an alternative to
incumbent local exchange carriers ("ILECs"), long distance
carriers, Internet service providers ("ISPs") and other
communications providers for a full range of communications
services in the increasingly deregulated telecommunications
industry. ICG's objectives are to provide a wide range of local,
long distance and data communications services to business end
users and wholesale customers and to be a premier provider of
high quality communications services to its targeted business and
carrier customers. ICG believes that customers are increasingly
demanding a broad, full service approach to providing services
and that, by offering a bundled package, ICG will be better able
to capture business from communications-intensive commercial
customers.
The principal executive offices of the Company are located at
161 Inverness Drive West, Englewood, Colorado 80112; its
telephone number is 303-414-5000.
BUSINESS STRATEGY
The Company's objective is to acquire and consolidate
telecommunications, Internet and related businesses and bundle
the services provided by these businesses with ICG's current
competitive local and long distance telecommunications products.
By leveraging the Company's relationship with ICG and utilizing
ICG's extensive network footprint, the Company intends to capture
the growth in demand from business customers for a full package
of telecommunications services by offering a wide array of
services including Internet services.
Market Services to Business End Users. The Company is focused
on marketing a variety of telecommunications and Internet
products and services primarily to business end users. Through
its wholly owned subsidiary, NETCOM, the Company currently
markets Internet services to individuals and to small and medium-
sized businesses. In January 1997, NETCOM announced plans to
migrate its customer focus away from high volume, low margin
consumer customers to higher margin products for small and
medium-sized business customers. Management believes a targeted
business end user strategy can better leverage ICG's network
footprint and telecommunications investment. To date, NETCOM has
-3-
<PAGE>
been successful in implementing this plan, and has seen its
average revenue per customer increase from $21.47 during fiscal
1996 to $23.92 during fiscal 1997.
Concentrate on Regional Clusters. The Company believes that by
focusing its growth on business activities located within ICG's
network of regional clusters in California, Colorado, Ohio and
the Southeast, it will be able to more effectively service its
customers' needs and efficiently market, operate and control its
network and expanded service offerings. In addition, the Company
believes that by focusing future growth within ICG's existing
footprint, it will be able to overlay ICG's support services and
realize extensive cost synergies. For example, a significant
portion of NETCOM's customer base is located in California. To
the extent feasible, NETCOM will route its Internet traffic over
ICG's California network. NETCOM plans to continue to operate and
grow its business in the United States outside of ICG's network
footprint and in Canada and the United Kingdom.
Increase Revenue and Margins through Bundled Services. The
Company intends to increase its revenue and margins by providing
a full range of communications products to its end user
customers. The Company plans to complement ICG's competitive
local and long distance telecommunications offerings by combining
the Internet products developed by NETCOM and cross-marketing
these combined products through ICG's direct sales force.
Additionally, NETCOM intends to market ICG telecommunications
products to its small and medium-sized business customer base.
Integrate Investments and Expand. The Company expects to
acquire telecommunications, Internet and related businesses that
complement ICG's business strategy to offer a wide array of
telecommunications, Internet and related services, primarily to
business customers. Acquisition targets could include U.S. and
foreign competitive local exchange carriers ("CLECs"), ISPs and
long distance companies, among others. The Company intends to
make future acquisitions primarily through the use of common
stock of ICG ("ICG Common Stock"), cash on hand and the proceeds
from securities offerings.
ICG and the Company believe that the acquisition of NETCOM is
strategically important as it helps to (i) broaden ICG's
communications product offerings to include Internet services and
(ii) provide NETCOM with extensive network infrastructure for the
on-net transportation of its Internet traffic. The Company will
continue to look for acquisitions which it believes will further
ICG's objectives to provide a wide range of local, long distance
and data communications services to business end users and
wholesale customers and to be a premier provider of high quality
communications services to its targeted business and carrier
customers.
NETCOM
NETCOM is a leading provider of high quality Internet
solutions to individuals and small and medium-sized businesses in
the United States and also provides the same high quality
Internet solutions in Canada and the United Kingdom. NETCOM
offers a broad spectrum of Internet solutions designed to enhance
customer productivity through the integration and application of
technologies by providing a comprehensive software platform to
interface with the World Wide Web (the "Web"), premium quality
Internet access and support services and on-line tools to
automate Web site creation and development. These offerings have
led to significant growth, with revenue increasing from
approximately $2.4 million for 1993 to approximately $160.7
million for fiscal 1997. In January 1997, NETCOM announced plans
to migrate its customer focus away from high volume, low margin
consumer customers to higher margin products for small and
medium-sized business customers.
NETCOM owns and operates a data communications network
consisting of 17 hubs containing frame relay switches and high-
performance routers connecting a backbone of leased Asynchronous
Transfer Mode ("ATM") switches and leased high-speed dedicated
data lines in the United States, Canada and the United Kingdom.
NETCOM maintains 247 points-of-presence ("POPs") in the United
States and Canada and also offers virtual local access numbers in
Canada and the United Kingdom. The design and architecture of the
physical network permits NETCOM to offer highly flexible,
reliable high-speed services to its customers and support
significant subscriber growth. The NETCOM infrastructure is
monitored by network operations centers ("NOCs") in San Jose,
California, Dallas, Texas, Toronto, Canada and London, England.
-4-
<PAGE>
NETCOM provides Internet solutions principally through dial-
up, direct access and Web site hosting services. Direct access
and Web site hosting services provide higher revenue per customer
and higher margins than dial-up services. NETCOM also receives
revenue from value-added services such as security, anti-virus
and data storage.
Dial-Up Services. NETCOM's dial-up customers receive an
integrated Internet solution consisting of high quality access,
software and 24 hours a day, seven days a week, automated
customer support. NETCOM dial-up customers connect directly to
the Internet via NETCOM's network which provides high speed,
reliable access. All NETCOM dial-up accounts allow access to the
Internet's resources, including E-mail, the Web and USENET
newsgroups. In addition, NETCOM dial-up customers can receive a
one megabyte ("Mb") personal Web page, access to a daily
customized newspage via E-mail, and access to on-line financial,
corporate and market information and analytical tools. Enhanced
services available to dial-up customers include features such as
additional E-mail addresses, enhanced support offerings, software
and virus updates, access to research libraries, domain name
service, monthly back-up, 10 Mb data storage, 750 Mb per month
data transfer capability and premium service and technology
support.
NETCOM customers can quickly register using NETCOMplete
software, available for both Windows and Macintosh platforms via
compact disk, and set up a NETCOM account by following a sequence
of simple, on-screen steps. All of the software needed to connect
and access the Internet is automatically installed and
configured, eliminating the need for complex set up procedures.
NETCOMplete also provides an easy-to-use interface as well as
software from leading industry participants, bookmark managers,
off-line browsers and additional software that enhances a
customer's Internet experience. Revenue from dial-up services
increased from $102.9 million for fiscal 1996 to $133.7 million
for fiscal 1997, representing approximately 85% and 83%,
respectively, of total revenue for such periods.
Direct Access Services. NETCOM offers a full suite of high-
speed dedicated Internet connection and service products which
provide its small and medium-sized business customers with direct
access to the full range of Internet applications. These Internet
services are offered to businesses over leased lines at various
speeds, including 56 Kbps, T-1 and T-3 levels, depending upon the
customer's needs. Through its direct access product line, NETCOM
offers Internet access services including domain name and
Internet Protocol ("IP") address, router configurations, on-line
usage statistics and security consultation. There are generally
no usage charges for any of NETCOM's dedicated customers, and E-
mail service and USENET news feed are provided at no additional
charge. Direct network connection requires the customer to obtain
a leased line from ICG or another local telephone company. NETCOM
provides an Internet connection based on frame relay technology
provided by local telephone carriers. Revenue from direct access
services increased from $16.3 million for fiscal 1996 to $19.5
million for fiscal 1997, representing approximately 14% and 12%,
respectively, of total revenue for such periods.
Web Site Hosting Services. NETCOM offers Web site hosting
services to its small and medium-sized business customers as well
as to individuals. Web site hosting services include client
domain name registration, hosting and site maintenance. Services
provided are fully scalable but would, in a typical package,
include domain name registration, 10 E-mail addresses, access to
NETCOM's on-line Business Center, CGI scripting (which enables
visitors to the Web site to leave their names and addresses),
weekly back-up service, 50 Mb of data storage, 1,000 Mb per month
of data transfers, traffic logs and Web statistics and premium
service and technology support. Revenue from Web site hosting
services increased from $1.3 million for fiscal 1996 to $6.3
million for fiscal 1997, representing approximately 1% and 4%,
respectively, of total revenue for such periods.
Value-Added Services. As part of its dial-up, direct access
and Web site hosting services, NETCOM offers its small and
medium-sized business customers value-added business connectivity
solutions packages designed to address their needs of increased
security, reliability, access speed and customer service. The
Company believes that businesses are willing to pay premium
prices for these premium services. One such feature is Automatic
Reconnect which automatically re-routes customers' traffic to an
alternate Integrated Services Digital Network ("ISDN") line so
that in the event of certain kinds of service interruptions
customers may remain connected. In order to provide a secure,
private connection among multiple specific locations, NETCOM's
SecureConnect product performs a security assessment and then
implements, monitors and troubleshoots a flexible security
solution to provide secure communication between central offices,
branch offices and off-site employees without jeopardizing the
-5-
<PAGE>
integrity of the internal network. Another value-added service
NETCOM offers is 24 hours a day, seven days a week support. For
larger customers, NETCOM offers flexible, high-speed dedicated
line service that is scalable to grow as traffic increases. Other
value-added services offered include password protected Web
sites, usage statistics, anti-virus software and additional
domain names.
RECENT DEVELOPMENTS
On January 21, 1998, NETCOM was merged with a subsidiary of
ICG in a business combination accounted for as a pooling-of-
interests. NETCOM is a wholly owned subsidiary of the Company.
Based upon the closing price of ICG Common Stock on such date of
$26.25 and NETCOM's diluted shares outstanding (using the
treasury stock method), the aggregate purchase price was
approximately $285 million. Based on the Company's preliminary
internal review, it expects revenue and EBITDA losses for the
quarter ended March 31, 1998 to be approximately $40.5 million
and $.8 million, respectively. All revenue was derived from
NETCOM and $.5 million of EBITDA losses related to the allocation
of general and administrative expenses from ICG. Financial
results for the quarter ended March 31, 1998 were affected
primarily by revenue derived from NETCOM's dial-up and direct
access products. Dial-up revenue was partially affected by the
lack of an industry-wide modem standard, which has since been
resolved, as well as delayed advertising programs, which NETCOM
expects to implement in the second quarter. Direct access
revenue was affected primarily by lower than expected set-up and
equipment revenues, as well as greater sales of lower end
dedicated lines, which generate lower revenue than higher speed
T-1 lines.
ICG Equipment was formed as a wholly owned subsidiary of the
Company in January 1998. ICG enters into arrangements with ICG
Equipment to purchase or lease telecommunications equipment,
software and capacity and related services. The equipment and
services provided to ICG will be utilized to upgrade and expand
its network infrastructure to take full advantage of the
opportunities and cost savings available as a result of the
acquisitions made by the Company. Any such arrangements will be
on an arm's length basis and on comparable terms that ICG would
be able to obtain from a third party.
In February 1998, the Company completed a private offering
(the "Private Offering") of the Old Notes. The net proceeds from
the Private Offering were approximately $291.6 million, net of
underwriting commissions. Cash interest on the Old Notes accrues
at 10% per annum beginning February 15, 2003 and is payable each
February 15 and August 15, commencing August 15, 2003. The Old
Notes will be redeemable at the option of the Company, in whole
or in part, on or after February 15, 2003.
In March, 1998, ICG announced its plans to offer long distance
service via IP technology. ICG and NETCOM will begin to market
this service over the Internet and through an inbound
telemarketing center in the second quarter of 1998. ICG also
plans to offer by the end of fiscal 1998 competitively priced
high-speed data transmission services via digital subscriber line
("DSL") technology to all business and end user customers within
its existing regional clusters. DSL technology utilizes the
existing twisted copper pair connection to the business or end
user, giving the customer significantly greater bandwidth when
connecting to the Internet.
ICG COMMUNICATIONS, INC.
ICG is one of the nation's leading ICPs of competitive
communications services, based on estimates of the industry's
1997 revenue. ICPs seek to provide an alternative to ILECs, long
distance carriers, ISPs and other communications providers for a
full range of communications services in the increasingly
deregulated telecommunications industry. Through its CLEC
operations, ICG operates networks in four regional clusters
covering major metropolitan statistical areas in California,
Colorado, Ohio and the Southeast. ICG also provides a wide range
of network systems integration services, maritime and
international satellite transmission services and, through the
Company, a variety of Internet connectivity and other value-added
Internet services. As a leading participant in the rapidly
growing competitive local telecommunications industry, ICG has
experienced significant growth, with total revenue increasing
from approximately $111.6 million for the fiscal year ended
September 30, 1995 to approximately $273.4 million for the fiscal
year ended December 31, 1997.
The Company is a wholly owned subsidiary of ICG; however, due
to restrictions imposed on ICG by certain indentures and certain
preferred stock provisions (collectively, "ICG Indentures")
related to prior financings, ICG and ICG's Restricted
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<PAGE>
Subsidiaries (as defined in the ICG Indentures) are prohibited
from making investments in or providing credit support to the
Company or the Company's subsidiaries. ICG and its Restricted
Subsidiaries are also prohibited from engaging in transactions
with the Company other than on an arm's length basis, and if the
proposed transaction exceeds $2 million in value, ICG and its
Restricted Subsidiaries may only participate with the approval of
a majority of the disinterested members of the Board of Directors
of ICG or with a written opinion of a nationally recognized
investment banking firm stating that the transaction is fair to
ICG from a financial point of view. See "Certain Relationships
and Related Transactions," "Risk Factors -- Lack of Credit
Support from ICG," "-- Control by ICG" and "-- Certain Financial
and Operating Restrictions" and "Description of the New Notes."
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THE EXCHANGE OFFER
The Exchange Offer The Company is offering to exchange $1,000
principal amount of New Notes for each
$1,000 principal amount of Old Notes that
are properly tendered and accepted. The
Company will issue the New Notes on or
promptly after the Expiration Date. There
are $490,000,000 aggregate principal amount
at maturity ($300,570,900 original issue
price) of Old Notes outstanding. See "The
Exchange Offer."
Resale of New Notes Based on an interpretation by the staff of
the Commission set forth in no-action
letters issued to third parties, including
"Exxon Capital Holdings Corporation"
(available May 13, 1988), "Morgan Stanley &
Co. Incorporated" (available June 5, 1991),
"Mary Kay Cosmetics, Inc." (available June
5, 1991), "Warnaco, Inc." (available
October 11, 1991) and "K-III Communications
Corp." (available May 14, 1993), the
Company believes that New Notes issued
pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale,
resold and otherwise transferred by any
holder thereof (other than any such holder
which is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery
provisions of the Securities Act, provided
that such New Notes are acquired in the
ordinary course of such holder's or any
other such person's business and that such
holder or any other such person has no
arrangement or understanding with any
person to participate in the distribution
of such New Notes. Under no circumstances
may this Prospectus be used for an offer to
resell or other retransfer of New Notes. In
the event that the Company's belief is
inaccurate, holders of New Notes who
transfer New Notes in violation of the
prospectus delivery provisions of the
Securities Act and without an exemption
from registration thereunder may incur
liability thereunder. The Company does not
assume or indemnify holders against such
liability. The Exchange Offer is not being
made to, nor will the Company accept
surrenders for exchange from, holders of
Old Notes (i) in any jurisdiction in which
the Exchange Offer or the acceptance
thereof would not be in compliance with the
securities or blue sky laws of such
jurisdiction or (ii) if any holder is
engaged or intends to engage in a
distribution of the New Notes. Each broker-
dealer that receives New Notes for its own
account in exchange for Old Notes, where
such Old Notes were acquired by such
broker-dealer as a result of market-making
activities or other trading activities,
must acknowledge that it will deliver a
prospectus in connection with any resale of
such New Notes. The Company has not entered
into any arrangement or understanding with
any person to distribute the New Notes to
be received in the Exchange Offer. See
"Plan of Distribution."
Expiration Date . . The Exchange Offer will expire at 5:00
p.m., New York City time, on __________,
1998 unless extended, in which case the
term "Expiration Date" shall mean the
latest date and time to which the Exchange
Offer is extended. The Company will accept
for exchange any and all Old Notes which
are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on
the Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be
delivered on or promptly after the
Expiration Date.
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<PAGE>
Conditions to the
Exchange Offer . The Company may terminate the Exchange
Offer if it determines that its ability to
proceed with the Exchange Offer could be
materially impaired due to any legal or
governmental action, any new law, statute,
rule or regulation, any interpretation by
the staff of the Commission of any existing
law, statute, rule or regulation or the
failure to obtain any necessary approvals
of governmental agencies or holders of the
Old Notes. The Company does not expect any
of the foregoing conditions to occur,
although there can be no assurances that
such conditions will not occur.
Procedures for
Tendering Old Each holder of Old Notes wishing to
Notes . . . . . participate in the Exchange Offer must
complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with such Old Notes and
any other required documentation to Norwest
Banks, as exchange agent for the Notes (the
"Exchange Agent"), at the address set forth
herein. By executing the Letter of
Transmittal, each holder will represent to
the Company that, among other things, the
New Notes acquired pursuant to the Exchange
Offer is being obtained in the ordinary
course of business of the person receiving
such New Notes, whether or not such person
has an arrangement or understanding with
any person to participate in the
distribution of such New Notes and that
neither the holder nor any such other
person is an "affiliate," as defined in
Rule 405 under the Securities Act, of the
Company.
Special Procedures
for Beneficial Any beneficial owner whose Old Notes are
Owners . . . . . registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and who wishes to tender such Old
Notes in the Exchange Offer should contact
such registered holder promptly and
instruct such registered holder to tender
on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior
to completing and executing the Letter of
Transmittal and delivering its Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date.
Guaranteed Delivery
Procedures . . . Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes or the Letter of
Transmittal to the Exchange Agent prior to
the Expiration Date, must tender their Old
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer
-- Guaranteed Delivery Procedures."
Withdrawal Rights . Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City
time, on the Expiration Date.
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<PAGE>
Certain Federal
Income Tax The exchange of New Notes for Old Notes
Considerations . will not constitute a taxable event for
U.S. federal income tax purposes. As a
result, holders of New Notes will not
recognize any income, gain or loss with
respect to such exchange. The New Notes
will be issued with original issue discount
("OID") for U.S. federal income tax
purposes. United States Holders of New
Notes issued with OID must include such OID
in income on a constant yield accrual
method, regardless of such holders' method
of accounting. As a result, such holders
will include OID in income in advance of
the receipt of cash attributable to that
income. For a discussion of certain U.S.
federal income tax considerations relating
to the exchange of the New Notes for the
Old Notes, see "Certain United States
Federal Income Tax Considerations."
Exchange Agent . . Norwest Banks is the Exchange Agent. Its
telephone number is (612) 667-4070. The
address of the Exchange Agent is set forth
in "The Exchange Offer -- Exchange Agent."
THE NEW NOTES
Aggregate Amount . $490,000,000 principal amount at maturity
($300,570,900 original issue price) of 10%
Senior Exchange Discount Notes due February
15, 2008.
Yield and Interest From and after February 15, 2003, the New
Notes will bear interest, which will be
payable in cash, on each February 15 and
August 15, commencing August 15, 2003. The
New Notes are being sold at a substantial
discount from their principal amount. For a
discussion of the U.S. federal income tax
treatment of the New Notes and the original
issue discount rules, see "Certain United
States Federal Income Tax Considerations --
Tax Consequences to United States Holders"
and "-- Original Issue Discount."
Optional Redemption On or after February 15, 2003, the New
Notes will be redeemable at the option of
the Company, in whole or in part from time
to time, at the redemption prices set forth
herein, plus accrued and unpaid interest to
the date of redemption. In addition, at any
time prior to February 15, 2001, the
Company may, at its option, redeem up to
35% of the aggregate principal amount at
maturity of the New Notes from the proceeds
of one or more public or private Equity
Offerings (as defined) at 110.0% of their
Accreted Value (as defined) on the
redemption date; provided that after any
such redemption at least 65% of the
aggregate principal amount of the Notes
initially issued remains outstanding. See
"Description of the New Notes -- Optional
Redemption."
Ranking . . . . . . The New Notes will be senior, unsecured
obligations of the Company, will rank pari
passu in right of payment with all existing
and future unsecured, unsubordinated
obligations and will be senior in right of
payment to all existing and future
subordinated indebtedness of the Company.
At December 31, 1997, after giving pro
forma effect to the Private Offering and
the NETCOM acquisition, the Company would
have had, on a consolidated basis,
approximately $306.6 million of
indebtedness including capitalized lease
obligations. The Company is a holding
company and the New Notes will be
effectively subordinated to all liabilities
(including trade payables) of the
subsidiaries of the Company and at December
31, 1997, on the same pro forma basis, the
subsidiaries of the Company would have had
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<PAGE>
approximately $34.5 million of liabilities
(excluding intercompany payables),
including approximately $6.0 million of
indebtedness, consisting solely of
capitalized lease obligations. The Company
may incur substantial amounts of
indebtedness in the future. See "Risk
Factors -- Substantial Indebtedness;
Ability to Service Debt" and "-- Holding
Company Structure; Priority of Creditors."
Certain Covenants . The indenture under which the New Notes
will be issued (the "Indenture") will
contain certain covenants which, among
other things, will restrict the ability of
the Company and its Restricted Subsidiaries
(as defined herein) to incur additional
indebtedness; create liens; engage in sale-
leaseback transactions; pay dividends or
make distributions in respect of their
capital stock; make investments or make
certain other restricted payments; sell
assets; create restrictions on the ability
of Restricted Subsidiaries to make certain
payments; issue or sell stock of certain
subsidiaries; enter into transactions with
stockholders or affiliates; and with
respect to the Company, consolidate, merge
or sell all or substantially all of its
assets. The Indenture will contain
significant exceptions to these covenants.
See "Description of the New Notes --
Covenants."
Change of Control . Upon a Change of Control (as defined
herein), the Company is required to make an
offer to purchase the New Notes at a
purchase price equal to 101% of their
Accreted Value on the date of purchase plus
accrued interest, if any. See "Description
of the New Notes -- Repurchase of New Notes
Upon a Change of Control."
RISK FACTORS
See "Risk Factors," immediately following this Summary, for a
discussion of certain risks that should be considered by
prospective investors in connection with the Exchange Offer and
an investment in the New Notes, including the risks related to
the Company's lack of operating history, historical operating
losses of NETCOM and lack of credit support from ICG.
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<PAGE>
SUMMARY FINANCIAL DATA
The Company is a newly formed Delaware corporation and,
accordingly, no financial statements for the Company have been
included herein. NETCOM is a wholly owned subsidiary of the
Company, acquired in a pooling-of-interests transaction with ICG.
The following table sets forth summary financial and other
operating data of NETCOM, the predecessor to the Company, for
each fiscal year in the five-year period ended December 31, 1997.
Such data have been derived from, and should be read in
conjunction with, NETCOM's audited consolidated financial
statements and notes thereto included elsewhere in this
Prospectus for each of the fiscal years in the three-year period
ended December 31, 1997. NETCOM's development and expansion
activities, including acquisitions, during the periods shown
below materially affect the comparability of this data from one
period to another.
YEARS ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995(1) 1996 1997
---- ---- ------- ---- ----
(IN THOUSANDS, EXCEPT RATIOS)
STATEMENT OF OPERATIONS
DATA:
Revenue . . . . . . . $ 2,412 $12,359 $ 52,422 $ 120,540 $160,660
Costs and expenses:
Cost of revenue . . . 1,133 6,711 36,641 88,396 118,432
Product development . 69 328 2,240 6,020 6,518
Sales and marketing . 371 3,080 18,771 51,237 49,375
General and
administrative . . . 597 2,345 11,016 23,610 22,264
Restructuring and -- -- -- -- 1,879
related charges . . ------- ------- ------ --------- --------
Total costs and
expenses . . . 2,170 12,464 68,668 169,263 198,468
Income (loss) from
operations . . . . . . 242 (105) (16,246) (48,723) (37,808)
(Loss) gain on
investment . . . . . . -- -- -- (1,200) 1,274
Interest and other
(expense) income, (3) 5 2,197 5,681 3,480
net(2) . . . . . . . . ------- ------- ------ --------- --------
Income (loss) before
provision for income
taxes . . . . . 239 (100) (14,049) (44,242) (33,054)
Provision for income
taxes . . . . . . . . (12) -- (15) (23) (38)
------- ------- ------ --------- --------
Net income (loss) . . . $ 227 $ (100) $(14,064) $ (44,265) $(33,092)
======= ======= ======== ========= ========
OTHER DATA:
Net cash provided by
(used in) operating
activities . . . . . $ 789 $ 4,922 $ (461) $ (21,651) $ (2,130)
Net cash used in
investing activities. (1,028) (11,375) (44,742) (53,992) (9,029)
Net cash provided by
financing activities. 314 27,315 170,294 2,351 1,351
Capital expenditures(3) 1,028 11,143 43,361 53,992 17,258
EBITDA(4):
Domestic . . . . . . 399 1,096 (5,324) (5,091) 11,633
International . . . . -- -- (977) (15,206) (13,367)
------- -------- -------- --------- --------
Total. . . . . $ 399 $ 1,096 $ (6,301) $(20,297) $ (1,734)
======= ======== ======== ========= ========
EBITDA before
restructuring and
related
charges:
Domestic . . . . . . 399 1,096 (5,324) (5,091) 11,633
International . . . . -- -- (977) (15,206) (11,488)
------- -------- -------- --------- --------
Total . . . . . $ 399 $ 1,096 $ (6,301) $ (20,297) $ 145
======= ======== ======== ========= ========
Ratio of earnings to
fixed charges(5) . . . 8.7x -- -- -- --
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<PAGE>
AT
DECEMBER
31,
1997
----------
(IN
THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents . . . . . . . . . . . . $ 63,368
Working capital . . . . . . . . . . . . . . . . . 38,698
Property and equipment, net . . . . . . . . . . . 72,945
Total assets . . . . . . . . . . . . . . . . . . 146,847
Short-term capital lease obligations . . . . . . 2,491
Long-term capital lease obligations, net of
current portion . . . . . . . . . . . . . . . . 3,550
Common stock and additional paid-in capital . . . 207,325
Accumulated deficit . . . . . . . . . . . . . . . (95,134)
Stockholders' equity . . . . . . . . . . . . . . 112,335
----------
(1) Results for fiscal 1995 include five months of results of
Professional Internet Consulting, Inc., which was acquired
by NETCOM in August 1995.
(2) Giving pro forma effect to the receipt of the net proceeds
from the Private Offering and interest expense, net on
$300.6 million gross proceeds of Notes, without giving any
effect to any increased interest income on available cash,
as if such events had occurred on January 1, 1997, interest
expense, net would have been $26.6 million for fiscal 1997.
(3) Capital expenditures include assets acquired under capital
leases.
(4) Earnings before interest, taxes, depreciation and
amortization ("EBITDA") is provided because it is a measure
commonly used in the Internet and telecommunications
industries. EBITDA is presented to enhance the understanding
of NETCOM's operating results and is not intended to
represent cash flows or results of operations in accordance
with generally accepted accounting principles ("GAAP") for
the periods indicated. EBITDA is not a measurement under
GAAP and is not necessarily comparable with similarly titled
measures of other companies. Net cash flows from operating,
investing and financing activities as determined using GAAP
are also presented in Other Data.
(5) Earnings were insufficient to cover fixed charges in 1994,
1995, 1996 and 1997 by $.1 million, $14.0 million, $44.2
million and $33.1 million, respectively. On a pro forma
basis giving effect to the Private Offering as if it had
occurred on January 1, 1997 and without giving effect to any
increased interest income on additional available cash,
earnings would have been insufficient to cover fixed charges
by $63.1 million for fiscal 1997. Earnings consist of income
(loss) before provision for income taxes plus fixed charges.
Fixed charges consist of interest charges and amortization
of debt expense and discount or premium related to
indebtedness, whether expensed or capitalized and that
portion of rental expense the Company believes to be
representative of interest (i.e., one-third of rental
expense).
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RISK FACTORS
An investment in the New Notes offered hereby involves a high
degree of risk. The following risk factors, together with the
other information set forth in this Prospectus should be
considered when evaluating an investment in the Company. This
Prospectus includes certain forward-looking statements. The
discussion set forth below contains cautionary statements
identifying important factors including, but not limited to, the
Company's lack of operating history, historical operating losses
of NETCOM and lack of credit support from ICG, that could cause
actual results to differ materially from the forward-looking
statements.
LACK OF OPERATING HISTORY; HISTORICAL OPERATING LOSSES OF NETCOM
The Company has been recently formed, has no operating history
and has only owned NETCOM since January 1998. NETCOM has incurred
and expects to continue to incur significant operating and net
losses for the near term. NETCOM had net losses and EBITDA losses
of approximately $33.1 million and $1.7 million, respectively,
for fiscal 1997. There can be no assurance that the Company will
achieve or sustain profitability or positive EBITDA in the future
or at any time have sufficient resources to make principal and
interest payments on the New Notes. See "Selected Financial
Data," including the notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
LACK OF CREDIT SUPPORT FROM ICG
ICG is a guarantor under the ICG Indentures pursuant to which
ICG's subsidiaries, ICG Holdings, Inc. and ICG Funding, LLC, have
obtained outstanding financing through offerings of senior
discount notes in the aggregate accreted amount of $887.5 million
and redeemable preferred securities with a liquidation value of
$434.6 million at December 31, 1997. The ICG Indentures impose
severe restrictions on the relationship between ICG and its
subsidiaries that are designated by ICG as Unrestricted
Subsidiaries (as defined in the ICG Indentures). The Company is a
wholly owned subsidiary of ICG which has been designated as an
Unrestricted Subsidiary by ICG, and, as a result, ICG and its
Restricted Subsidiaries are prohibited from providing cash or
credit support to the Company or the Company's subsidiaries. ICG
and its Restricted Subsidiaries are also prohibited from engaging
in transactions with the Company or the Company's subsidiaries
other than on an arm's length basis, and if a proposed
transaction exceeds $2 million in value, ICG and its Restricted
Subsidiaries may only participate with the approval of a majority
of the disinterested members of the Board of Directors of ICG or
the written opinion of a nationally recognized investment banking
firm stating that the transaction is fair to ICG from a financial
point of view. These restrictions could impair the Company's
ability to raise capital, enter into arrangements with vendors,
and conduct its business, which could have a material adverse
effect on the Company's business, growth, financial condition and
results of operations and ability to make payments on the New
Notes.
With respect to arrangements that ICG Equipment enters into
with ICG to sell or lease under operating leases, licenses or
rights-of-use for telecommunications equipment, software and
capacity and related services, the Company depends upon ICG for
payments from such transactions. As of December 31, 1997, ICG
had, on a consolidated basis, aggregate accreted indebtedness,
including capitalized lease obligations, of approximately $968.1
million. For the 12 months ended December 31, 1997, ICG had
interest expense of approximately $117.5 million and EBITDA
losses of approximately $123.8 million. In the event ICG were
unable to make payments under such arrangements, it would have a
material adverse effect on the Company's business, financial
condition and results of operations and ability to make payments
on the New Notes. See "Certain Relationships and Related
Transactions" and "Risk Factors -- Certain Financial and
Operating Restrictions."
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SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE DEBT
At December 31, 1997, on a pro forma basis giving effect to
the Private Offering and the acquisition of NETCOM, the Company
would have had, on a consolidated basis, approximately $306.6
million of indebtedness, including capitalized lease obligations.
The accretion of original issue discount on the New Notes will
cause an increase in indebtedness of approximately $65 million by
February 15, 2000. The Indenture permits the incurrence of
substantial amounts of additional indebtedness by the Company and
its subsidiaries. The Company anticipates that it and/or its
subsidiaries may incur substantial additional indebtedness in the
future.
The level of the Company's indebtedness could have important
consequences to holders of the New Notes including the following:
(i) the debt service requirements of any additional indebtedness
could make it more difficult for the Company to make payments on
the New Notes; (ii) the ability of the Company to obtain any
necessary financing in the future for working capital, capital
expenditures, debt service requirements or other purposes may be
limited; (iii) a substantial portion of the Company's cash flow
from operations, if any, must be dedicated to the payment of
principal and interest on its indebtedness and other obligations
and will not be available for other purposes; (iv) the Company's
level of indebtedness could limit its flexibility in planning
for, or reacting to changes in, its business; (v) the Company is
more highly leveraged than some of its competitors, which may
place it at a competitive disadvantage; and (vi) the Company's
high degree of indebtedness will make it more vulnerable in the
event of a downturn in its business.
The Company, on a pro forma basis, has experienced EBITDA
losses. NETCOM's earnings before fixed charges were insufficient
to cover fixed charges for fiscal 1997 by $33.1 million. For the
same period on a pro forma basis after giving effect to the
Private Offering, the Company's earnings before fixed charges
would have been insufficient to cover fixed charges by $63.1
million. In addition, for the same period on the same pro forma
basis, NETCOM's EBITDA minus capital expenditures and interest
expense would have been $49.5 million. There can be no assurance
that the Company will be able to improve its earnings before
fixed charges or that the Company will be able to meet its debt
service obligations, including its obligations on the New Notes.
In the event the Company's cash flow is inadequate to meet its
obligations, the Company could face substantial liquidity
problems. If the Company is unable to generate sufficient cash
flow or otherwise obtain funds necessary to make required
payments, or if the Company otherwise fails to comply with the
various covenants in its indebtedness, it would be in default
under the terms thereof, which would permit the holders of such
indebtedness to accelerate the maturity of such indebtedness and
could cause defaults under other indebtedness of the Company.
Such defaults could result in a default on the New Notes and
could delay or preclude payment of principal of, or interest on,
the New Notes. The ability of the Company to meet its obligations
will be dependent upon the future performance of the Company and
upon receiving payments from ICG which will be subject to
prevailing economic conditions and to financial, business and
other factors, including ICG's results and other factors, beyond
the control of the Company. See "-- Lack of Credit Support from
ICG."
RISKS RELATED TO POTENTIAL REQUIREMENT TO PAY ACCESS CHARGES OR
CONTRIBUTE TO FEDERAL UNIVERSAL FUND
Although the Company is not currently subject to direct
regulation by the Federal Communications Commission ("FCC") or
any other governmental agency, it is possible that the Company
and other ISPs could become subject to regulation by the FCC or
another regulatory agency as a provider of basic
telecommunications services. The FCC is currently considering
whether ISPs should be required to pay access charges to local
telephone companies for each minute that dial-access users spend
connected to ISPs through telephone company switches. In
addition, some telephone companies are seeking relief through
state regulatory agencies. The FCC may also decide that ISPs
should contribute to the federal Universal Service Fund. Such
requirements, if adopted at either the federal or the state
level, would have a material adverse effect on the Company's
business, financial condition and results of operations and its
ability to make payments on the New Notes. See "--Regulation."
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INTEGRATION OF ACQUIRED BUSINESSES
The Company intends to grow through expansion of its existing
operations, integration with ICG and through acquisitions of U.S.
or foreign businesses. The Company's ability to manage its
existing businesses and its anticipated future growth will depend
on its ability to evaluate new markets and investment vehicles,
monitor operations, control costs, maintain effective quality
controls, and significantly expand the Company's internal
management, technical and accounting systems. The Company's
integration with ICG and planned future growth will place a
significant strain on the Company's financial, management and
operational resources, including the identification of
acquisition targets and the negotiation of acquisition
agreements. In addition, acquisitions may entail considerable
expenses in advance of anticipated related revenue and may cause
fluctuations in the Company's operating results.
In addition, upon the acquisition of other businesses, such
acquired businesses will need to be integrated with the Company's
existing businesses and its then existing operations. For
acquired businesses, this may entail, among other things,
integration of switching, transmission, technical, sales,
marketing, billing, accounting, quality control, management,
personnel, payroll, regulatory compliance and other systems and
operating hardware and software, some or all of which may be
incompatible. The Company may also need to address cultural,
linguistic and legal concerns for acquired foreign businesses.
The failure to effectively integrate acquired businesses could
have a material adverse effect on the Company's business, growth,
financial condition and results of operations and ability to make
payments on the New Notes.
The Company expects to use a portion of the proceeds of the
Private Offering to continue acquiring telecommunications,
Internet and related businesses that complement ICG's business
strategy to offer a wide array of telecommunications, Internet
and related services, primarily to communications intensive
business customers. Acquisition targets could include U.S. or
foreign CLECs, ISPs and long distance companies, among others.
The Company intends to make future acquisitions primarily through
the use of ICG Common Stock, cash on hand and the proceeds from
securities offerings.
The Company may in the future experience a strain on its
management, operations and financial resources as a result of
growth and acquisitions. The Company's ability to effectively
manage growth will require it to continue to implement and
improve its operational, financial and management information
systems and to train, motivate and manage its employees, as well
as to expand its existing direct access services business. These
demands will require the addition of new management personnel and
the development of additional expertise by existing management.
In particular, the demands on NETCOM's data communications
infrastructure and customer support resources have grown rapidly
with NETCOM's changing subscriber base, and NETCOM may experience
difficulties meeting the demand for its connectivity services.
Capacity constraints may occur, both at the level of particular
local access numbers and in connection with system-wide services
that are provided from NETCOM's NOCs. NETCOM has experienced
difficulties in providing an adequate level of customer service
and support, and has been taking steps to improve its data
communications infrastructure and customer support resources. A
failure to enhance customer support resources adequately, or to
expand and enhance its data communications infrastructure
adequately, may materially adversely affect the Company's
business, operating results, financial condition and ability to
make payments on the New Notes. There can be no assurance that
the Company's customer support or other resources will be
sufficient to manage any future growth in its business or that
NETCOM will be able to implement in whole or in part its
expansion program, and any failure to do so could have a material
adverse effect on the Company's business, operating results,
financial condition and its ability to make payments on the New
Notes.
Although the Company expects to invest significant resources
in NETCOM's data communications infrastructure and customer
support resources, NETCOM continues to experience attrition of
its subscribers from time to time as a result of a number of
factors, including difficulties associated with management of
growth and the shift of its focus to business customers. There
can be no assurance that the Company will be able to improve its
ability to retain subscribers or to attract sufficient new
subscribers to offset periodic losses of existing subscribers.
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COMPETITION
The market for Internet access and related services is highly
competitive. There are no substantial barriers to entry and the
Company anticipates that competition will continue to intensify
as the use of the Internet grows. The tremendous growth and
potential market size of the Internet access market has attracted
many new start-ups as well as existing businesses from different
industries. Current and prospective competitors include, in
addition to other national, regional and local ISPs, long
distance and local exchange telecommunications companies, cable
television, direct broadcast satellite, wireless communications
providers, and on-line service providers.
ISPs. According to industry sources, there are over 4,300 ISPs
in the United States and Canada as of October 31, 1997,
consisting of national, regional and local providers. The
Company's current primary competitors include other ISPs with a
significant national presence which focus on business customers,
such as UUNet Technologies, Inc. ("UUNet"), Bolt, Beranek &
Newman, Inc. ("BBN") and Performance Systems International,
Inc.("PSINet"). While the Company believes that its level of
local service and support and target market focus distinguish it
from these competitors, many of these competitors have
significantly greater market share, brand recognition, and
financial, technical and personnel resources than the Company.
The Company also competes with unaffiliated regional and local
ISPs in its targeted geographic regions.
Telecommunications Carriers. The major long distance companies
(also known as interexchange carriers or IXCs), including AT&T
Corporation ("AT&T"), MCI Communications Corp. ("MCI"), and
Sprint Corporation ("Sprint"), offer Internet access services and
compete with the Company. The recent sweeping reforms in the
federal regulation of the telecommunications industry have
created greater opportunities for ILECs, including the RBOCs and
other competitive CLECs, to enter the Internet connectivity
market. In order to address the Internet connectivity
requirements of the business customers of long distance and local
carriers, the Company believes that there is a move toward
horizontal integration by ILECs through acquisitions or joint
ventures with and the wholesale purchase of connectivity from
ISPs. The WorldCom, Inc. ("WorldCom")/MFS Communications,
Inc./UUNet consolidation and GTE Corporation's ("GTE") recent
acquisition of BBN are indicative of this trend. Accordingly, the
Company expects that it will experience increased competition
from the traditional telecommunications carriers. Many of these
telecommunications carriers, in addition to their substantially
greater network coverage, market presence, and financial,
technical and personnel resources, also have large existing
commercial customer bases.
Cable Companies, Direct Broadcast Satellite and Wireless
Communications Companies. Many of the major cable companies have
announced that they are exploring the possibility of offering
Internet connectivity, relying on the viability of cable modems
and economical upgrades to their networks. Continental
Cablevision, Inc. and Tele-Communications, Inc. ("TCI") have
recently announced trials to provide Internet cable service to
their residential customers in select areas. However, the cable
companies are faced with large-scale upgrades of their existing
plant equipment and infrastructure in order to support
connections to the Internet backbone via high-speed cable access
devices. Additionally, their current subscriber base and market
focus is residential which requires that they partner with
business-focused providers or undergo massive sales and marketing
and network development efforts in order to target the business
sector. Several announcements also have recently been made by
other alternative service companies approaching the Internet
connectivity market with various wireless terrestrial and
satellite-based service technologies. These include Hughes
Network Systems' announcement that it will provide high-speed
data through direct broadcast satellite technology; CAI Wireless
Systems Inc.'s ("CAI Wireless") announcement of an MMDS wireless
cable operator launching data services via 2.5 to 2.7 GHz and
high-speed wireless modem technology; and WinStar Communications,
a 38 GHz radio company that wholesales its network capacity to
other carriers and now offers high-speed Internet access to
business customers.
On-line Service Providers. The dominant on-line service
providers, including Microsoft Network, America Online,
Incorporated ("America Online"), Compuserve, Inc. ("Compuserve")
and Prodigy, Inc., ("Prodigy") have all entered the Internet
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access business by engineering their current proprietary networks
to include Internet access capabilities. The Company competes to
a lesser extent with these service providers, which currently are
primarily focused on the consumer marketplace and offer their own
content, including chat rooms, news updates, searchable reference
databases, special interest groups and shopping. While Compuserve
recently announced it will also target Internet connectivity for
the small to medium-sized business market, this will require a
significant transition from a consumer market focus to a business
market focus.
The Company believes that its ability to attract business
customers and to market value-added services are keys to its
future success. However, there can be no assurance that its
competitors will not introduce similar pricing plans at
comparable or more attractive prices in the future or that the
Company will not be required to reduce its prices to match
competition. Recently, many competitive ISPs have shifted their
focus from individual customers to business customers. Moreover,
there can be no assurance that more of the Company's competitors
will not shift their focus to attracting business customers,
resulting in even more competition for the Company. There can be
no assurance that NETCOM will be able to offset the effects of
any such competition or resulting price reductions through an
increase in the number of its subscribers, higher revenue from
enhanced services, cost reductions or otherwise. Increased
competition could result in erosion of NETCOM's market share and
adversely affect NETCOM's operating results.
Increased competition has resulted and could continue to
result in significant reductions in the average selling price of
NETCOM's services. In addition, NETCOM expects to see increased
pressure to obtain and retain additional subscribers that could
result in increased sales and marketing expenses and related
subscriber acquisition costs, which could materially adversely
affect NETCOM's rate of customer churn and operating results.
Certain of the Company's on-line competitors, including America
Online, the Microsoft Network, Compuserve and Prodigy, have
introduced unlimited access to the Internet and their proprietary
content at flat rates as low as $9.95 per month. Certain of the
RBOCs have also introduced competitive flat-rate pricing for
unlimited access (without a set-up fee for at least some period
of time). As a result, competition for active users of Internet
services has intensified. There can be no assurance that the
Company's competitors will not introduce more attractive prices
in the future or that the Company will not be required to reduce
its prices to match competition. There can be no assurance that
NETCOM will be able to offset the effects of any such competition
or resulting price reductions through an increase in the number
of its subscribers, higher revenue from enhanced services, cost
reductions or otherwise. Increased competition could result in
erosion of the Company's market share and adversely affect the
Company's operating results and ability to make payments on the
New Notes. There can be no assurance that the Company will have
financial resources, technical resources, technical expertise or
marketing and support capabilities to continue to compete
successfully.
HOLDING COMPANY STRUCTURE; PRIORITY OF CREDITORS
The Company is a holding company. The principal assets of the
Company consist of common stock of NETCOM and will consist of
common stock of other subsidiaries upon any future acquisitions.
The Company must rely upon dividends and other payments from its
subsidiaries to generate the funds necessary to meet its
obligations, including the payment of principal of and interest
on the New Notes. The subsidiaries, however, are legally distinct
from the Company and have no obligation, contingent or otherwise,
to pay amounts due pursuant to the New Notes or to make funds
available for such payment. The Company's subsidiaries will not
guarantee the New Notes. The ability of the Company's
subsidiaries to make such payments to the Company will be subject
to, among other things, the availability of funds, the terms of
such subsidiaries' indebtedness and applicable state laws. The
Indenture will permit the Company's subsidiaries to incur
substantial amounts of additional indebtedness and will allow
that indebtedness to be secured with the assets of the
subsidiaries (which constitute substantially all of the Company's
consolidated assets). In addition, lenders to subsidiaries may
impose restrictions on those subsidiaries' ability to make
payments to the Company. Claims of creditors of the Company's
subsidiaries, including trade creditors, will generally have
priority as to the assets of such subsidiaries over the claims of
the Company and the holders of the Company's indebtedness,
including the New Notes. Accordingly, the New Notes will be
effectively subordinated to the liabilities (including trade
payables) of the subsidiaries of the Company. At December 31,
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1997, on a pro forma basis giving effect to the Private Offering
and the acquisition of NETCOM, the subsidiaries of the Company
would have had approximately $34.5 million of liabilities
(excluding intercompany payables), including approximately $6.0
million of indebtedness, consisting solely of capitalized lease
obligations. In addition, the Indenture will permit the Company
and its Restricted Subsidiaries to make substantial investments
in entities they do not control, including an unlimited amount of
investments in CSW/ICG ChoiceCom, L.P. ("ChoiceCom"), a new
telecommunications company in Texas that has a strategic
relationship with ICG.
The New Notes will be senior, unsecured indebtedness of the
Company. At December 31, 1997, on a pro forma basis giving effect
to the acquisition of NETCOM and the Private Offering, the
Company would have had, on a consolidated basis, an aggregate of
approximately $306.6 million of secured indebtedness, including
capitalized lease obligations. In the event such secured
indebtedness goes into default and the holders thereof foreclose
on the collateral, the holders of secured indebtedness will be
entitled to payment out of the proceeds of their collateral prior
to any holders of general unsecured indebtedness, including the
New Notes, notwithstanding the existence of any event of default
with respect to the New Notes. The Indenture also permits the
Company and its subsidiaries to incur substantial amounts of
additional secured indebtedness and to grant additional liens.
See "Description of the New Notes -- Covenants." In the event of
bankruptcy, liquidation or reorganization of the Company, holders
of secured indebtedness will have a claim, prior to the claim of
the holders of the New Notes, on the assets of the Company
securing such indebtedness. In addition, to the extent that the
value of such collateral is insufficient to satisfy such secured
indebtedness, holders of amounts remaining outstanding on such
secured indebtedness (as well as other unsubordinated creditors
of the Company) would be entitled to share pari passu with the
holders of New Notes with respect to any other assets of the
Company. Assets remaining after satisfaction of the claims of
holders of secured indebtedness may not be sufficient to pay
amounts due or any or all of the New Notes then outstanding.
RISKS RELATED TO CHANGE IN CUSTOMER FOCUS TO ATTRACT BUSINESS
CUSTOMERS
In January 1997, NETCOM announced plans to migrate its
customer focus away from high volume, low margin consumer
customers to higher margin products for small and medium-sized
business customers. Although NETCOM has increased the number of
its direct access business customers and its revenue per customer
in 1997, and expects to invest significant resources to continue
to increase the number of direct access business customers and
its revenue per customer, there can be no assurance that the
Company will be able to continue to increase the number of its
direct access business customers or its revenue per customer in
the future. Furthermore, many of the Company's competitors have
shifted their focus to pursue business customers. There can be no
assurance that more competition for business accounts will not
lead to a significant slowdown in the growth of, or a decrease
in, the Company's direct access business customers or its revenue
per customer, and such slowdown or decrease could have a material
adverse effect on the Company's business, financial condition and
results of operations and its ability to make payments on the New
Notes.
DEPENDENCE UPON NEW AND ENHANCED SERVICES
NETCOM has recently introduced new enhanced business
connectivity solutions services, including NETCOMplete packages
offering customers anti-virus file conversion, support, E-mail
access, data storage, Automatic Reconnect and other premium,
higher-priced services. The failure of these services to gain
market acceptance in a timely manner or at all could have a
material adverse effect on the business, financial condition and
results of operations of the Company and its ability to make
payments on the New Notes. Introduction by NETCOM of new or
enhanced services with reliability, quality or compatibility
problems could significantly delay or hinder market acceptance of
all of NETCOM's services, which would adversely affect the
Company's ability to attract new customers and subscribers. The
Company's services may contain undetected errors or defects when
first introduced or when enhancements are introduced. There can
be no assurance that, despite testing by NETCOM and its
customers, errors will not be found in new services after
commencement of commercial deployment, resulting in additional
development costs, loss of, or delays in, market acceptance,
diversion of technical resources and loss of subscribers. Any
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such event would have a material adverse effect on the Company's
business, financial condition and results of operations and its
ability to make payments on the New Notes.
RISKS RELATED TO INTERNET TELEPHONE BUSINESS AND HIGH-SPEED DATA
TRANSMISSION SERVICES BUSINESS
In March 1998, ICG and NETCOM announced their plans to offer
long distance services via IP technology. Furthermore, ICG and
NETCOM plan to offer high-speed data transmission services via
DSL technology to all business and end user customers within
ICG's existing regional clusters by the end of fiscal 1998. ICG
and NETCOM anticipate expending significant capital and operating
costs in connection with providing such services and will have to
address issues concerning commercial use of such services,
including security, reliability, ease of access and quality of
service. For example, IP technology may cause poor quality voice
transmission and DSL technology may cause interference with and
be interfered by other signals present in ILEC's copper
transmission facilities. There can be no assurance that ICG and
NETCOM will be able to successfully resolve such issues and
market, sell and deliver these services. Because long distance
services using IP technology and high-speed data transmission
services using DSL technology are relatively new and evolving, it
is difficult to predict their future growth and size. If the
markets for such services to be offered by ICG and the Company,
through NETCOM, fail to grow or grow more slowly than
anticipated, such events could have a material adverse effect on
the Company and its ability to make payments on the New Notes.
Although the Company is not currently subject to direct
regulation by the FCC or any other governmental agency, it is
possible that the Company and other ISPs could become subject to
regulation by the FCC or another regulatory agency as a provider
of basic telecommunications services. The FCC is currently
considering whether ISPs should be required to pay access charges
to local telephone companies for each minute that dial-access
users spend connected to ISPs through telephone company switches.
In addition, some telephone companies are seeking relief through
state regulatory agencies. The FCC may also decide that ISPs
should contribute to the federal Universal Service Fund. Such
requirements, if adopted at either the federal or the state
level, would have a material adverse effect on ICG and NETCOM's
abilities to implement their long distance services via IP
technology and high-speed data transmission services via DSL
technology, or if implemented, to profitably sell such services,
and the Company's ability to make payments on the New Notes. See
"--Regulation."
POTENTIAL LIABILITY FOR CONTENT
The Communications Decency Act (the "Act"), which was passed
as part of the Federal Telecommunications Act of 1996, imposed
criminal penalties on anyone who distributes obscene, lascivious
or indecent communications on the Internet. As enacted, the Act
imposed fines on any entity that (i) by means of a
telecommunications device, knowingly sends indecent or obscene
material to a minor; (ii) by means of an interactive computer
service, sends or displays indecent material to a minor; or (iii)
permits any telecommunications facility under such entity's
control to be used for the foregoing purposes. That provision, as
applied to indecent material, was declared unconstitutional in
June 1997 by the United States Supreme Court. While the Clinton
Administration has announced that it will not seek passage of
similar legislation to replace this provision, action by Congress
in this area remains possible. Prior to the enactment of the Act,
a federal district court held that an ISP could be found liable
for defamation on the grounds that it exercised active editorial
control over postings to its service. The Act contains a
provision which, one court has held, shields ISPs from such
liability for material posted to the Internet by their
subscribers or other third parties.
The applicability to the Internet of existing laws governing
issues such as property ownership, libel and privacy is
uncertain. For example, in 1996 NETCOM settled a lawsuit alleging
copyright infringement against NETCOM relating to electronic
messages posted by an unrelated individual to a bulletin board
service operated by one of NETCOM's customers. New legislation or
regulation with respect to content could have a material adverse
effect on the Company's business, results of operations,
financial condition and ability to make payments on the New
Notes.
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As the law in this area develops, the potential that liability
might be imposed on the Company for information carried on or
disseminated through its network could require the Company to
implement measures to comply with applicable law and reduce its
exposure to such liability, which could require the expenditure
of substantial resources or the discontinuation or modification
of certain service offerings. Any costs incurred as a result of
such expenditures or in contesting any such asserted claims, the
consequent imposition of liability, or any adverse publicity
resulting from any of the foregoing, could have a material
adverse affect on the Company and its ability to make payments on
the New Notes.
DEPENDENCE ON BILLING, CUSTOMER SERVICE AND INFORMATION SYSTEMS
Sophisticated information and processing systems are vital to
the Company's growth and its ability to monitor costs, bill
customers, provision customer orders and achieve operating
efficiencies.
NETCOM's billing and information systems are primarily
products and services provided by third party vendors. These
systems have generally met NETCOM's historical needs, primarily
due to a relatively low volume of customer accounts requiring
complex billing requests. However, information systems are vital
as NETCOM expects to offer numerous products and services at
varying prices. Additionally, NETCOM expects the amount of
customers with more complex billing requests in general to
increase. NETCOM is currently evaluating a billing platform based
upon an information system purchased from a third party vendor
with internal enhancements to meet NETCOM's needs. The failure of
(i) the Company's vendors to deliver proposed products and
services in a timely and effective manner, (ii) the Company to
adequately identify all of its information and processing needs
or (iii) the Company to upgrade systems as necessary, could have
a material adverse impact on the ability of NETCOM to reach its
objectives, and on the Company's financial condition and results
of operations and ability to make payments on the New Notes.
While the Company believes that its software applications are
year 2000 compliant, there can be no assurance until the year
2000 occurs that all systems will then function adequately.
Further, if the software applications of local exchange carriers,
long distance carriers or others on whose services the Company
depends are not year 2000 compliant, it could have a material
adverse effect on the Company's financial condition and results
of operations and ability to make payments on the New Notes.
KEY PERSONNEL
The efforts of a small number of key management and operating
personnel will largely determine the Company's success. The
success of the Company also depends in part upon its ability to
hire and retain highly skilled and qualified operating,
marketing, financial and technical personnel. The competition for
qualified personnel in the telecommunications and Internet access
services industries is intense and, accordingly, there can be no
assurance that the Company will be able to hire or retain
necessary personnel. The competition for qualified computer
programmers and engineers is particularly intense in the "Silicon
Valley" area of California, where NETCOM's operations are based.
The Company may be compelled to offer substantially increased
compensation and benefits packages to attract and retain computer
programmers and engineers. The loss of certain key personnel or
the failure of the Company to attract and retain qualified
personnel could adversely affect the Company and its ability to
make payments on the New Notes.
RAPID TECHNOLOGICAL CHANGE
NETCOM's success is highly dependent upon its ability to
develop new services and software that meet changing customer
requirements. The market for NETCOM's services is characterized
by rapidly changing technology, evolving industry standards,
emerging competition and frequent new software, service and
product introductions. There can be no assurance that NETCOM can
successfully identify new service opportunities and develop and
bring new services and software to market in a timely manner, or
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that services, software or technologies developed by others will
not render NETCOM's services, software or technologies
noncompetitive or obsolete. NETCOM is also at risk of fundamental
changes in the way Internet access services are delivered. New
industry standards have the potential to replace or provide
lower-cost alternatives to the Company's existing services. The
adoption of such new industry standards could render the
Company's existing services obsolete and unmarketable or require
reduction in the fees charged therefor. For example, the
Company's services currently rely on the widespread commercial
use of Transmission Control Protocol/ Internet Protocol
("TCP/IP"). Alternative open and proprietary standards that
compete with TCP/IP, including proprietary protocols developed by
International Business Machines Corporation and Novell, Inc. have
been or are being developed. The widespread acceptance of these
or other protocols could have a material adverse effect on the
Company.
The Company's business is also sensitive to fundamental
changes in the method of Internet access delivery. Currently, the
Internet is accessed primarily via computers connected by
telephone lines. A number of alternative methods for users to
connect to the Internet, including cable modems, satellites and
other wired and wireless telecommunications technologies,
currently are under development. As the Internet becomes
accessible through these technologies, or as user requirements as
to access methods change, the Company will have to develop new
technology or modify its existing technology. The Company's
pursuit of these technological advances may require substantial
time and expense, and there can be no assurance that the Company
will succeed in adapting its Internet access business to
alternate access methods. Any failure on the part of the Company
to identify, adopt and use new technologies effectively, to
develop its technological capabilities or to develop new services
or enhance existing services in a timely and cost-effective
manner could have a material adverse effect on the Company and
its ability to make payments on the New Notes.
ISPs participate in the Internet through contractual "peering
arrangements" with Internet companies. These contractual
arrangements are not subject to regulation and could be subject
to revision in terms, conditions or costs over time.
As the industry evolves, required technological advances by
NETCOM could include compression, full-motion video, and
integration of video, voice, data and graphics. NETCOM's pursuit
of these technological advances may require substantial time and
expense, and there can be no assurance that NETCOM will succeed
in adapting its Internet service business to alternate access
devices and conduits.
DEPENDENCE ON THE INTERNET; UNCERTAIN ADOPTION OF INTERNET AS A
MEDIUM OF COMMERCE AND COMMUNICATIONS
The Company's products and services are targeted toward users
of the Internet, which has experienced rapid growth. As is
typical in the case of a new and rapidly evolving industry
characterized by rapidly changing technology, evolving industry
standards and frequent new product and service introductions,
demand and market acceptance for recently introduced products and
services are subject to a high level of uncertainty. In addition,
critical issues concerning the commercial use of the Internet
remain unresolved and may impact the growth of Internet use,
especially in the business market targeted by the Company.
Despite growing interest in the many commercial uses of the
Internet, many businesses have been deterred from purchasing
Internet access services for a number of reasons, including,
among others, inconsistent quality of service, lack of
availability of cost-effective, high-speed options, a limited
number of local access points for corporate users, inability to
integrate business applications on the Internet, the need to deal
with multiple and frequently incompatible vendors, inadequate
protection of the confidentiality of stored data and information
moving across the Internet, and a lack of tools to simplify
Internet access and use. In particular, numerous published
reports have indicated that a perceived lack of security of
commercial data, such as credit card numbers, has significantly
impeded commercial exploitation of the Internet to date, and
there can be no assurance that encryption or other technologies
will be developed that satisfactorily address these security
concerns. Published reports have also indicated that capacity
constraints caused by growth in the use of the Internet may,
unless resolved, impede further development of the Internet to
the extent that users experience delays, transmission errors and
other difficulties. Further, the adoption of the Internet for
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commerce and communications, particularly by those individuals
and enterprises that have historically relied upon alternative
means of commerce and communication, generally requires the
understanding and acceptance of a new way of conducting business
and exchanging information. In particular, enterprises that have
already invested substantial resources in other means of
conducting commerce and exchanging information may be
particularly reluctant or slow to adopt a new strategy that may
make their existing personnel and infrastructure obsolete. The
failure of the market for business-related Internet solutions to
continue to develop would adversely impact the Company's
business, financial condition and results of operations and
ability to make payments on the New Notes.
NETCOM's current customer base consists primarily of
individuals and small and medium-sized businesses, and the
Company's success will depend in part upon the continuing
development and expansion of the Internet and the market for
Internet access. While Internet access may afford businesses with
a convenient and inexpensive resource of business-related
information, Internet access also enables the end user, including
an employee of a small or medium-sized business, to access a wide
variety of non-business related information and/or recreational
material that may distract the end user from his or her work-
related responsibilities. Therefore, there may be a risk that
such abuse of Internet access by employees resulting in decreased
productivity of these employees could cause business demand for
Internet services to decrease. There is also the risk that the
perceived potential for abuse of Internet access privileges by
employees could prevent otherwise interested businesses from
subscribing to, or expanding their subscriptions with, NETCOM,
which could have a material adverse effect on the Company's
business, operating results and financial condition and ability
to make payments on the New Notes.
DEPENDENCE ON DISTRIBUTION AND MARKETING RELATIONSHIPS
NETCOM believes that its success in penetrating markets for
its Internet connectivity services depends in large part on its
ability to maintain and develop additional relationships with
leading companies that market computer products and to cultivate
alternative relationships if distribution channels change. NETCOM
has entered into original equipment manufacturer ("OEM")
agreements, distribution agreements, and other agreements with a
number of such companies. In addition, the Company will enter
into agreements relating to the marketing of NETCOM's products
and services by ICG's sales force. The termination or
renegotiation of certain of these relationships could have a
material adverse effect on NETCOM. All of these agreements are
nonexclusive, and many of the companies with which NETCOM has
agreements also have similar agreements with NETCOM's
competitors. In addition, there can be no assurance that NETCOM's
distributors and OEMs with which NETCOM has relationships, many
of which have significantly greater financial and marketing
resources than NETCOM, will not develop and market products in
competition with NETCOM in the future, discontinue their
relationships with NETCOM or form additional competing
arrangements with NETCOM's competitors.
RISKS RELATED TO INTERNATIONAL VENTURES
NETCOM began offering Internet services in the United Kingdom
and Canada through its international subsidiaries in 1995 and may
seek to acquire additional businesses outside of the United
States. There can be no assurance that the Company will be able
to successfully market, sell and deliver its services in the
United Kingdom, Canada or other international markets that it may
decide to enter in the future. In addition, there are certain
significant risks inherent in doing business on an international
level, such as laws governing content that differ greatly from
those in the United States, unexpected changes in regulatory
requirements, political risks, export restrictions, tariffs and
other trade barriers, fluctuations in currency exchange rates,
and issues regarding intellectual property and potentially
adverse tax consequences, any or all of which could impact the
Company's international operations. NETCOM's EBITDA losses for
its international operations for fiscal 1997 were $13.4 million.
DEPENDENCE ON SUPPLIERS
NETCOM relies on other companies to provide data
communications capacity via leased telecommunications lines. If
NETCOM's suppliers are unable or unwilling to provide or expand
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its current levels of service to NETCOM in the future, NETCOM's
operations would be materially adversely affected. Although
leased telecommunications lines are available from several
alternative suppliers, including ICG, there can be no assurance
that NETCOM could obtain substitute services from other providers
at reasonable or comparable prices or in a timely fashion. NETCOM
is also subject to risks relating to potential disruptions in its
suppliers' services, and there are no assurances that such
interruptions will not occur in the future. Service interruptions
can produce substantial customer dissatisfaction and lead to
higher rates of customer churn.
NETCOM is also dependent on certain third party suppliers of
software and hardware components. Although NETCOM attempts to
maintain a minimum of two vendors for each required product,
certain components used by NETCOM in providing its networking
services are currently acquired from only one source, including
high performance routers manufactured by Cisco Systems, Inc.
("Cisco"), modems manufactured by U.S. Robotics Corporation
("U.S. Robotics"), switches manufactured by Cascade
Communications, Inc. ("Cascade") and servers from Sun
Microsystems, Inc. ("Sun Microsystems"). NETCOM has also from
time to time experienced delays in the receipt of certain
software and hardware components. A failure by a supplier to
deliver quality products on a timely basis, or the inability to
develop alternative sources if and as required, could result in
delays that could materially adversely affect the Company's
business, operating results and financial condition and ability
to make payments on the New Notes.
DEPENDENCE ON NETWORK INFRASTRUCTURE; RISK OF SYSTEM FAILURE;
SECURITY RISKS
The future success of NETCOM's business will depend upon the
capacity, reliability and security of its network infrastructure.
NETCOM has in the past experienced network problems and network
slowdowns due to limited server capacity in NETCOM's NOCs. NETCOM
is currently implementing systems and processes in order to
address these problems and improve NETCOM's service generally.
NETCOM must continue to expand and adapt its network
infrastructure as the amount of information NETCOM wishes to
transfer increases and to meet changing customer requirements.
The expansion and adaptation of NETCOM's network infrastructure
will require substantial financial, operational and management
resources. There can be no assurance that NETCOM will be able to
expand or adapt its network infrastructure to meet additional
demand or its changing customer requirements on a timely basis,
at a commercially reasonable cost, or at all, or that NETCOM will
be able to deploy successfully the contemplated network
expansion. Any failure of NETCOM to expand its network
infrastructure on a timely basis or to adapt it to changing
customer requirements or evolving industry standards could have a
material adverse effect on the Company's business, operating
results and financial condition and ability to make payments on
the New Notes.
NETCOM's operations are dependent on its ability to protect
its computer equipment against damage from fire, earthquakes,
power loss, telecommunications failures and similar events. A
significant portion of NETCOM's computer equipment is located at
its NOCs and NETCOM is subject to significant risk to NETCOM's
operations from a natural disaster or other unanticipated event
at one of these sites. Any damage or failure that causes
interruptions in NETCOM's operations could have a material
adverse effect on the Company's business, operating results,
financial condition and ability to make payments on the New
Notes.
Despite the implementation of security measures, NETCOM's
infrastructure is also vulnerable to computer viruses or similar
disruptive problems caused by its customers or other Internet
users. Computer viruses or problems caused by third parties could
lead to interruptions, delays or cessation in service to NETCOM's
customers. Furthermore, inappropriate use of the Internet by
third parties could also potentially jeopardize the security of
confidential information stored in the computer systems of
NETCOM's customers and could also cause dissemination of
unwanted, inappropriate or objectionable materials to NETCOM's
customers, any of which may deter certain persons from
subscribing to NETCOM's services.
Any network malfunction or security breach could cause
commercial transactions to be delayed, not completed or completed
with compromised security. Although the Company intends to
continue to implement and maintain security measures, such
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measures have been circumvented in the past and may be defeated
in the future. Alleviating problems caused by computer viruses or
other inappropriate uses or security breaches may cause
interruptions, delays or cessation in service to the Company's
subscribers, which could have a material adverse effect on the
Company. In addition, there can be no assurance that subscribers
or others will not assert claims of liability against the Company
as a result of these events. Further, until more comprehensive
security technologies are developed and implemented, security and
privacy concerns of existing and potential subscribers may
inhibit the growth of the Internet access services industry in
general and of the Company's user base in particular.
REGULATION
The Company provides Internet access services in part through
data transmissions over public telephone lines. These
transmissions are governed by regulatory policies establishing
charges and terms for wire-line communications. Although the
Company is not currently subject to direct regulation by the FCC
or any other governmental agency (other than regulations
applicable to businesses generally), due to the increasingly
widespread use of the Internet, it is possible that additional
laws and regulations may be adopted with respect to the Internet,
covering issues such as content, user privacy, pricing, libel,
intellectual property protection and infringement, and technology
export and other controls. It also is possible that the Company
could become subject to regulation by the FCC or another
regulatory agency as a provider of basic telecommunications
services. The FCC is currently reviewing its regulatory positions
to impose common carrier regulation on the network transport and
communications facilities aspects of an enhanced or information
service package. Such changes in the regulatory structure and
environment affecting the Internet access market, including
regulatory changes that directly or indirectly affect
telecommunications costs or increase the likelihood of
competition from the RBOCs or other telecommunications companies,
could have an adverse effect on the Company's business. For
example, the FCC is considering whether ISPs should be required
to pay access charges to local telephone companies for each
minute that dial-access users spend connected to ISPs through
telephone company switches. In addition, some telephone companies
are seeking similar relief through state regulatory agencies and
have raised this issue before the Eighth Circuit Court of
Appeals. The FCC may also decide that ISPs should pay access
charges and/or contribute to the federal Universal Service Fund.
However, in a recent Report on Universal Service sent to Congress
by the FCC on April 10, 1998, the FCC reaffirmed its view that as
a general matter ISPs are information services providers and not
telecommunications carriers, and reiterated that information
services providers are not subject to universal service
obligations, access charges or rate regulation. Additionally,
the Report declines to make any definitive pronouncements on
whether various new services, such as certain forms of Internet
telephone services, should be classified as information services
or telecommunications services. Instead, the FCC deferred
consideration of that issue to future proceedings. If adopted at
either the federal or state level, new requirements that ISPs pay
access charges and/or contribute to the Universal Service Fund
could have a material adverse effect on the Company and its
ability to make payments on the New Notes. The Company cannot
predict the impact, if any, that future regulation or regulatory
changes may have on its business.
Certain states have deemed the provision of Internet services
to be taxable and, in such states, NETCOM collects such taxes
from its customers. Other states have not yet announced a policy
in this regard or have affirmatively decided that such services
are not taxable. If such states retroactively subject the
provision of Internet services to sales tax or if customers are
unwilling to pay sales tax that may be assessed in the future,
such events could have a material adverse effect on the Company
and its ability to make payments on the New Notes.
RISKS RELATING TO CUSTOMER CHURN
ISPs are subject to substantial customer "churn," the term
used for customer turnover through cancellations. High churn
rates may indicate customer dissatisfaction with the ISP and may
cause the ISP to incur substantial costs to retain existing
customers and attract new customers. Any substantial increase in
NETCOM's churn rate could have a material adverse effect on the
Company's business, operating results, financial condition and
its ability to make payments on the New Notes.
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<PAGE>
CONTROL BY ICG
ICG owns all of the Company's issued and outstanding capital
stock and thus has complete voting control over the corporate
governance of the Company, including the election of the
Company's Board of Directors and other corporate actions
requiring stockholder approval. Certain decisions concerning the
operations or financial structure of the Company may present
conflicts of interest between ICG and the holders of the New
Notes. For example, if the Company encounters financial
difficulties or is unable to pay its debts as they mature, the
interests of ICG might conflict with those of the holders of the
New Notes. In addition, ICG may have an interest is pursuing
certain acquisitions, divestitures, financings or other
transactions that, in its judgment, could enhance its equity
interest in the Company, even though such transactions might
involve risks to the holders of the New Notes. See "Sole
Stockholder of the Company."
LIMITED INTELLECTUAL PROPERTY PROTECTION
NETCOM relies on a combination of copyright and trademark
laws, trade secrets, software security measures, license
agreements and nondisclosure agreements to protect its
proprietary technology and software products. NETCOM currently
has no domestic or foreign patents or patent applications
pending. Despite NETCOM's precautions, it may be possible for
unauthorized third parties to lawfully or unlawfully copy aspects
of, or otherwise obtain and use, NETCOM's software products and
technology. In addition, NETCOM cannot be certain that others
will not develop substantially equivalent or superseding
proprietary technology, thereby substantially reducing the value
of NETCOM's proprietary rights.
From time to time NETCOM has received notices claiming that it
is infringing the proprietary rights of third parties, and there
can be no assurance that NETCOM will not become the subject of
infringement claims or legal proceedings by third parties with
respect to current or future products. Any such claims could be
time consuming, result in costly litigation, cause product
shipment delays or lead NETCOM to enter into royalty or licensing
agreements rather than disputing the merits of such claims.
Moreover, an adverse outcome in such proceedings could subject
NETCOM to significant liabilities to third parties, require
expenditure of significant resources to develop non-infringing
technology, require disputed rights to be licensed from others or
require NETCOM to cease the marketing or use of certain products,
any of which could have a material adverse effect on the
Company's business, operating results and financial condition.
RISKS RELATED TO CSW/CHOICECOM OPTIONS
Pursuant to agreements entered into with affiliates of Central
and South West Corporation ("CSW") in December 1996, as
subsequently revised, relating to ChoiceCom, prior to offering
ISP services in the states of Texas, Oklahoma, Louisiana and
Arkansas, ICG is obligated to offer CSW the right to purchase up
to a 49% interest in the business opportunity providing such
services. Consequently, ICG has offered CSW an option to purchase
up to 49% of that portion of the business of NETCOM that provides
such services in such four-state area (the "ISP Opportunity") at
a price based on the costs and expenses incurred by ICG to
acquire such ISP Opportunity. The Company does not know whether
CSW will exercise this option. If CSW does not exercise this
option, at such time, if ever, that ICG exercises the option it
currently holds to acquire a 50% interest in ChoiceCom, ChoiceCom
will then effectively have the right to acquire 100% of the ISP
Opportunity from ICG at a price equal to ICG's costs and expenses
(including an implied interest rate) incurred with respect to
such ISP Opportunity. As a result, ICG is required to maintain
separate books and records for the ISP Opportunity, and
transactions between the ISP Opportunity and NETCOM's other
operations will be carried out on an arm's length basis.
Additionally, options on substantially the same terms will be
available to CSW and ChoiceCom with respect to all
telecommunications business opportunities in such four-state
area.
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<PAGE>
CERTAIN FINANCIAL AND OPERATING RESTRICTIONS
The Indenture and other indebtedness of the Company impose
operating and financial restrictions on the Company. Such
restrictions affect, and in certain cases significantly limit or
prohibit, among other things, the ability of the Company to incur
additional indebtedness or create liens on its assets, pay
dividends, sell assets, engage in mergers or acquisitions or make
investments. A default under such indebtedness could result in an
acceleration of the Notes, in which case the holders of the New
Notes may not be paid in full.
ORIGINAL ISSUE DISCOUNT; POSSIBLE UNFAVORABLE TAX AND OTHER LEGAL
CONSEQUENCES FOR HOLDERS OF NOTES
The New Notes will be issued at a substantial discount from
their principal amount. Although cash interest will not accrue on
the New Notes prior to February 15, 2003, and there will be no
periodic payments of cash interest on the New Notes prior to
August 15, 2003, original issue discount (the difference between
the stated redemption price at maturity and the issue price of
the New Notes) will accrue from the issue date of the New Notes.
Original issue discount will be includible as interest income
periodically (including for periods ending prior to February 15,
2003) in a U.S. Holder's gross income for U.S. federal income tax
purposes in advance of receipt of the cash payments to which the
income is attributable. See "Certain United States Federal Income
Tax Considerations" for a more detailed discussion of the federal
income tax consequences to the Holders of a New Note regarding
the purchase, ownership and disposition of the Notes.
If a bankruptcy case is commenced by or against the Company
under the U.S. Bankruptcy Code after the issuance of the New
Notes, the claim of a holder of a New Note with respect to the
principal amount thereof may be limited to an amount equal to the
sum of (i) the initial offering price and (ii) that portion of
the original issue discount that is not deemed to constitute
"unmatured interest" for purposes of the U.S. Bankruptcy Code.
Any original issue discount that was not amortized as of any such
bankruptcy filing would constitute "unmatured interest."
LACK OF PUBLIC MARKET
The New Notes are a new issue of securities for which there is
currently no active trading market. If any New Notes are traded
after their initial issuance, they may trade at a discount from
their initial offering price, depending upon prevailing interest
rates, the market for similar securities and other factors,
including general economic conditions and the financial
condition, performance of, and prospects for the Company. There
can be no assurance of an active trading market for any of the
New Notes.
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SELECTED FINANCIAL DATA
The Company is a newly formed Delaware corporation and,
accordingly, no financial statements for the Company have been
included herein. NETCOM is a wholly owned subsidiary of the
Company, acquired in a pooling-of-interests transaction with ICG.
The following table sets forth selected financial and other
operating data of NETCOM, the predecessor to the Company, for
each fiscal year in the five-year period ended December 31, 1997.
Such data have been derived from, and should be read in
conjunction with, NETCOM's audited consolidated financial
statements and notes thereto included elsewhere in this
Prospectus for each of the fiscal years in the three-year period
ended December 31, 1997. NETCOM's development and expansion
activities, including acquisitions, during the periods shown
below materially affect the comparability of this data from one
period to another.
YEARS ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995(1) 1996 1997
---- ---- ------- ---- ----
(IN THOUSANDS, EXCEPT RATIOS)
STATEMENT OF OPERATIONS
DATA:
Revenue . . . . . . . $ 2,412 $12,359 $ 52,422 $ 120,540 $160,660
Costs and expenses:
Cost of revenue . . . 1,133 6,711 36,641 88,396 118,432
Product development . 69 328 2,240 6,020 6,518
Sales and marketing . 371 3,080 18,771 51,237 49,375
General and
administrative . . . 597 2,345 11,016 23,610 22,264
Restructuring and -- -- -- -- 1,879
related charges . . ------- ------- ------ --------- --------
Total costs and
expenses . . . 2,170 12,464 68,668 169,263 198,468
Income (loss) from
operations . . . . . . 242 (105) (16,246) (48,723) (37,808)
(Loss) gain on
investment . . . . . . -- -- -- (1,200) 1,274
Interest and other
(expense) income, (3) 5 2,197 5,681 3,480
net(2) . . . . . . . . ------- ------- ------ --------- --------
Income (loss) before
provision for income
taxes . . . . . 239 (100) (14,049) (44,242) (33,054)
Provision for income
taxes . . . . . . . . (12) -- (15) (23) (38)
------- ------- ------ --------- --------
Net income (loss) . . . $ 227 $ (100) $(14,064) $ (44,265) $(33,092)
======= ======= ======== ========= ========
OTHER DATA:
Net cash provided by
(used in) operating
activities . . . . . $ 789 $ 4,922 $ (461) $ (21,651) $ (2,130)
Net cash used in
investing activities. (1,028) (11,375) (44,742) (53,992) (9,029)
Net cash provided by
financing activities. 314 27,315 170,294 2,351 1,351
Capital expenditures(3) 1,028 11,143 43,361 53,992 17,258
EBITDA(4):
Domestic . . . . . . 399 1,096 (5,324) (5,091) 11,633
International . . . . -- -- (977) (15,206) (13,367)
------- -------- -------- --------- --------
Total. . . . . $ 399 $ 1,096 $ (6,301) $(20,297) $ (1,734)
======= ======== ======== ========= ========
EBITDA before
restructuring and
related
charges:
Domestic . . . . . . 399 1,096 (5,324) (5,091) 11,633
International . . . . -- -- (977) (15,206) (11,488)
------- -------- -------- --------- --------
Total . . . . . $ 399 $ 1,096 $ (6,301) $ (20,297) $ 145
======= ======== ======== ========= ========
Ratio of earnings to
fixed charges(5) . . . 8.7x -- -- -- --
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AT
DECEMBER
31, 1997
----------
(IN
THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents . . . . . . . . . . . $ 63,368
Working capital . . . . . . . . . . . . . . . . 38,698
Property and equipment, net . . . . . . . . . . 72,945
Total assets . . . . . . . . . . . . . . . . . 146,847
Short-term capital lease obligations . . . . . 2,491
Long-term capital lease obligations, net of
current portion . . . . . . . . . . . . . . . . 3,550
Common stock and additional paid-in capital . . 207,325
Accumulated deficit . . . . . . . . . . . . . . (95,134)
Stockholders' equity . . . . . . . . . . . . . 112,335
----------
(1) Results for fiscal 1995 include five months of results of
Professional Internet Consulting, Inc., which was acquired
by NETCOM in August 1995.
(2) Giving pro forma effect to the receipt of the net proceeds
from the Private Offering and interest expense, net on
$300.6 million gross proceeds of Notes, without giving any
effect to any increased interest income on available cash,
as if such events had occurred on January 1, 1997, interest
expense, net would have been $26.6 million for fiscal 1997.
(3) Capital expenditures include assets acquired under capital
leases.
(4) EBITDA is provided because it is a measure commonly used in
the Internet and telecommunications industries. EBITDA is
presented to enhance the understanding of NETCOM's operating
results and is not intended to represent cash flows or
results of operations in accordance with GAAP for the
periods indicated. EBITDA is not a measurement under GAAP
and is not necessarily comparable with similarly titled
measures of other companies. Net cash flows from operating,
investing and financing activities as determined using GAAP
are also presented in Other Data.
(5) Earnings were insufficient to cover fixed charges in fiscal
1994, 1995, 1996 and 1997 by $.1 million, $14.0 million,
$44.2 million and $33.1 million, respectively. On a pro
forma basis giving effect to the Private Offering as if it
had occurred on January 1, 1997 and without giving effect to
any increased interest income on additional available cash,
earnings would have been insufficient to cover fixed charges
by $63.1 million for fiscal 1997. Earnings consist of income
(loss) before provision for income taxes plus fixed charges.
Fixed charges consist of interest charges and amortization
of debt expense and discount or premium related to
indebtedness, whether expensed or capitalized and that
portion of rental expense the Company believes to be
representative of interest (i.e., one-third of rental
expense).
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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, the Company's lack of operating history,
historical operating losses of NETCOM and lack of credit support
from ICG that could cause actual results to differ materially
from the forward-looking statements. See "Risk Factors."
OVERVIEW
The Company was formed in January 1998 and has conducted no
material operations to date other than the acquisition and
operations of NETCOM. See "The Company." Therefore, the following
discussion is a discussion and analysis of the results of
operations and financial condition of NETCOM, the predecessor
business to the Company. The Company's results of operations and
financial condition will change as it consummates acquisitions
and as the operations of ICG Equipment becomes more significant.
NETCOM is a leading provider of high quality Internet
solutions to individual and small and medium-sized businesses in
the United States and also provides the same high quality
Internet solutions in Canada and the United Kingdom. NETCOM
offers a broad spectrum of Internet solutions designed to enhance
customer productivity through the integration and application of
technologies by providing a comprehensive software platform to
interface with the Web, premium quality Internet access and
support services and on-line tools to automate Web site creation
and development.
NETCOM owns and operates a data communications network
consisting of 17 hubs containing frame relay switches and high-
performance routers connecting a backbone of leased ATM switches
and leased high-speed dedicated data lines in the United States,
Canada and the United Kingdom. NETCOM maintains 247 POPs in the
United States and Canada and also offers virtual local access
numbers in Canada and the United Kingdom. The design and
architecture of the physical network permits NETCOM to offer
highly flexible, reliable high-speed services to its customers
and support significant subscriber growth. The NETCOM
infrastructure is monitored by NOCs in San Jose, Dallas, Toronto
and London.
NETCOM derives revenue from dial-up access, direct access
and Web site hosting services. In January 1997, NETCOM announced
plans to migrate its customer focus away from high volume, low
margin consumer customers to higher margin products for small and
medium-sized business customers. However, for fiscal 1997,
revenue from dial-up access, direct access and Web site hosting
services was $133.7 million, $19.5 million and $6.3 million,
respectively, representing approximately 83%, 12% and 4%,
respectively, of NETCOM's total revenue. Direct access customers
typically purchase equipment and generate non-recurring start-up
revenue. This initial non-recurring revenue was approximately 1%
of NETCOM's revenue for fiscal 1997.
Cost of revenue principally consists of labor costs, costs
of leased long distance transmissions capacity, depreciation of
network equipment, customer support costs, costs of equipment
sold to customers and other miscellaneous costs. Transmission
capacity is the largest component. NETCOM acquires transmission
capacity through month-to-month (or longer) leases.
Product development expenses are principally labor costs for
programmers and engineers. These personnel are employed to
integrate NETCOM's software with software of third party vendors
and software and applications used on the Internet. The labor
market for computer programmers is highly competitive and labor
costs for such personnel have increased and is expected to
continue to increase.
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<PAGE>
Sales and marketing expenses consist principally of
commissions and advertising allocations paid to third party
marketing organizations, advertising expenditures made directly
by NETCOM and labor costs of NETCOM's internal sales force. In
future periods, sales and marketing expense is expected to
substantially increase, both in absolute dollars and as a
percentage of revenue.
Historically, NETCOM has not had significant interest
expense. However, as a result of the Private Offering, interest
expense will increase substantially.
The Company expects to acquire telecommunications, Internet
and related businesses that complement ICG's business strategy to
offer a wide array of telecommunications, Internet and related
services primarily to communications-intensive business
customers. Acquisition targets could include U.S. or foreign
CLECs, ISPs and long distance companies, among others. The
Company intends to make future acquisitions primarily through the
use of ICG Common Stock, cash on hand and the proceeds from
securities offerings.
Merger related costs incurred to effect the combination of
NETCOM and ICG include registration fees, costs of furnishing
information to stockholders, fees of finders and consultants,
instituting efficiencies which are necessary to integrate the
continuing operations of the combined corporation and other
costs. All expenses related to effecting the combination will be
recorded as expenses of the resulting combined corporation during
the period in which the combination was consummated (January
1998). The Company believes that total expenses incurred relating
to the merger are approximately $8.3 million, which includes
deferred expenses incurred prior to December 31, 1997,
aggregating approximately $1.5 million.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenue. Revenue increased by $40.1 million, or 33%, to
$160.7 million for the year ended December 31, 1997 from $120.5
million for the year ended December 31, 1996. The revenue
increase was due to an increase in average revenue per customer,
which resulted from an increase in the mix of direct access and
Web site hosting customers relative to dial-up customers, sales
of NETCOM's premium dial-up products and growth in the Internet
market generally. During 1997, NETCOM experienced increases in
dedicated and Web site hosting customers of 200% and 32%,
respectively, and a decrease in dial-up accounts. The
consolidated average revenue per customer increased approximately
20% from 1996 to 1997. The total number of customers decreased by
7% to approximately 539,000 customers as of December 31, 1997
from approximately 580,000 customers as of December 31, 1996. In
January 1997, NETCOM announced plans to migrate its customer
focus away from high volume, low margin consumer customers to
higher margin products for small and medium-sized business
customers. As a result, NETCOM expects that the number of total
subscribers will continue to decline in 1998, while revenue per
customer will continue to increase. However, there can be no
assurance that revenue per customer will continue to increase.
International revenue increased by $10.7 million to $13.2
million for the year ended December 31, 1997 from $2.5 million
for the year ended December 31, 1996. The increase in
international revenue is due to the increased subscriber base for
NETCOM's international operations which began in 1996.
Cost of revenue. Cost of revenue was $118.4 million for the
year ended December 31, 1997 and $88.4 million for the year ended
December 31, 1996, increasing to 74% of revenue from 73% of
revenue, respectively. The increase in cost of revenue during
1997 was primarily attributable to NETCOM's international
expansion, increased network, data communication and depreciation
costs associated with network improvements and with expansion of
NETCOM's operations and customer support staff. Consolidated
gross margin for the years ended December 31, 1997 and December
31, 1996 was 26% and 27%, respectively. Domestic gross margin for
the same period was 29% and 32%, respectively.
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International cost of revenue for the year ended December
31, 1997 was $13.6 million, an increase of $5.9 million over the
year ended December 31, 1996. The increase in international cost
of revenue in absolute dollars is due primarily to increased
network and payroll related costs. NETCOM expects that cost of
revenue for international operations will continue to increase in
absolute dollars in the foreseeable future.
Product development. Product development expenses were $6.5
million for the year ended December 31, 1997 and $6.0 million for
the year ended December 31, 1996, representing 4% and 5% of
revenue, respectively. The increase in product development costs
was due to increased personnel in the development area.
International product development expenses for the year ended
December 31, 1997 were $1.1 million compared to $54,000 in 1996.
NETCOM plans to continue expenditures on product development as
it develops new software products and upgrades existing products.
It is expected that product development expenses as a percentage
of revenue will remain relatively stable.
Sales and marketing. Sales and marketing expenses decreased
$1.9 million, or 4%, to $49.4 million for the year ended December
31, 1997 from $51.2 million for the year ended December 31, 1996.
The decrease in sales and marketing expenses, as a percentage of
revenue, to 31% from 43% for the years ended December 31, 1997
and December 31, 1996, respectively, was primarily attributable
to decreases in advertising, trade show, and consulting expenses
and decreased subscriber activity in the U.S.
International sales and marketing expenses (including costs
incurred domestically relating to international operations)
increased by $1.9 million to $11.5 million for the year ended
December 31, 1997 compared to the year ended December 31, 1996.
International sales and marketing expenses are expected to
continue to increase in absolute dollars but to decrease as a
percentage of revenue.
Certain of NETCOM's direct response advertising costs
associated with subscriber acquisitions are capitalized in
accordance the AICPA's Statement of Position 93-7 and amortized
over a 12-month period using the straight-line method. NETCOM
capitalized subscriber acquisition costs of approximately $6.5
million and $14.4 million for the years ended December 31, 1997
and December 31, 1996, respectively. Amortization of deferred
subscriber acquisition costs for the years ended December 31,
1997 and December 31, 1996 were $8.5 million and $12.2 million,
respectively.
General and administrative. General and administrative
expenses decreased $1.3 million, or 6%, to $22.3 million for the
year ended December 31, 1997 from $23.6 million for the year
ended December 31, 1996, decreasing to 14% from 20% of revenue,
respectively. The decrease in general and administrative expenses
in absolute dollars and as a percentage of revenue was primarily
due to costs incurred during 1996 of $.1 million with respect to
moving a significant portion of NETCOM's operations into new
buildings and $.7 million from writing-off accounts receivable
balances determined to be uncollectible.
International general and administrative expenses increased
by $.1 million to $2.6 million for the year ended December 31,
1997 compared to the year ended December 31, 1996. General and
administrative expenses are expected to increase in absolute
dollars.
Restructuring and related charges. Restructuring and related
charges of $1.9 million during the year ended December 31, 1997
are the result of a decision by management to restructure
operations of NETCOM's subsidiary in the United Kingdom. The
restructuring charge is comprised of $1.4 million in accrued
expenses for costs to terminate excess leased office facilities
and a write-off of office equipment, furniture and building
improvements as a result of consolidating office space, a $.3
million write-down of previously capitalized deferred subscriber
acquisition costs and $.2 million for severance costs.
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Interest income and other, net. Interest income, net was
$3.5 million and $5.7 million, respectively, for the years ended
December 31, 1997 and 1996. The decrease was due to NETCOM's
lower average balance of cash and cash equivalents during 1997 as
compared to 1996. In addition, during 1997, NETCOM incurred
interest expense on capital leases of $.5 million for 1997
compared to no interest expense during the prior year. NETCOM
invests its cash and cash equivalents primarily in high grade
commercial paper and money market instruments.
Provision for income taxes. The provision for income taxes
for 1997 and 1996 consisted solely of foreign taxes and state
minimum taxes as NETCOM had pre-tax losses in both years.
Net loss; EBITDA. Revenue growth and decreases in cost of
revenue and operating expenditures as a percentage of revenue,
offset by international expansion and restructuring charges
related to the United Kingdom operations, resulted in reduced net
losses of $33.1 million for 1997 as compared to net losses of
$44.3 million for 1996. International net losses for 1997 were
$18.3 million as compared to net losses of $18.0 million for
1996.
NETCOM believes EBITDA (earnings before interest, taxes,
depreciation and amortization) is a cash flow measure used by
analysts, investors and other parties interested in the Internet
services industry. EBITDA losses for 1997 were $1.7 million as
compared to EBITDA losses of $20.3 million for 1996. EBITDA
before restructuring and related charges of $1.9 million was $.1
million for 1997. Domestic EBITDA for 1997 was $11.6 million.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenue. Revenue increased 130% to $120.5 million from $52.4
million in 1995. The increase in revenue was due to a significant
increase in the number of dial-up subscribers, direct access
connections and Web site hosting accounts, which NETCOM
attributes to the growth in the Internet market generally, the
increase in the number of NETCOM local access areas, NETCOM's
release of enhancements to its software, and continued expansion
of NETCOM's sales, distribution and promotional activities.
Subscribers increased by 88% to approximately 580,000 customers
as of December 31, 1996 from approximately 308,000 customers as
of December 31, 1995. NETCOM's international subsidiaries
accounted for $2.5 million of total revenue in 1996.
Cost of revenue. NETCOM's cost of revenue increased 141% to
$88.4 million in 1996 from $36.6 million in 1995, increasing to
73% from 70% of revenue, respectively. The increase in the cost
of revenue (in absolute terms) during 1996 was primarily
attributable to NETCOM's international expansion, sales tax
charges, increased network, data communication and depreciation
costs associated with the increased number of subscribers and
network improvements and with expansion of NETCOM's operations
and customer support staff. The amount relating to international
operations in 1996 was $7.7 million. The increase as a percentage
of revenue was primarily due to NETCOM's expansion
internationally.
Product development. Total product development expenses
increased 169% to $6.0 million from $2.2 million in 1995,
increasing to 5% from 4% of revenue, respectively. Of the 1996
product development expenses, $54,000 related to international
operations.
Sales and marketing. Sales and marketing expenses increased
173% to $51.2 million from $18.8 million in 1995, increasing to
43% from 36% of revenue, respectively. The increase in sales and
marketing expenses was due primarily to increased costs
associated with NETCOM's international subsidiaries' sales and
marketing expenses and subscriber acquisition activity in the
U.S. The total for international operations in 1996 was $9.6
million which includes costs incurred domestically relating to
international operations. In addition, growth of costs associated
with subscriber acquisition, the addition of management personnel
and marketing programs in the U.S. attributed to the increase.
NETCOM capitalized subscriber acquisition costs of approximately
$14.4 million and $5.5 million and amortized and wrote off
approximately $12.2 million and $2.8 million for 1996 and 1995,
respectively. In 1996, of the amounts capitalized and amortized,
$1.8 million and $.8 million, respectively, related to
international operations.
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General and administrative. General and administrative
expenses increased 114% to $23.6 million in 1996 from $11.0
million in 1995, and as a percent of revenue, general and
administrative expenses decreased to 20% from 21%, respectively.
The dollar increase was primarily attributable to additional
administrative personnel, bad debt expense, additional corporate
facility expenses and international operations. International
operations accounted for $2.5 million of general and
administrative expenses during 1996.
Interest income, net. Interest income, net increased to $5.7
million in 1996 from $2.2 million in 1995. This change is
primarily the result of the investment of the proceeds from
NETCOM's public offerings in May and November 1995, primarily in
commercial paper.
Provision for income taxes. The provision for income taxes
for 1996 and 1995 consisted solely of foreign taxes and state
minimum taxes as NETCOM had pre-tax losses in both years.
Net loss; EBITDA. The higher cost of revenue and operating
expenditures incurred in fiscal 1996, as described above,
resulted in a net loss of $44.3 million as compared to a net loss
of $14.1 million for 1995, notwithstanding the period to period
revenue growth. This reflected NETCOM's strategy to invest in its
international operations as well as in the growth of its
subscriber base and local access numbers. EBITDA losses for
fiscal 1996 and 1995 were $20.3 million and $6.3 million,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
NETCOM has used cash principally for capital expenditures
and to fund operating losses. NETCOM has funded its operations to
date primarily through cash revenue and private and public sales
of equity securities. NETCOM's operating activities used cash of
approximately $2.1 million, $21.7 million and $.5 million for
1997, 1996 and 1995, respectively. During 1997, cash used in
operating activities was primarily affected by the net loss,
gains on investments, deferred subscriber acquisition costs and a
$2.1 million payment in connection with its Brazilian investment,
which investment was liquidated in December 1997. These uses of
cash were primarily offset by depreciation and amortization and
$2.2 million representing increases in deferred revenue. During
1996, cash from operations was primarily used to fund the net
loss, decreases in accounts payable and an increase in deferred
subscriber acquisition costs. These uses of cash were partially
offset by depreciation and amortization, liquidation of
investments and increases in accrued payroll and related
expenses, other accrued expenses and liabilities and deferred
revenue. In 1995, cash used in operations was primarily used to
fund the net loss and increases in deferred subscriber
acquisition costs. These uses of cash were partially offset by
depreciation and amortization and other non-cash losses and
increases in other accounts payable, accrued expenses and
payroll.
Investing activities used net cash of $9.0 million, $54.0
million and $44.7 million for 1997, 1996 and 1995, respectively.
NETCOM's investing activities have consisted primarily of
equipment purchases for new local access areas and network
expansion. Cash capital expenditures were $10.9 million for 1997
which were offset in part by the sale of short-term investments.
Financing activities provided cash of $1.4 million,
$2.4 million and $170.3 million for 1997, 1996 and 1995,
respectively. For 1997, financing activities consisted primarily
of the exercise of stock options, purchases under the employee
stock purchase plan (which was dissolved in conjunction with
NETCOM's merger with ICG in January 1998) and proceeds from
issuance of debt relating to financing of equipment which was
partially offset by principal payments on the capital leases
entered into during the period. For 1996, financing activities
consisted of proceeds from the exercise of stock options and
purchases under the employee stock purchase plan. For 1995,
financing activities consisted primarily of proceeds from
NETCOM's public offerings in May 1995 and November 1995.
NETCOM has material capital commitments for its capital
lease obligations and rental expense for its premises and a
substantial portion of the proceeds of its May 1995 and November
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1995 public offerings has been used for, and the Company expects
to continue to use cash for, additional equipment purchases and
subscriber acquisition costs. NETCOM has capital lease
obligations of $6.0 million as of December 31, 1997. Furthermore,
NETCOM has guaranteed monthly usage levels with WorldCom and has
certain termination liabilities with its communications vendors
(including WorldCom). The yearly commitments (exclusive of
certain usage discounts) in the years 1998, 1999, 2000 and 2001
are $9.3 million, $9.3 million, $7.6 million and $4.2 million,
respectively. The aggregate termination liabilities as of January
1, 1998 are approximately $15 million. In addition, NETCOM has
minimum future rental payments under various noncancelable
operating leases of $16.6 million as of December 31, 1997.
As of December 31, 1997, NETCOM had cash and cash
equivalents of $63.4 million and working capital of $38.7
million. NETCOM used $14.9 million working capital in 1997.
The Company believes that, under its business plan for the
NETCOM business, the net proceeds from the Private Offering,
together with vendor financing and cash from operations will be
sufficient to meet anticipated working capital and capital
expenditure requirements of its existing operations. However, the
forward-looking information contained in the previous sentence
may be affected by a number of factors, including the matters
described in this paragraph and under "Risk Factors." The Company
may need to raise additional capital from public or private
equity or debt sources in order to finance its operations,
capital expenditures and growth for periods after 1998. Moreover,
the Company believes that continued growth and expansion through
acquisitions, investments and strategic alliances is important to
maintain a competitive position in the market and, consequently,
a principal element of the Company's business strategy is to
acquire assets or make investments in businesses that are
complementary to its and ICG's current operations. The Company
expects to acquire telecommunications, Internet and related
businesses that complement ICG's business strategy to offer a
wide array of telecommunications, Internet and related services
primarily to communications-intensive business customers.
Acquisition targets could include U.S. or foreign CLECs, ISPs and
long distance companies, among others. The Company intends to
make future acquisitions primarily through the use of ICG Common
Stock, cash on hand and the proceeds from securities offerings.
The Company may need to raise additional funds in order to
take advantage of opportunities for acquisitions, investments and
strategic alliances, to develop new products or to respond to
competitive pressures or to fund capital expenditure requirements
of any acquired businesses. There can be no assurance that the
Company will be able to raise such capital on acceptable terms or
at all. In the event that the Company is unable to obtain
additional capital or is unable to obtain additional capital on
acceptable terms, the Company may be required to reduce the scope
of its presently anticipated acquisition opportunities and
capital expenditures, which could have a material adverse effect
on its business, results of operations and financial condition
and could adversely impact its ability to compete and make
payments on the New Notes.
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BUSINESS
OVERVIEW
ICG Services, Inc. provides Internet services, through its
subsidiary, NETCOM, to individuals and to small and medium-sized
businesses. The Company also acquires telecommunications
equipment, software and capacity for lease or sale to other
subsidiaries of ICG. In addition to providing these services, the
Company intends to grow through acquisitions of
telecommunications, Internet and related businesses that
complement ICG's business strategy.
The Company is a wholly owned subsidiary of ICG, one of the
nation's leading ICPs of competitive communications services,
based on estimates of the industry's 1997 revenue. ICG's
objectives are to provide a wide range of local, long distance
and data communications services to business end users and
wholesale customers and to be a premier provider of high quality
communications services to its targeted business and carrier
customers. ICG believes that customers are increasingly demanding
a broad, full service approach to providing services and that, by
offering a bundled package, ICG will be better able to capture
business from communications-intensive commercial customers.
BUSINESS STRATEGY
The Company's objective is to acquire and consolidate
telecommunications, Internet and related businesses and bundle
the services provided by these businesses with ICG's current
competitive local and long distance telecommunications products.
By leveraging the Company's relationship with ICG and utilizing
ICG's extensive network footprint, the Company intends to capture
the growth in demand from business customers for a full package
of telecommunications services by offering a wide array of
services, including Internet services.
Market Services to Business End Users. The Company is
focused on marketing a variety of telecommunications and Internet
products and services primarily to business end users. Through
its wholly owned subsidiary, NETCOM, the Company currently
markets Internet services to individuals and to small and medium-
sized businesses. In January 1997, NETCOM announced plans to
migrate its customer focus away from high volume, low margin
consumer customers to higher margin products for small and
medium-sized business customers. Management believes a targeted
business end user strategy can better leverage ICG's network
footprint and telecommunications investment. To date, NETCOM has
been successful in implementing this plan, and has seen its
average revenue per customer increase from $21.47 during fiscal
1996 to $23.92 during fiscal 1997.
Concentrate on Regional Clusters. The Company believes that
by focusing its growth on business activities located within
ICG's network of regional clusters in California, Colorado, Ohio
and the Southeast, it will be able to more effectively service
its customers' needs and efficiently market, operate and control
its network and expanded service offerings. In addition, the
Company believes that by focusing future growth within ICG's
existing footprint, it will be able to overlay ICG's support
services and realize extensive cost synergies. For example, a
significant portion of NETCOM's customer base is located in
California. To the extent feasible, NETCOM will route its
Internet traffic over ICG's California network. NETCOM plans to
continue to operate and grow its business in the United States
outside of ICG's network footprint and in Canada and the United
Kingdom.
Increase Revenue and Margins through Bundled Services. The
Company intends to increase its revenue and margins by providing
a full range of communications products to its end user
customers. The Company plans to complement ICG's competitive
local and long distance telecommunications offerings by combining
the Internet products developed by NETCOM and cross-marketing
these combined products through ICG's direct sales force.
Additionally, NETCOM intends to market ICG telecommunications
products to its small and medium-sized business customer base.
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Integrate Investments and Expand. The Company expects to
acquire telecommunications, Internet and related businesses that
complement ICG's business strategy to offer a wide array of
telecommunications, Internet and related services primarily to
business customers. Acquisition targets could include U.S. and
foreign CLECs, ISPs and long distance companies, among others.
The Company intends to make future acquisitions primarily through
the use of ICG Common Stock, cash on hand and the proceeds from
securities offerings.
ICG and the Company believe that the acquisition of NETCOM
is strategically important as it helps to (i) broaden ICG's
communications product offerings to include Internet services and
(ii) provide NETCOM with extensive network infrastructure for the
on-net transportation of its Internet traffic. The Company will
continue to look for acquisitions which it believes will benefit
ICG's objectives to provide a wide range of local, long distance
and data communications services to business end users and
wholesale customers and to be a premier provider of high quality
communications services to its targeted business and carrier
customers.
NETCOM
NETCOM is a leading provider of high quality Internet
solutions to individuals and small and medium-sized businesses in
the United States and also provides the same high quality
Internet solutions in Canada and the United Kingdom. NETCOM
offers a broad spectrum of Internet solutions designed to enhance
customer productivity through the integration and application of
technologies by providing a comprehensive software platform to
interface with the Web, premium quality Internet access and
support services and on-line tools to automate Web site creation
and development. These offerings have led to significant growth,
with revenue increasing from approximately $2.4 million for 1993
to approximately $160.7 million for fiscal 1997. In January 1997,
NETCOM announced plans to migrate its customer focus away from
high volume, low margin consumer customers to higher margin
products for small and medium-sized business customers.
NETCOM owns and operates a data communications network
consisting of 17 hubs containing frame relay switches and high-
performance routers connecting a backbone of leased ATM switches
and leased high-speed dedicated data lines in the United States,
Canada and the United Kingdom. NETCOM maintains 247 POPs in the
United States and Canada and also offers virtual local access
numbers in Canada and the United Kingdom. The design and
architecture of the physical network permits NETCOM to offer
highly flexible, reliable high-speed services to its customers
and support significant subscriber growth. The NETCOM
infrastructure is monitored by NOCs in San Jose, Dallas, Toronto,
and London.
NETCOM provides Internet solutions principally through dial-
up, direct access and Web site hosting services. Direct access
and Web site hosting services provide higher revenue per customer
and higher margins than dial-up services. NETCOM also receives
revenue from value-added services such as security, anti-virus
and data storage.
Market Overview
The Internet is a global collection of thousands of computer
networks cooperating to enable commercial organizations,
educational institutions, government agencies and individuals to
communicate electronically, to access and share information and
to conduct business. The Internet originated with the ARPAnet, a
restricted network started in 1969 by the United States
Department of Defense to provide efficient and reliable long-
distance data communications among the disparate computer systems
used by government funded researchers and organizations. Unlike
other public and private telecommunications networks that are
managed by businesses, government agencies and other entities,
the Internet is a cooperative interconnection of many such public
and private networks. The networks that comprise the Internet are
connected in a variety of ways, including by the public switched
telephone network and by high speed, dedicated leased lines. Open
communications on the Internet are enabled by TCP/IP, an
internetworking standard that enables communication across the
Internet regardless of the hardware and software used. In the
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late 1980s and early 1990s, the use of the Internet by businesses
and universities as a communications and research tool began to
grow dramatically. In 1993, Web technology was introduced to the
Internet paving the way for rapid commercialization of the
Internet on a global basis. Since the introduction of the Web,
continual technological advances, including new and innovative
software applications, have led to a more robust, lower-cost
infrastructure, improved security, an expanded array of enhanced
services and a dramatic increase in content.
Internet access services is one of the fastest growing
segments of the telecommunications services market. According to
industry research analysts, the market for consumer and business
Internet connectivity and enhanced services exceeded $3 billion
in 1996, and is estimated to reach $18 billion in revenue by the
year 2000, reflecting a compounded annual growth rate of
approximately 50%. Business connectivity and value-added services
are estimated to represent in excess of 50% of the overall
market. The use of the Internet by small and medium-sized
businesses in particular is expected to grow substantially from
its current low levels of market penetration.
ISPs provide customers with a variety of services to meet
their Internet-related needs. Internet services include the
following categories: (1) access services (dial-up, direct access
and Web site hosting); (2) value-added services (security
services, anti-virus and data storage); and (3) content services
(information creation, aggregation and delivery). Some ISPs offer
all of these services while others specialize in only one or two.
As the market continues to segment in these three areas, there
are opportunities for both the specialists who can provide
superior service in one area, as well as full-service providers
who can bundle services and offer discounts. There were over
4,300 ISPs in the United States and Canada as of October 31, 1997
compared to just over 3,000 as of October 31, 1996. There have
been some large acquisitions of ISPs as CLECs and others attempt
to enter the industry. Because of low barriers to entry, there
are local and regional ISPs entering the market, which has caused
the level of competition to intensify.
The availability of an expansive variety of compelling
business and consumer applications over the Internet has
attracted a large number of consumer and business users. The
total number of connections to ISP networks, according to
International Data Corporation ("IDC"), was 17 million as of
November 1997, and is predicted to reach over 30 million by the
year 2000. Aggregate revenue from the retail segment of the ISP
industry exceeded $3 billion in 1996. Market trends contributing
to the overall growth in connectivity include advancements in
technologies required to navigate the Internet, the availability
of Internet connectivity, and the rich consumer and business
content available. The Company believes that ongoing development
of access to and applications of the Internet will continue to
attract a valuable consumer audience for businesses.
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Market Growth
Industry analysts anticipate continued rapid growth for the
ISP market. Specifically, IDC forecasts the ISP market's annual
aggregate revenue to grow from $3.3 billion in 1996 to $18.3
billion in the year 2000, excluding content revenue.
Graphic consists of two pie charts, displayed side by side,
depicting the percentage breakdown of annual revenue for each of
the four markets comprising the ISP market for years 1996 and
2000 (forecast). The overall size of the pie chart for the year
2000 is larger than that for the year 1996, representing the
greater total revenue in the year 2000. The charts, however, are
not drawn to scale.
In tabular form, the graphic presents the following
information:
1996 2000
---- ----
Corporate Access 58% Value-Added 38%
Individual Access 29% Corporate Access 36%
Wholesale 9% Individual Access 19%
Value-Added 4% Wholesale 7%
----- -----
$3.3 Billion $18.3 Billion
Source: IDC
In addition to connectivity solutions, business customers
increasingly are seeking a variety of value-added solutions to
take full advantage of the Internet. Technological advances such
as increases in microprocessor speeds, the introduction of
innovative software tools and the development of higher bandwidth
data networking technology have led to rapid innovation and
development of value-added Internet services. The principal
value-added services being offered among business oriented ISPs
today include Web site hosting services, security solutions,
commerce solutions, intranet services, business content, and
advanced Internet applications such as voice and video
conferencing and data storage and retrieval solutions. Value-
added solutions are projected by industry analysts to increase to
$7 billion in revenue by the year 2000 from $130 million in 1996.
As a result of the growing Internet audience, businesses
have discovered that the Internet provides a valuable marketing
forum and can enhance communications with customers,
geographically distributed offices and business partners,
allowing them to quickly reduce operating costs, access valuable
information and reach additional markets. Increasingly,
businesses are utilizing the Internet for mission-critical
applications such as sales, customer service and project
coordination. In addition, a growing number of businesses are
implementing secured virtual private networks over the Internet,
as a more economical option to dedicated private networks, in
order to provide internal company communications (intranets) and
to link with their customers and suppliers (extranets). According
to IDC, corporate access revenue from the retail segment of the
ISP industry was approximately $1.9 billion in 1996.
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Access-related revenue is projected by industry analysts to
approach $10 billion by the year 2000. Most of the growth in
access revenue is expected to be attributable to dedicated
access.
Graphic consists of two pie charts, displayed side by side,
depicting the percentage breakdown of annual revenue for each of
the three sources of access-related revenue in the ISP market for
the years 1996 and 2000 (forecast). The overall size of the pie
chart for the year 2000 is larger than that for the year 1996,
representing the greater total revenue in the year 2000. The
charts, however, are not drawn to scale.
In tabular form, the graphic presents the following
information:
1996 2000
---- ----
Corporate Dedicated Corporate Dedicated
Access 37% Access 55%
U.S. Household U.S. Household
Dial-up Access 33% Dial-up Access 34%
Corporate Dial-up Corporate Dial-up
Access 30% Access 11%
---- ----
$2.9 Billion $10.1 Billion
Source: IDC
The NETCOM Solution
NETCOM's mission is to help individual professionals and
small and medium-sized businesses work more productively using
the Internet. Historically, NETCOM and other ISPs have pursued a
customer acquisition strategy based on offering a $19.95 per
month, flat-rate unlimited Internet dial-up access product, which
is both high volume and low margin. In January 1997, NETCOM
announced plans to migrate its customer focus away from high
volume, low margin consumer customers to higher margin products
for small and medium-sized business customers. NETCOM's solution
is to offer a variety of packages that a customer can tailor to
its specific needs and to offer premium performance and customer
service. NETCOM believes that those customers that demand extra
services (more mailboxes, research library access, anti-virus
software) will be willing to pay more if they are assured
convenience and reliability. NETCOM plans to gradually migrate
its existing customer base to higher margin premium services and
expects that low use, low margin customers will switch to lower-
cost providers. NETCOM has designed a series of packages aimed at
addressing the different needs of its customers.
Dial-Up Services. NETCOM's dial-up customers receive an
integrated Internet solution consisting of high quality access,
software and 24 hours a day, seven days a week, automated
customer support. NETCOM dial-up customers connect directly to
the Internet via NETCOM's own network which provides high speed,
reliable access. All NETCOM dial-up accounts allow access to the
Internet's resources, including E-mail, the Web and USENET
newsgroups. In addition, NETCOM dial-up customers can receive a
one Mb personal Web page, access to a daily customized newspage
via E-mail, and access to on-line financial, corporate and market
information and analytical tools. Enhanced services available to
dial-up customers include features such as additional E-mail
addresses, enhanced support offerings, software and virus
updates, access to research libraries, a domain name service,
monthly back-up, 10 Mb data storage, 750 Mb per month data
transfer capability and premium service and technology support.
NETCOM customers can quickly register using NETCOMplete
software, available for both Windows and Macintosh platforms via
compact disk, and set up a NETCOM account by following a sequence
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of simple, on-screen steps. All of the software needed to connect
and access the Internet is automatically installed and
configured, eliminating the need for complex set up procedures.
NETCOMplete also provides an easy-to-use interface as well as
software from leading industry participants, bookmark managers,
off-line browsers and additional software that enhances a
customer's Internet experience. Revenue from dial-up services
increased from $102.9 million for fiscal 1996 to $133.7 million
for fiscal 1997, representing approximately 85% and 83%,
respectively, of total revenue for such periods.
Direct Access Services. NETCOM offers a full suite of high-
speed dedicated Internet connection and service products which
provide its small and medium-sized business customers with direct
access to the full range of Internet applications. These Internet
services are offered to businesses over leased lines at various
speeds, including 56 Kbps, T-1 and T-3 levels, depending upon the
customer's needs. Through its direct access product line, NETCOM
offers Internet access services including domain name and IP
address, router configurations, on-line usage statistics and
security consultation. There are generally no usage charges for
any of NETCOM's dedicated customers, and E-mail service and
USENET news feed are provided at no additional charge. Direct
network connection requires the customer to obtain a leased line
from ICG or another local telephone company. NETCOM provides an
Internet connection based on frame relay technology provided by
local telephone carriers. Revenue from direct access services
increased from $16.3 million for fiscal 1996 to $19.5 million for
fiscal 1997, representing approximately 14% and 12%,
respectively, of total revenue for such periods.
Web Site Hosting Services. NETCOM offers Web site hosting
services to its small and medium-sized business customers as well
as to individuals. Web site hosting services include client
domain name registration, hosting and site maintenance. Services
provided are fully scalable, but would, in a typical package,
include domain name registration, 10 E-mail addresses, access to
NETCOM's on-line Business Center, CGI scripting (which enables
visitors to the Web site to leave their names and addresses),
weekly back-up service, 50 Mb of data storage, 1,000 Mb per month
of data transfers, traffic logs and Web statistics and premium
service and technology support. Revenue from Web site hosting
services increased from $1.3 million fiscal 1996 to $6.3 million
for fiscal 1997, representing approximately 1% and 4%,
respectively, of total revenue for such periods.
Value-Added Services. As part of its dial-up client access
and Web site hosting services, NETCOM offers its small and
medium-sized business customers value-added business connectivity
solutions packages designed to address their needs of increased
security, reliability, access speed and customer service. The
Company believes that businesses are willing to pay premium
prices for these premium services. One such feature is Automatic
Reconnect which automatically reroutes a customer's traffic to an
alternate ISDN line so that in the event of certain kinds of
service interruptions, customers may remain connected. In order
to provide a secure, private connection among multiple specific
locations, NETCOM's SecureConnect product performs a security
assessment and then implements, monitors and troubleshoots a
flexible security solution to provide secure communication
between central offices, branch offices and off-site employees
without jeopardizing the integrity of the internal network.
Another value-added service NETCOM offers is 24 hours a day,
seven days a week support. For larger customers, NETCOM offers
flexible, high-speed dedicated line service that is scalable to
grow as traffic increases. Other value-added services offered
include password protected Web sites, usage statistics, anti-
virus software and additional domain names.
NETCOM's Internet connectivity services are available in the
following package offerings:
NETCOMplete -- $19.95 monthly NETCOMplete Advantage --
. Standard dial-up access $24.95 monthly
. Productivity software; anti- . Standard dial-up access
virus file conversion . 2 mailboxes, forwarding
. NETCOM Personal News, . Productivity software; anti-
Personal Finance virus file conversion
. Toll free support (24x7) . NETCOM Personal News,
Personal Finance
. Toll free support (24x7)
plus priority queue
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NETCOMplete Advantage Pro -- NETCOM Identity Pack -- $45
$29.95 monthly monthly
. All of NETCOMplete Advantage . All of NETCOMplete Advantage
plus: with Web site
. Research Libraries plus:
. Software updates . Domain name service
. Virus protection updates . Monthly back-up
. Toll free support (24x7) plus . 10 Mb data storage
priority que . 750 Mb/month data transfer
. Toll free support (24x7)
NETCOM Business Web Hosting -- NETCOM DirectConnect -- $400 &
$25-$350 monthly up monthly
. Domain name service . Domain name and IP address
. 10 mailboxes . Line installation and
. NETCOM Business Center maintenance
. 50 Mb data storage . Router configuration and
. 100 Mb/month data transfer support
. Traffic logs, Web site . On-line usage statistics
statistics . Automatic Reconnect
. Toll free support (24x7) . NewsServer access (up to 25
users)
. Needs analysis
. Toll free support (24x7) and
technical support
Software and Services Development
NETCOM has placed significant emphasis on developing its
products and services, both internally and through third party
arrangements. NETCOM's newest software package, NETCOMplete,
features NETCOM's versions of leading products including
Microsoft Internet Explorer 4.0 or Netscape Navigator 3.0,
Qualcomm Eudora Light, McAfee Webscan, SurfWatch Software and
Service, VocalTec Internet Phone and Internet Phone Lite, NETCOM
Unplugged by WebEx, NETCOM Unplugged Lite, Storm EasyPhoto,
Macromedia Shockwave, Adobe Acrobat Reader, OnBase DragNet and
DragNet Lite, NCSA Telnet, Quarterdeck Global Chat, IBM
Cryptolope, Microsoft NetMeeting, Internet Mail, Internet News
and Comic Chat. NETCOM intends to design additional features into
future versions of NETCOMplete and additional products.
Additionally, NETCOM will continue to enhance the ease of
installation and automatic configuration of its products.
Marketing and Distribution
NETCOM's primary focus is on providing high quality Internet
solutions to individuals and to small and medium-sized
businesses. In order to achieve this objective, NETCOM engages in
marketing and advertising activities, alliances with key
strategic partners, seminars in targeted regional markets, and
distribution via both direct and indirect channels. NETCOM's
current marketing efforts emphasize its strategy of focusing on
providing premium services to businesses and individuals through
integrated product offerings. The campaign incorporates the theme
of productivity and efficiency and includes an emphasis on the
full range of NETCOM solutions. NETCOM's current distribution
channels include the following:
OEM. Original equipment manufacturer arrangements with
computer, hardware, software and modem manufacturers account for
a significant portion of NETCOM's new accounts. NETCOM's CPU OEM
partners include Hewlett Packard Company, Acer America
Corporation and NEC Corporation. NETCOM has also entered into a
number of bundling arrangements with software companies,
including Netscape Corp. and Microsoft Corporation. Arrangements
with modem manufacturers such as U.S. Robotics and Global Village
Communication account for a significant portion of OEM activity.
New agreements with companies such as Cisco and Farallon
Computing, Inc. will be increasingly focused on Web site hosting
and direct access.
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VAR. As NETCOM increases its focus on providing solutions to
small and medium-sized business segments, the value added
resellers who support this segment will become an increasingly
active channel of distribution, selling the entire suite of
NETCOM products. The network of NETCOM VARs are supported by
NETCOM sales representatives both in the regional territories and
in the Telesales center. Current VARs include Transnet
Corporation, Nova Quest Infosystems, PC Solutions, Kissane
Business Systems, Inc. and Cohesive Systems, Inc.
Retail. A significant portion of NETCOM's new accounts is
generated through retail distribution of NETCOMplete compact
disks, which currently are offered in two versions. One is
offered at a suggested retail price of $4.95; the other is a
larger package featuring extensive third party software and books
for a suggested retail price of $39.95. NETCOM's distributors
include national chains such as CompUSA, Circuit City Stores,
Inc., and Computer City, as well as regional entities such as
Fry's Electronics, Inc. NETCOM distributes to retailers through
national distributors such as Ingram Micro, Inc. and TechData
Corporation, and through regional distributors such as Liuski
International, Inc. Retail coverage is also provided via the OEM
agreements described above.
Telesales. A significant portion of NETCOM's business is
conducted through inbound and outbound Telesales efforts.
Telesales support business generated by direct marketing
activities, trade shows and referrals, and is aligned to support
the focus on targeted regional markets.
The Web. NETCOM also generates a portion of its revenue from
customers who sign up for services by accessing NETCOM's Web
site.
Customer Support
NETCOM believes that it is important to provide prompt and
effective assistance to its subscribers. NETCOM provides network
monitoring and technical assistance services 24 hours a day,
seven days a week. Most support personnel respond to telephone
inquiries and inquiries from E-mail, faxes and letters. There are
also a significant number of personnel dedicated to building
automated support systems such as on-line knowledgebases, fax-on-
demand systems and interactive voice response systems. The
demands on NETCOM's customer support resources have increased
with NETCOM's rapidly changing subscriber base, and NETCOM has
from time to time experienced difficulties in providing adequate
levels of support. An October 1997 customer satisfaction survey
by NETCOM revealed customer support and customer service as a
primary source of customer dissatisfaction. NETCOM is aware that
its systems require investments to meet the more complex needs of
its customers, especially its small to medium-sized business
customers. NETCOM is taking steps to help customer support
resources keep pace with projected increases in subscribers'
demands. During 1997, NETCOM increased its customer support staff
by 44 employees to 285 employees on December 31, 1997. NETCOM
also implemented automated support services such as the WebTech
Online Knowledgebase, the SupportFacts fax-on-demand system, and
an Interactive Voice Response system, which significantly
increased the support group's capacity to handle queries and
improve customer satisfaction. NETCOM intends to continue to
improve its customer support capabilities in order to keep pace
with changes in NETCOM's subscriber base; however, there can be
no assurance that NETCOM will be successful in doing so. See
"Risk Factors -- Integrations of Acquired Business" and "--
Dependence on Key Personnel."
Data Communications Infrastructure
NETCOM maintains an extensive data communications
infrastructure that enables it to provide nationwide digital
Internet connectivity services to its subscribers. NETCOM's
network of POPs provides Internet access to subscribers by means
of a dedicated line or local telephone call. NETCOM's ability to
offer efficient access to the Internet is due in part to NETCOM's
high-capacity data communications network, configured exclusively
for facilitating Internet access. NETCOM's United States network
consists of 13 regional hubs, each containing carrier grade frame
relay switches and high capacity routers. These hubs are
interconnected via a fiber optic T-3, 45 Mbps backbone and ATM
transport together with other high-speed data connections between
the T-3 backbone and NETCOM's POPs. The T-3 backbone connects to
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Internet gateways in Santa Clara (at two sites), California, San
Jose, California, Newark, New Jersey, Chicago, Illinois and
Washington, D.C. In addition, NETCOM has Internet gateways in
Toronto and London.
NETCOM maintains two NOCs in the United States: one at its
San Jose headquarters and the other in Dallas. Through these
centers, NETCOM's technical staff continually monitors network
utilization and security, including equipment at individual local
access numbers, to ensure reliable Internet connectivity service.
NETCOM's Dallas center reduces its dependence on its primary San
Jose facilities. However, this does not eliminate the significant
risk to NETCOM's operations from a natural disaster or other
unanticipated event at one of these two sites. See "Risk Factors
-- Dependence on Network Infrastructure; Risk of System Failure;
Security Risks." Internationally, NETCOM has NOCs in Toronto and
London.
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<PAGE>
NETCOM is continuing to enhance capacity and capabilities of
its data communications network. NETCOM continues to add ATM
switches, and plans to continue increasing capacity as its
customer base increases. Additionally, NETCOM has efforts
currently underway to increase the available dial-up speeds. As
of December 31, 1997, NETCOM had 247 POPs in the United States
and Canada, as listed below. Furthermore, NETCOM offers virtual
local access lines in Canada and the United Kingdom.
ALABAMA COLORADO INDIANA NEW PENNSYLVANIA
HAMPSHIRE
Birmingham Colorado Bloomington Manchester Allentown
Springs
Huntsville Denver Ft. Wayne Nashua Harrisburg
ARKANSAS Ft. Indianapolis Portsmouth King of
Collins Prussia
Little Rock CONNECTICUT IOWA NEW JERSEY Pittsburgh
ARIZONA Danbury Des Moines Atlantic Reading
City
Phoenix Hartford KANSAS Cherry Wilkes
Hill -Barre
Tucson New Haven Kansas City Eatontown RHODE ISLAND
CALIFORNIA Stamford Topeka Hackensack Providence
Alameda DELAWARE Wichita Morristown SOUTH
CAROLINA
Bakersfield Wilmington KENTUCKY New North
Brunswick Charleston
Benecia DISTRICT OF Lexington NEWARK Columbia
/Vallejo
Corona COLUMBIA Louisville Paterson Greenville
/Passaic
Escondido Washington LOUISIANA Pennington TENNESSEE
Fremont FLORIDA Baton Rouge Princeton Chattanooga
Fresno Boca New Orleans Trenton Knoxville
Raton
Irvine Clearwater/ MAINE Westfield Memphis
/Santa
Anna
La Puente St. Portland NEW MEXICO Nashville
/Covina Petersburg
Long Beach Cocoa MARYLAND Albuquerque TEXAS
Los Angeles Daytona Baltimore Santa Fe Austin
Beach
Mission Deland Columbia NEW YORK Bryan
Viejo
Modesto Fort Walton Frederick Albany Dallas
Beach
Monterey Ft. Kensington Binghamton El Paso
Lauderdale
Morgan Hill Ft. Meyers Rockville Buffalo Ft. Worth
Ontario Gainesville MASSACHUSETTS Garden Harlingen
City
Palm Jacksonville Amherst New York Houston
Springs City(2)
Palo Alto Miami Boston Poughkeepsie Irving
Pasadena Orlando Framingham Rochester San Antonio
/Webster
Petaluma Pensacola Lawrence Ronkonkoma/ UTAH
Pleasanton Sarasota Lowell Holbrook Ogden
Sacramento Tallahassee Springfield Syracuse Orem
/Liverpool
Salinas Tampa Taunton Utica/Rome Salt Lake
City
San West Palm Wellesley NORTH CAROLINA VERMONT
Bernardino Beach
San Diego GEORGIA Worcester Charlotte Burlington
San Athens MICHIGAN Raleigh VIRGINIA
Francisco/ /Durham
Daly Atlanta Ann Arbor Wilmington Leesburg
City(2)
San Jose(2) Augusta Detroit Winston Norfolk
-Salem
San Luis Macon East Lansing OHIO Richmond
Obispo
San Marcos Savannah Grand Rapids Akron Roanoke
San Mateo IDAHO Kalamazoo Cincinnati Woodbridge
San Rafael Boise Pontiac Cleveland WASHINGTON
Santa ILLINOIS Warren Columbus Everett
Barbara
Santa Cruz Alsip MINNESOTA Dayton Kennewick
Santa Maria Aurora Minneapolis Elyria Olympia
/Lacey
Santa Rosa Champaign Rochester Hamilton Seattle
Stockton Chicago MISSOURI Toledo Silverdale
Temecula Chicago/ Springfield Youngstown Spokane
Downtown
Thousand Joliet St. Louis OKLAHOMA Tacoma
Oaks
Valencia Moline NEBRASKA Oklahoma Vancouver
City
Ventura Oakbrook/ Lincoln Tulsa WEST
VIRGINIA
Victorville Downers Omaha OREGON Martinsburg
Grove
Walnut Palatine NEVADA Eugene WISCONSIN
Creek /N. Chicago
Woodland Peoria Las Vegas Portland Appleton
/Beaverton /Green Bay
Woodland Rockford Reno Salem Kenosha
Hills
Waukegan Madison
Milwaukee
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CANADA
Barrie Georgetow London Semie
n
Calgary Halifax Montreal Toronto
Collingwood Hamilton Oshawa Vancouver
/Wasaga
Beach Kingston Ottawa Victoria
Edmonton Kitchener St. Windsor
Catherine's
Winnipeg
Competition
The market for Internet access and related services is
highly competitive. There are no substantial barriers to entry
and the Company anticipates that competition will continue to
intensify as the use of the Internet grows. The tremendous growth
and potential market size of the Internet access market has
attracted many new start-ups as well as existing businesses from
different industries. Current and prospective competitors
include, in addition to other national, regional and local ISPs,
long distance and local exchange telecommunications companies,
cable television, direct broadcast satellite, wireless
communications providers, and on-line service providers.
ISPs. According to industry sources, there are over 4,300
ISPs in the United States and Canada as of October 31, 1997,
consisting of national, regional and local providers. The
Company's current primary competitors include other ISPs with a
significant national presence which focus on business customers,
such as UUNet Technologies, BBN and PSINet. While the Company
believes that its level of local service and support and target
market focus distinguish it from these competitors, many of these
competitors have significantly greater market share, brand
recognition, and financial, technical and personnel resources
than the Company. The Company also competes with unaffiliated
regional and local ISPs in its targeted geographic regions.
Telecommunications Carriers. The major long distance
companies (also known as interexchange carriers or IXCs),
including AT&T, MCI, and Sprint, offer Internet access services
and compete with the Company. The recent sweeping reforms in the
federal regulation of the telecommunications industry have
created greater opportunities for ILECs, including the RBOCs and
other competitive CLECs, to enter the Internet connectivity
market. In order to address the Internet connectivity
requirements of the business customers of long distance and local
carriers, the Company believes that there is a move toward
horizontal integration by ILECs through acquisitions or joint
ventures with and the wholesale purchase of connectivity from
ISPs. The WorldCom/MFS/UUNet consolidation and GTE's recent
acquisition of BBN are indicative of this trend. Accordingly, the
Company expects that it will experience increased competition
from the traditional telecommunications carriers. Many of these
telecommunications carriers, in addition to their substantially
greater network coverage, market presence, and financial
technical and personnel resources, also have large existing
commercial customer bases.
Cable Companies, Direct Broadcast Satellite and Wireless
Communications Companies. Many of the major cable companies have
announced that they are exploring the possibility of offering
Internet connectivity, relying on the viability of cable modems
and economical upgrades to their networks. Continental
Cablevision, Inc. and TCI have recently announced trials to
provide Internet cable service to their residential customers in
select areas. However, the cable companies are faced with large-
scale upgrades of their existing plant equipment and
infrastructure in order to support connections to the Internet
backbone via high-speed cable access devices. Additionally, their
current subscriber base and market focus is residential which
requires that they partner with business-focused providers or
undergo massive sales and marketing and network development
efforts in order to target the business sector. Several
announcements also have recently been made by other alternative
service companies approaching the Internet connectivity market
with various wireless terrestrial and satellite-based service
technologies. These include Hughes Network Systems' announcement
that it will provide high-speed data through direct broadcast
satellite technology; CAI Wireless Systems, Inc.'s announcement
of an MMDS wireless cable operator launching data services via
2.5 to 2.7 GHz and high-speed wireless modem technology; and
Winstar Communications, a 38 GHz radio company that wholesales
its network capacity to other carriers and now offers high-speed
Internet access to business customers.
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On-line Service Providers. The dominant on-line service
providers, including Microsoft Network, America Online,
Compuserve, Inc. and Prodigy, Inc., have all entered the Internet
access business by engineering their current proprietary networks
to include Internet access capabilities. The Company competes to
a lesser extent with these service providers, which currently are
primarily focused on the consumer marketplace and offer their own
content, including chat rooms, news updates, searchable reference
databases, special interest groups and shopping. While Compuserve
recently announced it will also target Internet connectivity for
the small to medium-sized business market, this will require a
significant transition from a consumer market focus to a business
market focus.
The Company believes that its ability to attract business
customers and to market value-added services are keys to its
future success. However, there can be no assurance that its
competitors will not introduce similar pricing plans at
comparable or more attractive prices in the future or that the
Company will not be required to reduce its prices to match
competition. Recently, many competitive ISPs have shifted their
focus from individual customers to business customers. Moreover,
there can be no assurance that more of the Company's competitors
will not shift their focus to attracting business customers,
resulting in even more competition for the Company. There can be
no assurance that NETCOM will be able to offset the effects of
any such competition or resulting price reductions through an
increase in the number of its subscribers, higher revenue from
enhanced services, cost reductions or otherwise. Increased
competition could result in erosion of NETCOM's market share and
adversely affect NETCOM's operating results. See "Risk Factors --
Competition."
Intellectual Property and Other Proprietary Rights
NETCOM relies on a combination of worldwide copyright and
trademark laws, trade secrets, software security measures,
license agreements and nondisclosure agreements to protect its
proprietary technology and software products. NETCOM currently
has no domestic or foreign patents or patent applications
pending. However, NETCOM does have registered or pending
trademarks in various countries including the United States.
NETCOM from time to time receives notices claiming that it is
infringing the proprietary rights of third parties. Any such
claims could be time-consuming, result in costly litigation,
cause product shipment delays or lead NETCOM to enter into
royalty or licensing agreements rather than disputing the merits
of such claims. For a more extensive discussion on intellectual
property and rights, see "Risk Factors -- Limited Intellectual
Property Protection."
Employees
As of December 31, 1997, NETCOM employed 813 persons,
including 147 in operations, 285 in customer support, 174 in
marketing and distribution, 147 in administration and 60 in Web
site and software integration, all of whom are full-time
employees. None of NETCOM's employees is represented by a labor
union and NETCOM considers its employee relations to be good.
Properties
NETCOM's executive offices and data communications centers
are located in San Jose, California, where the Company currently
leases approximately 183,000 square feet under various leases in
three buildings that expire during various months in 1999. In
addition, the Company leases approximately 60,800 square feet in
Dallas, Texas for its second data communications center. The
Company also leases space (typically less than 500 square feet)
in various geographic locations to house the telecommunications
equipment for each of its local access numbers. The Company's
Canadian subsidiary leases approximately 19,600 square feet in
Toronto, Canada. The Toronto lease expires in December 2000. The
Company's United Kingdom subsidiary leases approximately 22,800
square feet in Bracknell, United Kingdom. The United Kingdom
lease expires in March 2014.
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<PAGE>
Litigation
A putative class action lawsuit, Adam L. Swinehart, on
behalf of himself and others similarly situated v. NETCOM On-Line
Communication Services, Inc., was filed on July 15, 1997 in the
Superior Court of California, Orange County, alleging unfair
business practice and related causes of action against NETCOM in
connection with its offers of free trial periods and cancellation
procedures and claiming damages of at least $10 million. The case
is in preliminary stages, the complaint has been answered and
plaintiff has served initial requests for discovery. NETCOM
believes it has meritorious defenses to such claims and intends
to vigorously defend the action.
The Federal Trade Commission ("FTC") is conducting an
inquiry regarding the advertising, marketing, subscription and
billing practices of NETCOM. NETCOM believes that it has made
reasonable efforts to comply with applicable laws. If the FTC
were to conclude that NETCOM violated any applicable law, it
could seek relief in the form of equitable relief, civil monetary
penalties, or other remedies.
The Company is from time to time involved in litigation in
the course of its business. The Company is currently involved in
certain other litigation and potential claims which management
believes, based on facts presently known, will not have a
material adverse effect on the Company's business, operating
results or financial condition. In addition, from time to time
the Company receives notices claiming that it is infringing the
proprietary rights of third parties, and there can be no
assurance that the Company will not become the subject of
infringement claims or legal proceedings with third parties with
respect to current or future products. See "Business --
Intellectual Property and Other Proprietary Rights."
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<PAGE>
MANAGEMENT
Set forth below are the names, ages and positions of
directors and executive officers of the Company.
NAME AGE POSITION
---- --- --------
J. Shelby Bryan . . . . 52 Chairman of the Board of
Directors, President and
Chief Executive Officer
James D. Grenfell . . . 46 Executive Vice President, Chief
Financial Officer
and Director
H. Don Teague . . . . . 55 Executive Vice President, General
Counsel,
Secretary and Director
David W. Garrison . . . 42 Executive Vice President and
Director, and Chairman
of the Board of Directors and
Chief Executive
Officer of NETCOM
Eric W. Spivey . . . . 37 Senior Vice President, President
and Chief Operating
Officer of NETCOM
Michael D. Kallet . . . 44 Senior Vice President, and Senior
Vice President,
Products, Technology and Business
Development of
NETCOM
Sheldon S. Ohringer . . 41 Director
J. Shelby Bryan was appointed Chairman of the Board of
Directors, President and Chief Executive Officer of the Company
in January 1998. In May 1995, Mr. Bryan was appointed President,
Chief Executive Officer and a Director of ICG. He has 18 years of
experience in the telecommunications industry, primarily in the
cellular business. He co-founded Millicom International Cellular
S.A. ("Millicom"), a publicly owned corporation providing
cellular service internationally, served as its President and
Chief Executive Officer from 1985 to 1994 and has served as a
Director through the present.
James D. Grenfell, Executive Vice President, Chief Financial
Officer and Director of the Company, joined ICG as Executive Vice
President and Chief Financial Officer in November 1995.
Previously, Mr. Grenfell served as Director of Financial Planning
for BellSouth Corporation and Vice President and Assistant
Treasurer of BellSouth Capital Funding. A Chartered Financial
Analyst, Mr. Grenfell has been a telephone industry financial
executive for over 20 years. He was with BellSouth from 1985
through November 1996, serving previously as Finance Manager of
Mergers and Acquisitions. He handled BellSouth's financing
strategies, including capital market financings as well as public
debt and banking relationships. Prior to BellSouth, Mr. Grenfell
spent two years as a Project Manager with Utility Financial
Services and six years with GTE of the South, a subsidiary of GTE
Corporation, including four years as Assistant Treasurer.
H. Don Teague, Executive Vice President, General Counsel,
Secretary and Director of the Company, joined ICG as Executive
Vice President, General Counsel and Secretary in May 1997. Prior
to this position, Mr. Teague was Senior Vice President,
Administration and Legal with Falcon Seaboard Holdings, L.P. and
its predecessors from April 1994 through April 1997. From 1974 to
April 1994, Mr. Teague was a partner in the law firm of Vinson &
Elkins L.L.P.
David W. Garrison has been Executive Vice President and a
Director of the Company since January 1998. In March 1996, Mr.
Garrison was appointed Chairman of the Board of Directors of
NETCOM and, since April 1995, Mr. Garrison has been NETCOM's
Chief Executive Officer. Prior thereto, he served as its
President and a Director from February 1995. Mr. Garrison also
served as NETCOM's Chief Operating Officer from February 1995 to
April 1995. Mr. Garrison also serves on the Boards of Directors
of Ameritrade Holding Corporation, Traveling Software, Inc. and
the Internet Service Association. From December 1990 to September
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<PAGE>
1994, Mr. Garrison was President of SkyTel, a division of Mobile
Telecommunications, Inc. ("MTEL"). During his association with
MTEL (1990 to 1994), Mr. Garrison also held positions as Senior
Vice President and Vice President. From 1986 to 1990, Mr.
Garrison served successively as Chief Operating Officer,
President, Chief Executive Officer and Chairman for Dial Page, a
regional paging carrier based in Greenville, South Carolina.
Eric W. Spivey, Senior Vice President of the Company, has
served as President and Chief Operating Officer of NETCOM since
March 1998. Mr. Spivey joined NETCOM in January 1996 as
President, NETCOM International. Prior to his appointment to
NETCOM, Mr. Spivey held senior positions with the Dun &
Bradstreet Corporation for more than a decade in North America,
Europe, Asia-Pacific and Latin America, including Chief Executive
Officer for the Australia and New Zealand businesses.
Michael D. Kallet, Senior Vice President of the Company, has
served as Senior Vice President, Products, Technology and
Business Development of NETCOM since August 1996. From December
1995 to August 1996, Mr. Kallet served as NETCOM's Vice President
of Software Engineering. Prior to joining NETCOM, Mr. Kallet was
the founder of MK Management Consultants from October 1994 to
November 1995. He served as Senior Vice President of Development
for Walker Interactive from December 1993 to October 1994. From
April 1992 to September 1993 he served as Vice President of
Research and Development at Verity, Inc. From 1988 through 1992,
Mr. Kallet was employed by Software Publishing Company.
Sheldon S. Ohringer, Director of the Company, has served as
Executive Vice President-Telecom of ICG and President of ICG
Telecom Group, Inc. since September 1997. Prior to this
position, Mr. Ohringer was Senior Vice President of Business
Development and Strategic Planning for ICG Telecom Group, Inc.
since November 1994. Prior to joining ICG, Mr. Ohringer was
Senior Vice President of Sales and Business Development for U.S.
Long Distance, Inc. from May 1991 until October 1994. From May
1984 until August 1990, Mr. Ohringer held key management and
executive positions with Telecom* USA, a major long distance
carrier which was acquired by MCI in 1990.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ICG intends to enter into arrangements with ICG Equipment to
purchase, lease, license or enter into right-of-use arrangements,
for telecommunications equipment, software and capacity and
related services. The equipment and services provided to ICG will
be utilized to upgrade and expand its network infrastructure to
take full advantage of the opportunities and cost savings
available as a result of the acquisitions made by the Company.
Any such arrangements will be on an arm's length basis and on
comparable terms ICG would be able to obtain from a third party.
Messrs. Bryan, Grenfell, Teague and Ohringer are also
officers of ICG and Mr. Garrison serves on the Board of Directors
of ICG. The cost of the time and efforts spent by such officers
of ICG on matters for the benefit of the Company will be
reimbursed by the Company.
The Company and ICG expect that from time to time, as NETCOM
and other future acquisitions become integrated within ICG's
business, the Company and ICG will be providing to each other
certain services, such as accounting, legal, operations, network
and general corporate services as needs arise. All such services
will be priced and consideration paid on an arm's length basis in
accordance with the terms of the ICG Indentures.
SOLE STOCKHOLDER OF THE COMPANY
ICG owns all of the outstanding shares of common stock, $.01
par value per share, of the Company. The principal executive
offices of ICG are located at 161 Inverness Drive West,
Englewood, Colorado 80112.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by Morgan Stanley & Co. Incorporated
(the "Placement Agent") on February 12, 1998 to a limited number
of institutional investors (the "Purchasers"). In connection with
the sale of the Old Notes, the Company and the Placement Agent
entered into a registration rights agreement dated February 12,
1998 (the "Registration Rights Agreement"), which requires, among
other things, the Company (i) to cause the Old Notes to be
registered under the Securities Act or (ii) to use its best
efforts to cause to be filed with the Commission a registration
statement under the Securities Act with respect to New Notes
identical in all material respects to the Old Notes and have such
registration statement declared effective under the Securities
Act and remain effective until the closing of the Exchange Offer.
The Company is further obligated, upon the effectiveness of that
registration statement, to offer the holders of the Old Notes the
opportunity to exchange their Old Notes for a like principal
amount of New Notes which will be issued without a restrictive
legend and may be reoffered and resold by the holder without
restrictions or limitations under the Securities Act. A copy of
the Registration Rights Agreement has been filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
The Exchange Offer is being made pursuant to the Registration
Rights Agreement to satisfy the Company's obligations thereunder.
The term "Holder" with respect to the Exchange Offer means any
person in whose name Old Notes are registered on the Company's
books or any other person who has obtained a properly completed
assignment from the registered holder.
In order to participate in the Exchange Offer, a Holder must
represent to the Company, among other things, that (i) the New
Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such
New Notes, whether or not such person is the Holder, (ii) neither
the Holder nor any such other person is engaging in or intends to
engage in a distribution of such New Notes, (iii) neither the
Holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution
of such New Notes, and (iv) neither the Holder nor any such other
person is an "affiliate," as defined under Rule 405 promulgated
under the Securities Act, of the Company.
Based on a previous interpretation by the staff of the
Commission set forth in no-action letters issued to third-
parties, including "Exxon Capital Holdings Corporation"
(available May 13, 1988), "Morgan Stanley & Co. Incorporated"
(available June 5, 1991), "Mary Kay Cosmetics, Inc." (available
June 5, 1991), "Warnaco, Inc." (available October 11, 1991) and
"K-III Communications Corp." (available May 14, 1993), the
Company believes that the New Notes issued pursuant to the
Exchange Offer may be offered for resale, resold and otherwise
transferred by any Holder of such New Notes (other than any such
Holder which is an "affiliate" of the Company within the meaning
of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities
Act, provided that such New Notes are acquired in the ordinary
course of such Holder's business and such Holder has no
arrangement or understanding with any person to participate in
the distribution of such New Notes. Any Holder who tenders in the
Exchange Offer for the purpose of participating in a distribution
of the New Notes cannot rely on such interpretation by the staff
of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Under no
circumstances may this Prospectus be used for an offer to resell,
resale or other retransfer of the New Notes. In the event that
the Company's belief is inaccurate, Holders of the New Notes who
transfer New Notes in violation of the prospectus delivery
provisions of the Securities Act and without an exemption from
registration thereunder may incur liability thereunder. The
Company does not assume or indemnify Holders against such
liability. The Exchange Offer is not being made to, nor will the
Company accept surrenders for exchange from, Holders of Old Notes
in any jurisdiction in which the Exchange Offer or the acceptance
thereof would not be in compliance with the securities or blue
sky laws of such jurisdiction. Each broker-dealer that receives
New Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with
any resale of such New Notes. The Company has not entered into
any arrangement or understanding with any person to distribute
the New Notes to be received in the Exchange Offer. See "Plan of
Distribution."
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<PAGE>
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in
this Prospectus and in the Letters of Transmittal, the Company
will accept any and all Old Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the
Expiration Date. The Company will issue $1,000 principal amount
of New Notes in exchange for each $1,000 principal amount of
outstanding Old Notes surrendered pursuant to the Exchange Offer.
However, Old Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the New Notes will be the same as the
form and terms of the Old Notes except that the New Notes will be
registered under the Securities Act and hence will not bear
legends restricting the transfer thereof. The New Notes will
evidence the same debt as the Old Notes. The New Notes will be
issued under and entitled to the benefits of the Indenture, which
also authorized the issuance of the Old Notes, such that both
series will be treated as a single class of debt securities under
the Indenture.
As of the date of this Prospectus, $490,000,000 aggregate
principal amount at maturity of the Old Notes is outstanding.
This Prospectus, together with the Letter of Transmittal, is
being sent to all registered Holders of the Old Notes.
The Company intends to conduct the Exchange Offer in
accordance with the provisions of the Registration Rights
Agreement and the applicable requirements of the Exchange Act,
and the rules and regulations of the Commission thereunder. Old
Notes that are not tendered for exchange in the Exchange Offer
will remain outstanding and will be entitled to the rights and
benefits such Holders have under the Indenture.
The Company shall be deemed to have accepted validly
tendered Old Notes when, as and if the Company shall have given
oral or written notice thereof to the Exchange Agent. The
Exchange Agent will act as agent for the tendering Holders for
the purposes of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange
because of an invalid tender, the occurrence of certain other
events set forth herein or otherwise, certificates for any such
unaccepted Old Notes will be returned, without expense, to the
tendering Holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to
the instructions in the Letter of Transmittal, transfer taxes
with respect to the exchange pursuant to the Exchange Offer. The
Company will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the Exchange
Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date," shall mean 5:00 p.m., New York
City time on , 1998, unless the Company, in its sole
----------
discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date and time to which
the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will
notify the Exchange Agent of any extension by oral or written
notice and will mail to the registered Holders an announcement
thereof, prior to 9:00 a.m., New York City time, on the next
business day after the then Expiration Date.
The Company reserves the right, in its sole discretion, (i)
to delay accepting any Old Notes, to extend the Exchange Offer or
to terminate the Exchange Offer if any of the conditions set
forth below under "--Conditions" shall not have been satisfied by
giving oral or written notice of such delay, extension or
termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptances,
extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the
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<PAGE>
registered Holders. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the
Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered
Holders, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the
significance of the amendment and the manner of disclosure to the
registered Holders, if the Exchange Offer would otherwise expire
during such five to ten business day period.
Without limiting the manner in which the Company may choose
to make a public announcement of any delay, extension, amendment
or termination of the Exchange Offer, the Company shall have no
obligation to publish, advertise, or otherwise communicate any
such public announcement, other than by making a timely release
to an appropriate news agency.
Upon satisfaction or waiver of all the conditions to the
Exchange Offer, the Company will accept, promptly after the
Expiration Date, all Old Notes properly tendered and will issue
the New Notes promptly after acceptance of the Old Notes. See "-
- Conditions." For purposes of the Exchange Offer, the Company
shall be deemed to have accepted properly tendered Old Notes for
exchange when, as and if the Company shall have given oral or
written notice thereof to the Exchange Agent.
In all cases, issuance of the New Notes for Old Notes that
are accepted for exchange pursuant to the Exchange Offer will be
made only after timely receipt by the Exchange Agent of a
properly completed and duly executed Letter of Transmittal and
all other required documents; provided, however, that the Company
reserves the absolute right to waive any defects or
irregularities in the tender or conditions of the Exchange Offer.
If any tendered Old Notes are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer or if Old
Notes are submitted for a greater principal amount, or a greater
number of shares, respectively, than the Holder desires to
exchange, then such unaccepted or non-exchanged Old Notes
evidencing the unaccepted portion, as appropriate, will be
returned without expense to the tendering Holder thereof as
promptly as practicable after the expiration or termination of
the Exchange Offer.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the
Company will not be required to exchange any New Notes for any
Old Notes and may terminate the Exchange Offer before the
acceptance of any Old Notes for exchange, if:
(a) any action or proceeding is instituted or
threatened in any court or by or before any governmental agency
with respect to the Exchange Offer which, in the Company's
reasonable judgment, might materially impair the ability of the
Company to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed,
adopted or enacted, or any existing law, statute, rule or
regulation is interpreted by the staff of the Commission, which,
in the Company's reasonable judgment, might materially impair the
ability of the Company to proceed with the Exchange Offer; or
(c) any governmental approval or approval by Holders
of the Old Notes has not been obtained, which approval the
Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of
these conditions are not satisfied, the Company may (i) refuse to
accept any Old Notes and return all tendered Old Notes to the
tendering Holders, (ii) extend the Exchange Offer and retain all
Old Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of Holders who tendered such Old
Notes to withdraw their tendered Old Notes or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and
accept all properly tendered Old Notes which have not been
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<PAGE>
withdrawn. If such waiver constitutes a material change to the
Exchange Offer, the Company will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to the
registered Holders, and the Company will extend the Exchange
Offer for a period of five to ten business days, depending upon
the significance of the waiver and the manner of disclosure to
the registered Holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a Holder must complete,
sign and date the Letter of Transmittal, or facsimile thereof,
have the signatures thereon guaranteed if required by the Letter
of Transmittal, and mail or otherwise deliver such Letter of
Transmittal or such facsimile to the Exchange Agent prior to the
Expiration Date. In addition, either (i) certificates for such
Old Notes must be received by the Exchange Agent along with the
Letter of Transmittal, or (ii) a timely confirmation of
book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's
account at the Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedure for book-entry transfer
described below must be received by the Exchange Agent prior to
the Expiration Date, or (iii) the Holder must comply with the
guaranteed delivery procedures described below. To be tendered
effectively, the Letter of Transmittal and other required
documents must be received by the Exchange Agent at the address
set forth below under "--Exchange Agent" prior to the Expiration
Date.
The tender by a Holder which is not withdrawn prior to the
Expiration Date will constitute an agreement between such Holder
and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE
AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF
DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT
OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES
TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other
nominee and who wishes to tender should contact the registered
Holder promptly and instruct such registered Holder to tender on
such beneficial owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal and delivering
such owner's Old Notes, either make appropriate arrangements to
register ownership of the Old Notes in such owner's name or
obtain a properly completed assignment from the registered
Holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed by an Eligible
Institution (as defined below) unless the Old Notes tendered
pursuant thereto is tendered (i) by a registered Holder who has
not completed the box entitled "Special Payment Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution (as defined
below). In the event that signatures on a Letter of Transmittal
or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantor must be a member firm of a registered
national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
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<PAGE>
If the Letter of Transmittal is signed by a person other
than the registered Holder of any Old Notes listed therein, such
Old Notes must be endorsed or accompanied by a properly completed
bond power signed by such registered Holder as such registered
Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond or
stock powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons
should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority
to so act must be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility
(including time of receipt), acceptance of tendered Old Notes and
withdrawal of tendered Old Notes will be determined by the
Company in its sole discretion, which determination will be final
and binding. The Company reserves the absolute right to reject
any and all Old Notes not properly tendered or any Old Notes the
Company's acceptance of which would, in the opinion of counsel
for the Company, be unlawful. The Company also reserves the right
to waive any defects, irregularities or conditions of tender as
to particular Old Notes. The Company's interpretation of the
terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although
the Company intends to notify Holders of defects or
irregularities with respect to tenders of Old Notes, none of the
Company, the Exchange Agent, or any other person shall incur any
liability for failure to give such notification. Tenders of Old
Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received
by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived
will be returned by the Exchange Agent to the tendering Holders,
unless otherwise provided in the Letter of Transmittal, as soon
as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole
discretion to purchase or make offers for any Old Notes that
remain outstanding subsequent to the Expiration Date or, as set
forth above under "--Conditions," to terminate the Exchange Offer
and, to the extent permitted by applicable law, purchase Old
Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ
from the terms of the Exchange Offer.
By tendering, each Holder will represent to the Company
that, among other things, (i) the New Notes acquired pursuant to
the Exchange Offer is being obtained in the ordinary course of
business of the Person receiving such New Notes, whether or not
such person is the Holder, (ii) neither the Holder nor any such
other person is engaging in or intends to engage in a
distribution of such New Notes, (iii) neither the Holder nor any
such other person has an arrangement or understanding with any
Person to participate in the distribution of such New Notes, and
(iv) neither the Holder nor any such other Person is an
"affiliate," as defined in Rule 405 of the Securities Act, of the
Company.
In all cases, issuance of New Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old
Notes or a timely Book-Entry Confirmation of such Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility,
a properly completed and duly executed Letter of Transmittal and
all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of
the Exchange Offer or if Old Notes are submitted for a greater
principal amount than the Holder desires to exchange, such
unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering Holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below, such
non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange
Offer.
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<PAGE>
BOOK-ENTRY TRANSFER
The Exchange Agent each will make a request to establish an
account with respect to the Old Notes at the Book-Entry Transfer
Facility for purposes of the Exchange Offer within two business
days after the date of this Prospectus, and any financial
institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by
causing the Book-Entry Transfer to transfer such Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility
in accordance with such Book-Entry Transfer Facility's procedures
for transfer. However, although delivery of Old Notes may be
effected through book-entry transfer at the Book-Entry Transfer
Facility, the Letter of Transmittal or facsimile thereof, with
any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by
the Exchange Agent at the address set forth below under "--
Exchange Agent" on or prior to the Expiration Date or the
guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old
Notes are not immediately available or (ii) who cannot deliver
their Old Notes, the Letter of Transmittal or any other required
documents to the Exchange Agent prior to the Expiration Date, may
effect a tender if:
(a) The tender is made through an Eligible
Institution;
(b) Prior to the Expiration Date, the Exchange Agent
receives from such Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and
address of the Holder, the certificate number(s) of such Old
Notes and the principal amount of Old Notes tendered stating that
the tender is being made thereby and guaranteeing that, within
five New York Stock Exchange trading days after the Expiration
Date, the Letter of Transmittal (or facsimile thereof) together
with the certificate(s) representing the Old Notes and any other
documents required by the Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of
Transmittal (or facsimile thereof), as well as the certificate(s)
representing all tendered Old Notes in proper form for transfer
and other documents required by the Letter of Transmittal are
received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent a Notice of Guaranteed
Delivery will be sent to Holders who wish to tender their Old
Notes according to the guaranteed delivery procedures set forth
above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes
may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a
written or facsimile transmission notice of withdrawal must be
received by the Exchange Agent at its address set forth herein
prior to 5:00 p.m., New York City time, on the Expiration Date.
Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn
(including the certificate number or), (iii) be signed by the
Holder in the same manner as the original signature on the Letter
of Transmittal by which such Old Notes were tendered (including
any required signature guarantees) or be accompanied by documents
of transfer sufficient to have the Trustee with respect to the
Old Notes register the transfer of such Old Notes in the name of
the person withdrawing the tender and (iv) specify the name in
which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and
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<PAGE>
eligibility (including time of receipt) of such notices will be
determined by the Company, whose determination shall be final and
binding on all parties. Any Old Notes so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange
Offer and no New Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes
which have been tendered but which are not accepted for payment
will be returned to the Holder thereof without cost to such
Holder as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn
Old Notes may be retendered by following one of the procedures
described above under "-- Procedures for Tendering" at any time
prior to the Expiration Date.
EXCHANGE AGENT
Norwest Banks has been appointed as Exchange Agent of the
Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notice of Guaranteed Delivery with
respect to the exchange of the Old Notes should be directed to
the Exchange Agent addressed as follows:
By Registered Mail or Certified By Overnight Courier:
Mail:
Norwest Banks Norwest Banks
Corporate Trust Section Corporate Trust Section
P.O. Box 1517 NorthStar East Building
Minneapolis, MN 55480-1517 Sixth and Marquette
Avenues
Minneapolis, MN 55479-
0113
By Telephone: By Facsimile:
(612) 667-4070 (612) 667-4972
FEES AND EXPENSES
The expenses of soliciting tenders will be paid by the
Company. The principal solicitation is being made by mail;
however, additional solicitation may be made by telecopier,
telephone or in person by officers and regular employees of the
Company and its affiliates.
The Company has not retained any dealer-manager in
connection with the Exchange Offer and will not make any payments
to brokers-dealers or others soliciting acceptances of the
Exchange Offer. The Company, however, will pay the Exchange Agent
reasonable and customary fees for their services and will
reimburse them for their reasonable out-of-pocket expenses in
connection therewith.
The cash expenses to be incurred in connection with the
Exchange Offer will be paid by the Company and are estimated in
the aggregate to be approximately $100,000. Such expenses include
registration fees, fees and expenses of the Exchange Agent
accounting and legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable
to the exchange of the Old Notes pursuant to the Exchange Offer.
If, however, certificates representing New Notes for principal
amounts or number of shares not tendered or accepted for exchange
are to be delivered to, or are to be issued in the name of, any
person other than the registered Holder of Old Notes tendered, or
if tendered the Old Notes are registered in the name of, any
person other than the person signing the Letter of Transmittal,
or if a transfer tax is imposed for any reason other than the
exchange of the Old Notes pursuant to the Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the
registered Holder or any other persons) will be payable by the
tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed
directly to such tendering Holder.
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<PAGE>
DESCRIPTION OF THE NEW NOTES
The New Notes are to be issued under an Indenture, dated as
of February 12, 1998 (the "Indenture"), between the Company, as
issuer, and Norwest Bank Colorado, National Association, as
trustee (the "Trustee"). A copy of the Indenture is available
upon request from the Company. The following summary of certain
provisions of the Indenture does not purport to be complete and
is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of
certain terms therein and those terms made a part thereof by the
Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). Whenever particular defined terms of the Indenture not
otherwise defined herein are referred to, such defined terms are
incorporated herein by reference. For definitions of certain
capitalized terms used in the following summary, see "-- Certain
Definitions."
GENERAL
The New Notes will be senior, unsecured obligations of the
Company, initially limited to $490,000,000 aggregate principal
amount at maturity, and will mature on February 15, 2008.
Although for federal income tax purposes, a significant amount of
original issue discount, taxable as ordinary income, will be
recognized by a Holder as such discount accrues from the issue
date of the New Notes, no interest will be payable on the New
Notes prior to August 15, 2003. From and after February 15, 2003,
interest will accrue at the rate of 10% per annum from February
15, 2003, or from the most recent Interest Payment Date to which
interest has been paid or provided for, payable semiannually (to
Holders of record at the close of business on the February 1 or
August 1 immediately preceding the Interest Payment Date) on
February 15 and August 15 of each year, commencing August 15,
2003.
Principal of, premium, if any, and interest on the New Notes
will be payable, and the New Notes may be exchanged or
transferred, at the office or agency of the Company (which
initially will be the corporate trust office of the Trustee at
1740 Broadway, Denver, Colorado), or at the option of the
Company, payment of interest may be made by check mailed to the
Holders at their addresses as they appear in the Security
Register; provided that all payments of principal, premium, if
any, and interest with respect to New Notes represented by one or
more permanent global New Notes registered in the name of or held
by DTC or its nominee will be made by wire transfer of
immediately available funds to the accounts specified by the
Holder or Holders thereof.
The New Notes will be issued only in fully registered form,
without coupons, in denominations of $1,000 of principal amount
at maturity and any integral multiple thereof. See "-- Book
Entry; Delivery and Form." No service charge will be made for any
registration of transfer or exchange of New Notes, but the
Company may require payment of a sum sufficient to cover any
transfer tax or other similar governmental charge payable in
connection therewith.
Subject to the covenants described below under "Covenants"
and applicable law, the Company may issue additional New Notes
under the Indenture. The New Notes offered hereby and any
additional New Notes subsequently issued would be treated as a
single class for all purposes under the Indenture.
OPTIONAL REDEMPTION
The New Notes will be redeemable, at the Company's option,
in whole or in part, at any time or from time to time, on or
after February 15, 2003 and prior to maturity, upon not less than
30 nor more than 60 days' prior notice mailed by first class mail
to each Holder's last address as it appears in the Security
Register, at the following prices (the "Redemption Prices")
(expressed in percentages of principal amount at maturity), plus
accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on the relevant
Regular Record Date that is on or prior to the Redemption Date to
receive interest due on an Interest Payment Date), if redeemed
during the 12-month period commencing February 15, of the years
set forth below:
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YEAR REDEMPTION
------------------ PRICE
----------
2003 . . . . . . . . . . . . . . . . . . . . . . 105.0000%
2004 . . . . . . . . . . . . . . . . . . . . . . 103.3333
2005 . . . . . . . . . . . . . . . . . . . . . . 101.6667
2006 and thereafter . . . . . . . . . . . . . . . 100.0000
In addition, at any time or from time to time, on or prior
to February 15, 2001, the Company may, at its option, redeem New
Notes having an aggregate principal amount at maturity of up to
35% of the aggregate principal amount at maturity of the Notes
with the proceeds of one or more public or private Equity
Offerings, at a Redemption Price equal to 110.0% of Accreted
Value on the Redemption Date; provided that at least 65% of the
aggregate principal amount of New Notes initially issued remains
outstanding after each such redemption.
In the case of any partial redemption, selection of the New
Notes for redemption will be made by the Trustee in compliance
with the requirements of the principal national securities
exchange, if any, on which the New Notes are listed or, if the
New Notes are not listed on a national securities exchange, by
lot or by such other method as the Trustee in its sole discretion
shall deem to be fair and appropriate; provided that no New Note
of $1,000 in principal amount at maturity or less shall be
redeemed in part. If any New Note is to be redeemed in part only,
the notice of redemption relating to such New Note shall state
the portion of the principal amount thereof to be redeemed. A new
New Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon
cancellation of the original New Note.
RANKING
The New Notes will be senior, unsecured obligations of the
Company, will rank pari passu in right of payment with all
existing and future unsecured, unsubordinated indebtedness and
will be senior in right of payment to all existing and future
subordinated indebtedness of the Company. At December 31, 1997,
after giving pro forma effect to the Private Offering and the
NETCOM acquisition, the Company would have had, on a consolidated
basis, approximately $306.6 million of indebtedness including
capitalized lease obligations. The Company is a holding company
and the New Notes will be effectively subordinated to all
liabilities (including trade payables) of the subsidiaries of the
Company, and at December 31, 1997, on the same pro forma basis,
the subsidiaries of the Company would have had approximately $-
34.5 million of liabilities (excluding intercompany payables)
including approximately $6.0 million of indebtedness, consisting
solely of capitalized lease obligations. The Company may incur
substantial amounts of indebtedness in the future. See "Risk
Factors -- Substantial Indebtedness; Ability to Service Debt" and
"-- Holding Company Structure; Priority of Creditors."
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms
used in the covenants and other provisions of the Indenture.
Reference is made to the Indenture for the definition of any
other capitalized term used herein for which no definition is
provided.
"Accreted Value" is defined to mean, for any Specified Date,
the amount calculated pursuant to (i), (ii), (iii) or (iv) for
each $1,000 principal amount at maturity of New Notes:
(i) if the Specified Date occurs on one of the
following dates (each a "Semi-Annual Accrual Date"), the
Accreted Value will equal the amount set forth below for
such Semi-Annual Accrual Date:
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
------------ --------
August 15, 1998 $644.60
February 15, 1999 $676.83
August 15, 1999 $710.68
February 15, 2000 $746.21
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August 15, 2000 $783.52
February 15, 2001 $822.70
August 15, 2001 $863.83
February 15, 2002 $907.02
August 15, 2002 $952.38
February 15, 2003 $
1,000.00
(ii) if the Specified Date occurs before the first
Semi-Annual Accrual Date, the Accreted Value will equal the
sum of (a) the original issue price and (b) an amount equal
to the product of (1) the Accreted Value for the first Semi-
Annual Accrual Date less the original issue price multiplied
by (2) a fraction, the numerator of which is the number of
days from the issue date of the New Notes to the Specified
Date, using a 360-day year of twelve 30-day months, and the
denominator of which is the number of days elapsed from the
issue date of the Notes to the first Semi-Annual Accrual
Date, using a 360-day year of twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-
Annual Accrual Dates, the Accreted Value will equal the sum
of (a) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding such Specified Date and (b) an amount
equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the
Accreted Value for the immediately preceding Semi-Annual
Accrual Date multiplied by (2) a fraction, the numerator of
which is the number of days from the immediately preceding
Semi-Annual Accrual Date to the Specified Date, using a 360-
day year of twelve 30-day months, and the denominator of
which is 180; or
(iv) if the Specified Date occurs after the last Semi-
Annual Accrual Date, the Accreted Value will equal $1,000.
"Acquired Indebtedness" means Indebtedness of a Person
existing at the time such Person becomes a Restricted Subsidiary
or assumed in connection with an Asset Acquisition by a
Restricted Subsidiary and not Incurred in connection with, or in
anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition.
"Adjusted Consolidated Net Income" means, for any period,
the aggregate net income (or loss) of the Company and its
Restricted Subsidiaries for such period determined in conformity
with GAAP; provided that the following items shall be excluded in
computing Adjusted Consolidated Net Income (without duplication):
(i) the net income (or loss) of any Person that is not a
Restricted Subsidiary (or is an Unrestricted Subsidiary), except
to the extent of the amount of dividends or other distributions
actually paid to the Company or any of its Restricted
Subsidiaries by such Person or an Unrestricted Subsidiary during
such period; (ii) solely for the purposes of calculating the
amount of Restricted Payments that may be made pursuant to clause
(C) of the first paragraph of the "Limitation on Restricted
Payments" covenant described below (and in such case, except to
the extent includible pursuant to clause (i) above), the net
income (or loss) of any Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated
with the Company or any of its Restricted Subsidiaries or all or
substantially all of the property and assets of such Person are
acquired by the Company or any of its Restricted Subsidiaries;
(iii) the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is
not at the time permitted by the operation of the terms of its
charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such
Restricted Subsidiary (except to the extent such restriction has
been legally waived); (iv) any gains or losses (on an after-tax
basis) attributable to Asset Sales or the termination of
discontinued operations; (v) except for purposes of calculating
the amount of Restricted Payments that may be made pursuant to
clause (C) of the first paragraph of the "Limitation on
Restricted Payments" covenant described below, any amount paid or
accrued as dividends on preferred stock of the Company or any
Restricted Subsidiary owned by Persons other than the Company and
any of its Restricted Subsidiaries; (vi) all extraordinary gains
and extraordinary losses; and (vii) at the irrevocable election
of the Company for each occurrence, any net after-tax income
(loss) from discontinued operations; provided that for purposes
of any subsequent Investment in the entity conducting such
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discontinued operations under the "Restricted Payments" covenant,
such entity shall be treated as an Unrestricted Subsidiary until
such discontinued operations have actually been disposed of.
"Adjusted Consolidated Net Tangible Assets" means the total
amount of assets of the Company and its Restricted Subsidiaries
(less applicable depreciation, amortization and other valuation
reserves), except to the extent resulting from write-ups of
capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its
Restricted Subsidiaries (excluding intercompany items) and (ii)
all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, all as set forth
on the most recent quarterly or annual consolidated balance sheet
of the Company and its Restricted Subsidiaries, prepared in
conformity with GAAP and filed with the Commission or provided to
the Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant.
"Affiliate" means, as applied to any Person, any other
Person directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such Person. For
purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means
the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by
contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company
or any of its Restricted Subsidiaries in any other Person
pursuant to which such Person shall become a Restricted
Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries
of the property and assets of any Person other than the Company
or any of its Restricted Subsidiaries that constitute
substantially all of a division or line of business of such
Person.
"Asset Sale" means any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback
transaction) in one transaction or a series of related
transactions by the Company or any of its Restricted Subsidiaries
to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any
Restricted Subsidiary, (ii) all or substantially all of the
property and assets of an operating unit or business of the
Company or any of its Restricted Subsidiaries or (iii) any other
property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of the Company or any
of its Restricted Subsidiaries outside the ordinary course of
business of the Company or such Restricted Subsidiary and, in
each case, that is not governed by the provisions of the
Indenture applicable to mergers, consolidations and sales of all
or substantially all of the assets of the Company; provided that
"Asset Sale" shall not include (a) sales or other dispositions of
inventory, receivables and other current assets, (b) sales or
other dispositions of assets for consideration at least equal to
the fair market value of the assets sold or disposed of, to the
extent that the consideration received would constitute property
or assets of the kind described in clause (B) of the "Limitation
on Asset Sales" covenant, (c) a disposition of cash or Temporary
Cash Investments, (d) any Restricted Payment that is permitted to
be made, and is made, under the "Limitation on Restricted
Payments" covenant, (e) sales or other dispositions of assets
with a fair market value (as certified in an Officers'
Certificate) not in excess of $2.0 million (provided that any
series of related sales or dispositions in excess of $2.0 million
shall be considered "Asset Sales"), (f) the lease, license,
transfer of rights-of-use, assignment of a lease, license,
transfer of rights-of-use or sublease or sublicense of any real
or personal property in the ordinary course of business, (g)
foreclosures on assets, (h) substantially simultaneous exchange
by the Company or any Restricted Subsidiary of property or
equipment for other property or equipment; provided that the
property or equipment received by the Company or such Restricted
Subsidiary has, at least substantially equal market value to the
Company or such Restricted Subsidiary, (i) sales or other
dispositions by the Company or any Restricted Subsidiary, from
time to time, of up to 100% of the Southwest Communications
Business to Central and South West Corporation or its affiliates
or CSW/ICG ChoiceCom, L.P. and (j) transfer or other disposition
by the Company or any Restricted Subsidiary of Capital Stock of
any Restricted Subsidiary or an operating unit or business of the
Company or any Restricted Subsidiary in exchange for an ownership
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interest in a joint venture whose primary business is related,
ancillary or complementary to (A) the businesses of the Company
and its Restricted Subsidiaries at the time of determination or
(B) the Telecommunications Business; provided that the fair
market value of such ownership interest is at least equal to the
fair market value of such Capital Stock or operating unit or
business transferred or disposed of (as determined by the Board
of Directors, where good faith determination shall be conclusive
and evidenced by a board resolution); and provided further that
the assets or properties so transferred or disposed of pursuant
to this clause (j) do not exceed 20% of Adjusted Consolidated Net
Tangible Assets at the time of such transfer or disposition.
"Average Life" means, at any date of determination with
respect to any debt security, the quotient obtained by dividing
(i) the sum of the products of (a) the number of years from such
date of determination to the dates of each successive scheduled
principal payment of such debt security and (b) the amount of
such principal payment by (ii) the sum of all such principal
payments.
"Capital Stock" means, with respect to any Person, any and
all shares, interests, participations or other equivalents
(however designated, whether voting or non-voting) in equity of
such Person, whether outstanding on the Closing Date or issued
thereafter, including, without limitation, all Common Stock,
Preferred Stock, partnership or membership interests and any
other right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Capitalized Lease" means, as applied to any Person, any
lease of any property (whether real, personal or mixed) of which
the discounted present value of the rental obligations of such
Person as lessee, in conformity with GAAP, is required to be
capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the amount of the
liability in respect of a Capitalized Lease that would at such
time be required to be capitalized and reflected as a liability
on balance sheet prepared in accordance with GAAP.
"Change of Control" means such time as (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Exchange Act) becomes the ultimate "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act) of (A) more than 40% of the
total voting power of the Voting Stock of the Company on a fully
diluted basis and (B) Voting Stock of the Company having a
greater total voting power than the Voting Stock of the Company
(on a fully diluted basis) beneficially owned by ICG or (ii)
individuals who on the Closing Date constitute the Board of
Directors (together with any new directors whose election by the
Board of Directors or whose nomination by the Board of Directors
for election by the Company's stockholders was approved by a vote
of at least a majority of the members of the Board of Directors
then in office who either were members of the Board of Directors
on the Closing Date or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in office.
"Closing Date" means the date on which the New Notes are
originally issued under the Indenture.
"Consolidated EBITDA" means, for any period, Adjusted
Consolidated Net Income for such period plus, to the extent such
amount was deducted in calculating such Adjusted Consolidated Net
Income, (i) Consolidated Interest Expense, (ii) income taxes
(other than income taxes (either positive or negative)
attributable to extraordinary and non-recurring gains or losses
or sales of assets), (iii) depreciation expense, (iv)
amortization expense and (v) all other non-cash items reducing
Adjusted Consolidated Net Income (other than items that will
require cash payments and for which an accrual or reserve is, or
is required by GAAP to be, made), less all non-cash items
increasing (or, in the case of a loss, decreasing) Adjusted
Consolidated Net Income, determined, with respect to clauses
(ii), (iii) and (iv), on a consolidated basis for the Company and
its Restricted Subsidiaries in conformity with GAAP; provided
that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to
the extent not otherwise reduced in accordance with GAAP) by an
amount equal to (A) the amount of the Adjusted Consolidated Net
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Income attributable to such Restricted Subsidiary multiplied by
(B) the percentage ownership interest in the income of such
Restricted Subsidiary not owned on the last day of such period by
the Company or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the
aggregate amount (without duplication) of interest in respect of
Indebtedness (including, without limitation, amortization of
original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in
accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing;
the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any
of its Restricted Subsidiaries) and the interest component of
Capitalized Lease Obligations paid, accrued or scheduled to be
paid or to be accrued by the Company and its Restricted
Subsidiaries during such period; excluding, however, (i) any
amount of such interest of any Restricted Subsidiary if the net
income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof (but only in the same
proportion as the net income of such Restricted Subsidiary is
excluded from the calculation of Adjusted Consolidated Net Income
pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof)
payable in connection with the offering of the Notes, all as
determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction
Date, the ratio of (i) the aggregate amount of Indebtedness of
the Company and its Restricted Subsidiaries on a consolidated
basis outstanding on such Transaction Date to (ii) the aggregate
amount of Consolidated EBITDA for the then most recent four
fiscal quarters for which financial statements of the Company
have been filed with the Commission or provided to the Trustee
pursuant to the "Commission Reports and Reports to Holders"
covenant described below (such four fiscal quarter period being
the "Four Quarter Period"); provided that, in making the
foregoing calculation, pro forma effect shall be given to the
following events which occur from the beginning of the Four
Quarter Period through the Transaction Date (the "Reference
Period"): (i) the Incurrence of the Indebtedness with respect to
which the computation is being made and (if applicable) the
application of the net proceeds therefrom, including to refinance
other Indebtedness, as if such Indebtedness was incurred, and the
application of such proceeds occurred, at the beginning of the
Four Quarter Period; (ii) the Incurrence, repayment or retirement
of any other Indebtedness by the Company and its Restricted
Subsidiaries since the first day of the Four Quarter Period as if
such Indebtedness was incurred, repaid or retired at the
beginning of the Four Quarter Period; (iii) in the case of
Acquired Indebtedness, the related acquisition, as if such
acquisition occurred at the beginning of the Four Quarter Period;
(iv) any acquisition or disposition by the Company and its
Restricted Subsidiaries of any company or any business or any
assets out of the ordinary course of business, whether by merger,
stock purchase or sale or asset purchase or sale or any related
repayment of Indebtedness, in each case since the first day of
the Four Quarter Period, assuming such acquisition or disposition
had been consummated on the first day of the Four Quarter Period
and after giving pro forma effect to net cost savings that the
Company reasonably believes in good faith could have been
achieved during the Four Quarter Period as a result of such
acquisition or disposition (provided that both (A) such cost
savings were identified and quantified in an Officers'
Certificate delivered to the Trustee at the time of the
consummation of the acquisition or disposition and (B) with
respect to each acquisition or disposition completed prior to the
90th day preceding such date of determination, actions were
commenced or initiated by the Company within 90 days of such
acquisition or disposition to effect such cost savings identified
in such Officers' Certificate and with respect to any other
acquisition or disposition, such Officers' Certificate sets forth
the specific steps to be taken within the 90 days after such
acquisition or disposition to accomplish such cost savings); and
provided further that (x) in making such computation, the
Consolidated Interest Expense attributable to interest on any
Indebtedness computed on a pro forma basis and (A) bearing a
floating interest rate shall be computed as if the rate in effect
on the date of computation had been the applicable rate for the
entire period and (B) which was not outstanding during the period
for which the computation is being made but which bears, at the
option of the Company, a fixed or floating rate of interest shall
be computed by applying, at the option of the Company, either the
fixed or floating rate, and (y) in making such computation, the
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Consolidated Interest Expense of the Company attributable to
interest on any Indebtedness under a revolving credit facility
computed on a pro forma basis shall be computed based upon the
pro forma average daily balance of such Indebtedness during the
applicable period; and (v) the occurrence of any of the events
described in clauses (i)-(iv) above by any Person that has become
a Restricted Subsidiary or has been merged with or into the
Company or any Restricted Subsidiary during such Reference
Period.
"Consolidated Net Worth" means, at any date of
determination, stockholders' equity as set forth on the most
recently available quarterly or annual consolidated balance sheet
of the Company and its Restricted Subsidiaries (which shall be as
of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted
Subsidiaries), less any amounts attributable to Disqualified
Stock or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount
of any promissory notes receivable from the sale of the Capital
Stock of the Company or any of its Restricted Subsidiaries, each
item to be determined in conformity with GAAP (excluding the
effects of foreign currency exchange adjustments under Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 52) .
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or
arrangement.
"Default" means any event that is, or after notice or
passage of time or both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital
Stock of any Person that by its terms or otherwise is (i)
required to be redeemed prior to the Stated Maturity of the New
Notes, (ii) redeemable at the option of the holder of such class
or series of Capital Stock at any time prior to the Stated
Maturity of the New Notes or (iii) convertible into or
exchangeable for Capital Stock referred to in clause (i) or (ii)
above or Indebtedness having a scheduled maturity prior to the
Stated Maturity of the New Notes; provided that any Capital Stock
that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person
to repurchase or redeem such Capital Stock (or the security for
which such Capital Stock is convertible into or exchangeable for)
upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the New Notes shall not
constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock (or the
security for which such Capital Stock is convertible into or
exchangeable for) are no more favorable to the holders of such
Capital Stock (or the security for which such Capital Stock is
convertible into or exchangeable for) than the provisions
contained in "Limitation on Asset Sales" and "Repurchase of New
Notes upon a Change of Control" covenants described below and
such Capital Stock (or the security for which such Capital Stock
is convertible into or exchangeable for) specifically provides
that such Person will not repurchase or redeem any such stock
pursuant to such provision prior to the Company's repurchase of
such New Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of New Notes upon a
Change of Control" covenants described below.
"Equity Offering" means any public or private sale of
Capital Stock of the Company (excluding Disqualified Stock),
other than public offerings with respect to the Company's common
stock registered on Form S-8.
"fair market value" means the price that would be paid in an
arm's length transaction between an informed and willing seller
under no compulsion to sell and an informed and willing buyer
under no compulsion to buy; fair market value may be determined
in good faith by the Board of Directors of the Company, whose
determination shall be conclusive if evidenced by a board
resolution.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the Closing Date,
including, without limitation, those set forth in the opinions
and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or
in such other statements by such other entity as approved by a
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significant segment of the accounting profession. All ratios and
computations contained or referred to in the Indenture shall be
computed in conformity with GAAP applied on a consistent basis,
except that calculations made for purposes of determining
compliance with the terms of the covenants and with other
provisions of the Indenture shall be made without giving effect
to (i) the amortization of any expenses incurred in connection
with the offering of the Notes and (ii) except as otherwise
provided, the amortization of any amounts required or permitted
by Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise,
of any Person directly or indirectly guaranteeing any
Indebtedness of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of such Person (i) to purchase or pay
(or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay
(unless such purchase arrangements or such obligations are on
arm's length terms and are entered into in the ordinary course of
business), or to maintain financial statement conditions or
otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided that the term "Guarantee"
shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb
has a corresponding meaning.
"ICG" means ICG Communications, Inc., a Delaware
corporation.
"ICG Common Stock" means common stock, par value $.01 per
share, of ICG.
"Incur" means, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for
or with respect to, or become responsible for, the payment of,
contingently or otherwise, such Indebtedness, including an
"Incurrence" of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness of
such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all obligations of such Person in respect of
letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding
trade letters of credit), (iv) all obligations of such Person to
pay the deferred and unpaid purchase price of property or
services, which purchase price is due more than six months after
the date of placing such property in service or taking delivery
and title thereto or the completion of such services, except
Trade Payables and accrued current liabilities arising in the
ordinary course of business, (v) all Capitalized Lease
Obligations of such Person, (vi) all Indebtedness referred to in
clauses (i) through (v) hereof of other Persons secured by a Lien
on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of
such asset at such date of determination and (B) the amount of
such Indebtedness, (vii) all Indebtedness of other Persons
Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person and (viii) to the extent not otherwise
included in this definition, obligations under Currency
Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding
balance at such date (or, in the case of a revolving credit or
other similar facility, the total amount of principal or interest
outstanding on the date of determination) of all unconditional
obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation of the types described
above, provided (A) that the amount outstanding at any time of
any Indebtedness issued with original issue discount is the
original issue price of such Indebtedness, (B) that money
borrowed and set aside at the time of the Incurrence of any
Indebtedness in order to prefund the payment of the interest on
such Indebtedness shall not be deemed to be "Indebtedness" and
(C) that Indebtedness shall not include any liability for
federal, state, local or other taxes.
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"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge
agreement, option or future contract or other similar agreement
or arrangement.
"Internet Service Business" means any business operating an
internet connectivity or internet enhancement service as it
exists from time to time, including, without limitation, dial-up
or dedicated internet service, web hosting or collocation
services, security solutions, the provision and development of
software in connection therewith, configuration services,
electronic commerce, intranet solutions, data backup and
restoral, business, content and collaboration, communications
tools or network equipment products or services.
"Investment" means, with respect to any Person, all
investments by such Person in other Persons in the form of any
direct or indirect advance, loan or other extension of credit
(including, without limitation, by way of Guarantee or similar
arrangement; but excluding installment sales, capital leasing
arrangements and financings for and advances to customers, in
each case in the ordinary course of business that are, in
conformity with GAAP, recorded as assets on the balance sheet of
the Company or its Restricted Subsidiaries and commissions,
travel and similar advances to officers and employees made in the
ordinary course of business) or capital contribution to (by means
of any transfer of cash or other property to others or any
payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds,
notes, debentures or other similar instruments issued by, such
other Person and shall include (i) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the
fair market value of the Capital Stock (or any other Investment),
held by the Company or any of its Restricted Subsidiaries, of (or
in) any Person that has ceased to be a Restricted Subsidiary,
including without limitation, by reason of any transaction
permitted by clause (iii) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant;
provided that the fair market value of the Investment remaining
in any Person that has ceased to be a Restricted Subsidiary shall
not exceed the aggregate amount of Investments previously made in
such Person valued at the time such Investments were made less
the net reduction of such Investments; and provided, further,
that any disposition, sale, lease, transfer, license, transfer of
rights-of-use of, communications equipment, software and capacity
and/or provision of services, by the Company or any Restricted
Subsidiary to ICG or its subsidiaries for fair market value (if,
at the time of such disposition, sale, lease or transfer, the
Company or such Restricted Subsidiary is a Subsidiary of ICG)
will not be deemed to be an Investment. For purposes of the
definition of "Unrestricted Subsidiary" and the "Limitation on
Restricted Payments" covenant described below, (i) "Investment"
shall include the fair market value of the assets (net of
liabilities (other than liabilities to the Company or any of its
Restricted Subsidiaries)) of any Restricted Subsidiary at the
time that such Restricted Subsidiary is designated an
Unrestricted Subsidiary, (ii) the fair market value of the assets
(net of liabilities (other than liabilities to the Company or any
of its Restricted Subsidiaries)) of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary shall be considered a reduction in
outstanding Investments and (iii) any property transferred to or
from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer.
"Investment Grade Securities" means (i) securities issued or
directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof (other than
cash equivalents), (ii) debt securities or debt instruments with
a rating of BBB+ or higher by S&P or Baa1 or higher by Moody's or
the equivalent of such rating by such rating organization, or, if
no rating of S&P or Moody's then exists, the equivalent of such
rating by any other nationally recognized securities rating
agency, but excluding any debt securities or instruments
constituting loans or advances among the Company and its
Subsidiaries, and (iii) investment in any fund that invests
exclusively in investments of the type described in clauses (i)
and (ii) which fund may also hold cash pending investment and/or
distribution.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without
limitation, any conditional sale or other title retention
agreement or lease in the nature thereof or any agreement to give
any security interest).
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"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" means (a) with respect to any Asset
Sale, the proceeds of such Asset Sale in the form of cash or cash
equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations
are financed or sold with recourse to the Company or any
Restricted Subsidiary) and proceeds from the conversion of other
property received when converted to cash or cash equivalents, net
of (i) brokerage commissions and other commissions, fees and
expenses (including fees and expenses of counsel, accountants and
investment bankers) related to such Asset Sale and any relocation
expenses incurred as a result thereof, (ii) provisions for all
taxes (whether or not such taxes will actually be paid or are
payable) as a result of such Asset Sale without regard to the
consolidated results of operations of the Company and its
Restricted Subsidiaries, taken as a whole, (iii) payments made to
repay Indebtedness or any other obligation outstanding at the
time of such Asset Sale that either (A) is secured by a Lien on
the property or assets sold or (B) is required to be paid as a
result of such sale and (iv) appropriate amounts to be provided
by the Company or any Restricted Subsidiary as a reserve against
any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and
(b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations
are financed or sold with recourse to the Company or any
Restricted Subsidiary) and proceeds from the conversion of other
property received when converted to cash or cash equivalents, net
of attorney's fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant
and other fees incurred in connection with such issuance or sale
and net of taxes paid or payable as a result thereof.
"Offer to Purchase" means an offer to purchase New Notes by
the Company from the Holders commenced by mailing a notice to the
Trustee and each Holder stating: (i) the covenant pursuant to
which the offer is being made and that all New Notes validly
tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from
the date such notice is mailed) (the "Payment Date"); (iii) that
any New Note not tendered will continue to accrue interest
pursuant to its terms; (iv) that, unless the Company defaults in
the payment of the purchase price, any New Note accepted for
payment pursuant to the Offer to Purchase shall cease to accrue
interest on and after the Payment Date; (v) that Holders electing
to have a New Note purchased pursuant to the Offer to Purchase
will be required to surrender the New Note, together with the
form entitled "Option of the Holder to Elect Purchase" on the
reverse side of the New Note completed, to the Paying Agent at
the address specified in the notice prior to the close of
business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close
of business on the third Business Day immediately preceding the
Payment Date, a telegram, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of
Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such New Notes purchased; and
(vii) that Holders whose New Notes are being purchased only in
part will be issued new New Notes equal in principal amount at
maturity to the unpurchased portion of the New Notes surrendered;
provided that each New Note purchased and each new New Note
issued shall be in a principal amount of $1,000 or an integral
multiple thereof. On the Payment Date, the Company shall (i)
accept for payment on a pro rata basis New Notes or portions
thereof tendered pursuant to an Offer to Purchase; (ii) deposit
with the Paying Agent money sufficient to pay the purchase price
of all New Notes or portions thereof so accepted; and (iii)
deliver, or cause to be delivered, to the Trustee all New Notes
or portions thereof so accepted together with an Officers'
Certificate specifying the New Notes or portions thereof accepted
for payment by the Company. The Paying Agent shall promptly mail
to the Holders of New Notes so accepted payment in an amount
equal to the purchase price (or, if the New Notes are represented
by one or more permanent global New Notes registered in the name
of DTC or its nominee, by such other method as required thereby),
and the Trustee shall promptly authenticate and mail to such
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Holders a new New Note equal in principal amount at maturity to
any unpurchased portion of the New Note surrendered; provided
that each New Note purchased and each new New Note issued shall
be in a principal amount at maturity of $1,000 or an integral
multiple thereof. The Company will publicly announce the results
of an Offer to Purchase as soon as practicable after the Payment
Date. The Trustee shall act as the Paying Agent for an Offer to
Purchase. The Company will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are
applicable, in the event that the Company is required to
repurchase New Notes pursuant to an Offer to Purchase.
"Permitted Investment" means (i) an Investment in the
Company or a Restricted Subsidiary or a Person which will, upon
the making of such Investment, become a Restricted Subsidiary or
be merged or consolidated with or into or transfer or convey all
or substantially all its assets to, the Company or a Restricted
Subsidiary; provided that such Person's primary business is
related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such
Investment; (ii) Temporary Cash Investments and Investment Grade
Securities; (iii) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately
to be treated as expenses in accordance with GAAP and reasonable
advances to sales representatives; (iv) any Investment acquired
by the Company or any of its Restricted Subsidiaries (x) in
exchange for any other Investment or accounts receivable held by
the Company or any such Restricted Subsidiary in connection with
or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or
accounts receivable or (y) as a result of a foreclosure by the
Company or any of its Restricted Subsidiaries with respect to any
secured Investment or other transfer of title with respect to any
secured Investment in default; (v) Guarantees permitted by the
"Limitation on Indebtedness" covenant; (vi) loans or advances to
employees of the Company or any Restricted Subsidiary that do not
in the aggregate exceed at any one time outstanding $2.0 million;
(vii) Currency Agreements and Interest Rate Agreements permitted
under the "Limitation on Indebtedness" covenant; (viii)
Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility deposits and workers' compensation,
performance and other similar deposits; (ix) Investments in debt
securities or other evidences of Indebtedness that are issued by
companies engaged in the Telecommunications Business or the
Internet Service Business; provided that when each Investment
pursuant to this clause (ix) is made, the aggregate amount of
Investments outstanding under this clause (ix) does not exceed
$3.0 million; (x) Strategic Investments and Investments in
Permitted Joint Ventures in an amount not to exceed $30.0 million
at any one time outstanding; (xi) an Investment in any Person the
primary business of which is related, ancillary or complementary
to (I) the business of the Company and its Subsidiaries on the
date of such Investments or (II) the Telecommunications Business
in an amount not to exceed at any time outstanding the sum of (A)
$20.0 million plus (B) 10% of the Company's Consolidated EBITDA,
if positive, for the immediately preceding four fiscal quarters
(valued in each case as provided in the definition of
"Investments"); (xii) securities received in connection with
Asset Sales to the extent constituting non-cash consideration
permitted under the "Asset Sale" covenant; (xiii) stock,
obligations or securities received in satisfaction of judgments,
bankruptcies, workouts or settlements; (xiv) Investments in
CSW/ICG ChoiceCom, L.P. and (xv) any Investments acquired as
capital contribution, including without limitation, acquisition
of shares of ICG Common Stock.
"Permitted Joint Venture" means any Unrestricted Subsidiary
or any other Person in which the Company or a Restricted
Subsidiary owns, directly or indirectly, an ownership interest
(other than a Restricted Subsidiary) and whose primary business
is related, ancillary or complementary to (i) the businesses of
the Company and its Restricted Subsidiaries at the time of
determination or (ii) the Telecommunications Business.
"Permitted Liens" means (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good
faith by appropriate legal proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP
shall have been made; (ii) statutory and common law Liens of
landlords and carriers, warehousemen, mechanics, attorneys,
suppliers, materialmen, repairmen or other similar Liens arising
in the ordinary course of business, unexercised rights of set
off, in each case with respect to amounts not yet delinquent or
that are bonded or being contested in good faith by appropriate
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legal proceedings promptly instituted and diligently conducted
and for which a reserve or other appropriate provision, if any,
as shall be required in conformity with GAAP shall have been
made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (iv)
Liens incurred or deposits made to secure the performance of
tenders, bids, leases, licenses, statutory or regulatory
obligations, bankers' acceptances, surety, performance and appeal
bonds, trade or government contracts, performance and return-of-
money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (v) easements (including reciprocal
easement agreements), rights-of-way, municipal, building and
zoning ordinances and similar charges, utility agreements,
covenants, reservations, restrictions, encroachments, charges,
encumbrances, title defects or other irregularities that do not
materially interfere with the ordinary course of business of the
Company or any of its Restricted Subsidiaries; (vi) Liens
(including extensions and renewals thereof) upon real or personal
property or other assets or rights acquired after the Closing
Date; provided that (a) such Lien is created solely for the
purpose of securing Trade Payables that the Company reasonably
expects to pay within 180 days or Indebtedness Incurred, in
accordance with the "Limitation on Indebtedness" covenant
described below, to finance the cost of (including the cost of
design, development, acquisition, construction, installment,
improvements, transportation or integration) or to acquire the
item of property or assets subject thereto (including, without
limitation, acquisition by way of acquisitions of real property,
leasehold improvements, licenses, rights-of-use, Capitalized
Leases and installment sales, and any refinancings thereof) and
such Lien is created prior to, at the time of or within six
months after the later of the acquisition, the completion of
construction or the commencement of full operation of such
property, (b) the principal amount of the Trade Payables or
Indebtedness secured by such Lien does not exceed 100% of such
cost and (c) any such Lien shall not extend to or cover any
property or assets other than such item of property or assets and
any improvements on such item; (vii) leases, subleases, licenses
and rights-of-use granted to others and rights of purchase
pursuant to installment sales that do not materially interfere
with the ordinary course of business of the Company and its
Restricted Subsidiaries, taken as a whole; (viii) Liens
encumbering property or assets under construction arising from
progress or partial payments by a customer of the Company or its
Restricted Subsidiaries relating to such property or assets; (ix)
any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from
filing Uniform Commercial Code financing statements regarding
leases or installment sales; (xi) Liens on property of, or on
shares of Capital Stock or Indebtedness of, any Person existing
at the time such Person becomes, or becomes a part of, any
Restricted Subsidiary; provided that such Liens do not extend to
or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets acquired; (xii)
Liens in favor of the Company or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or
order against the Company or any Restricted Subsidiary that does
not give rise to an Event of Default; (xiv) Liens securing
reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of
credit and the products and proceeds thereof; (xv) Liens in favor
of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the
importation of goods; (xvi) Liens encumbering customary initial
deposits and margin deposits, and other Liens that are within the
general parameters customary in the industry and incurred in the
ordinary course of business, in each case, securing Indebtedness
under Interest Rate Agreements and Currency Agreements and
forward contracts, options, future contracts, futures options or
similar agreements or arrangements designed solely to protect the
Company or any of its Restricted Subsidiaries from fluctuations
in interest rates, currencies or the price of commodities; (xvii)
Liens arising out of conditional sale, installment sales, title
retention, consignment or similar arrangements for the sale of
goods entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business; and (xviii)
Liens on or sales of receivables.
"Restricted Subsidiary" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Services and its
successors.
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"Significant Subsidiary" means, at any date of
determination, any Restricted Subsidiary that, together with its
Subsidiaries, (i) for the most recent fiscal year of the Company,
accounted for more than 10% of the consolidated revenues of the
Company and its Restricted Subsidiaries or (ii) as of the end of
such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted
Subsidiaries, all as set forth on the most recently available
consolidated financial statements of the Company for such fiscal
year.
"Southwest Communications Business" means the Company's or
any of its Subsidiaries' (A) Internet connectivity or Internet
enhancement service as it exists from time to time in the states
of Texas, Louisiana, Arkansas and Oklahoma, including, without
limitation, dial-up or dedicated Internet service, Web site
hosting or collocation services, security solutions, the
provision and development of software in connection therewith,
configuration services, electronic commerce, intranet solutions,
data backup and restoral, business content and collaboration,
communications tools or network equipment products or services
and (B) development, ownership or operations of one or more
telephone, telecommunications or information systems or the
provision of telephony, telecommunications or information
services (including, without limitation, any voice, video, data
or Internet services) and any related, ancillary or complementary
business in the states of Texas, Louisiana, Arkansas and
Oklahoma.
"Specified Date" means any Redemption Date, any Payment Date
for an Offer to Purchase or any date on which the Notes first
become due and payable after an Event of Default.
"Stated Maturity" means (i) with respect to any debt
security, the date specified in such debt security as the fixed
date on which the final installment of principal of such debt
security is due and payable and (ii) with respect to any
scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed
date on which such installment is due and payable.
"Strategic Investments" means (A) Investments that the Board
of Directors has determined in good faith will enable the Company
or any of its Restricted Subsidiaries to obtain additional
business that it might not be able to obtain without making such
Investment and (B) Investments in entities the principal function
of which is to perform research and development with respect to
products and services that may be used or useful in the
Telecommunications Business or the Internet Service Business;
provided that the Company or one of its Restricted Subsidiaries
is entitled or otherwise reasonably expected to obtain rights to
such products or services as a result of such Investment.
"Strategic Subordinated Indebtedness" means Indebtedness of
the Company that (i) is expressly made subordinate in right of
payment to the New Notes and (ii) provides that no payment of
principal, premium or interest on, or any other payment with
respect to, such Indebtedness may be made prior to the payment in
full of all of the Company's obligations under the New Notes.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association, or other business entity (other than a
partnership) of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of
determination owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of such
Person or a combination thereof and (ii) any partnership, joint
venture, limited liability company or similar entity of which (x)
more than 50% of the capital accounts, distribution rights, total
equity and voting interests or general or limited partnership
interests, as applicable, are owned or controlled, directly or
indirectly, by such Person or one or more of the other
Subsidiaries of such Person or a combination thereof whether in
the form of membership, general, special or limited partnership
or otherwise and (y) such Person or any Wholly Owned Restricted
Subsidiary of such Person is a general partner or otherwise
controls such entity.
"Telecommunications Business" means the development,
ownership or operation of one or more telephone,
telecommunications or information systems or the provision of
telephony, telecommunications or information services (including,
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without limitation, any voice, video, data or Internet services)
and any related, ancillary or complementary business.
"Temporary Cash Investment" means any of the following: (i)
direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by
the United States of America or any agency or instrumentality
thereof, (ii) deposit accounts, time deposit accounts,
certificates of deposit, eurodollar time deposits, overnight bank
deposits and money market deposits maturing within one year or
less of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States of
America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of
$50 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor, (iii)
repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clauses (i) and
(ii) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) commercial paper, maturing
not more than 90 days after the date of acquisition, issued by a
corporation (other than an Affiliate of the Company) organized
and in existence under the laws of the United States of America,
any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to
Moody's or "A-1" (or higher) according to S&P, (v) securities
with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America,
or by any political subdivision or taxing authority thereof, and
rated at least "A" by S&P or Moody's, and (vi) investment funds
investing 95% of their assets in securities of the type described
in clauses (i) through (v) above.
"Trade Payables" means, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation
to trade creditors created, assumed or Guaranteed by such Person
or any of its Subsidiaries arising in the ordinary course of
business in connection with the acquisition of goods or services
and required to be paid within one year.
"Transaction Date" means, with respect to the Incurrence of
any Indebtedness by the Company or any of its Restricted
Subsidiaries, the date such Indebtedness is to be Incurred and,
with respect to any Restricted Payment, the date such Restricted
Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an
Unrestricted Subsidiary by the Board of Directors in the manner
provided below; and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or
holds any Lien on any property of, the Company or any Restricted
Subsidiary; provided that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being
so designated shall be deemed an "Incurrence" of such
Indebtedness and an "Investment" by the Company or such
Restricted Subsidiary (or both, if applicable) at the time of
such designation; (B) either (I) the Subsidiary to be so
designated has total assets of $1,000 or less or (II) if such
Subsidiary has assets greater than $1,000, such designation would
be permitted under the "Limitation on Restricted Payments"
covenant described below and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this
proviso would be permitted under the "Limitation on Indebtedness"
and "Limitation on Restricted Payments" covenants described
below. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that (i) no
Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such designation and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if Incurred
at such time, have been permitted to be Incurred (and shall be
deemed to have been Incurred) for all purposes of the Indenture.
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Any such designation by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the
Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied
with the foregoing provisions.
"Voting Stock" means, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote
for the election of directors, managers or other voting members
of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any
Person, the ownership of all of the outstanding Capital Stock of
such Subsidiary (other than any director's qualifying shares or
Investments by foreign nationals mandated by applicable law) by
such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its
Restricted Subsidiaries to, Incur any Indebtedness (other than
the New Notes and Indebtedness existing on the Closing Date);
provided that the Company may Incur Indebtedness if, after giving
effect to the Incurrence of such Indebtedness and the receipt and
application of the proceeds therefrom, the Consolidated Leverage
Ratio would be greater than zero and less than 6:1.
Notwithstanding the foregoing, the Company and any
Restricted Subsidiary (except as specified below) may Incur each
and all of the following: (i) Indebtedness of the Company or its
Restricted Subsidiaries outstanding at any time in an aggregate
principal amount not to exceed (A) $200 million of unsubordinated
Indebtedness (including any Indebtedness under one or more
revolving credit or working capital facilities) and (B) $200
million of subordinated Indebtedness (and any Guarantees thereof
by the Company or its Restricted Subsidiaries), less any amount
of such Indebtedness permanently repaid as provided under the
"Limitation on Asset Sales" covenant described below; (ii) the
Incurrence by the Company of Indebtedness represented by the New
Notes; (iii) Indebtedness in existence on the Closing Date; (iv)
Indebtedness of the Company to a Restricted Subsidiary and
Indebtedness of a Restricted Subsidiary to the Company or another
Restricted Subsidiary; provided that such Indebtedness is made
pursuant to an intercompany note (which, in the case of
Indebtedness owed to the Company, shall be unsubordinated) and
any event which results in any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to the Company or another Restricted
Subsidiary) shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness not permitted by this clause
(iv); (v) Indebtedness issued in exchange for, or the net
proceeds of which are used to refinance or refund, then
outstanding Indebtedness (other than Indebtedness Incurred under
clauses (i), (iv), (vi) or (viii) of this paragraph) and any
refinancings thereof in an amount not to exceed the amount so
refinanced or refunded (plus premiums, accrued interest, fees and
expenses); provided that Indebtedness the proceeds of which are
used to refinance or refund Indebtedness that is subordinated in
right of payment to the New Notes shall only be permitted under
this clause (v) if (A) such new Indebtedness, by its terms or by
the terms of any agreement or instrument pursuant to which such
new Indebtedness is issued or remains outstanding, is expressly
made subordinate in right of payment to the New Notes at least to
the extent that the Indebtedness to be refinanced is subordinated
to the New Notes and (B) such new Indebtedness, determined as of
the date of Incurrence of such new Indebtedness, does not mature
prior to the Stated Maturity of the Indebtedness to be refinanced
or refunded, and the Average Life of such new Indebtedness is at
least equal to the remaining Average Life of the Indebtedness to
be refinanced or refunded; and provided further that in no event
may Indebtedness of the Company be refinanced by means of any
Indebtedness of any Restricted Subsidiary pursuant to this clause
(v); (vi) Indebtedness (A) in respect of performance, surety or
appeal bonds provided in the ordinary course of business, (B)
under Currency Agreements and Interest Rate Agreements; provided
that such agreements (a) are designed solely to protect the
Company or its Restricted Subsidiaries against fluctuations in
foreign currency exchange rates or interest rates and (b) do not
increase the Indebtedness of the obligor outstanding at any time
(except to the extent Incurred under another clause hereof) other
than as a result of fluctuations in foreign currency exchange
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rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder; and (C) arising from agreements
providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit,
surety bonds or performance bonds securing any obligations of the
Company or any of its Restricted Subsidiaries pursuant to such
agreements, in each case Incurred in connection with the
disposition of any business, assets or Restricted Subsidiary
(other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such
acquisition), in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted
Subsidiary in connection with such disposition; (vii)
Indebtedness of the Company, to the extent the net proceeds
thereof are promptly (A) used to purchase New Notes tendered in
an Offer to Purchase made as a result of a Change in Control or
(B) deposited to defease the New Notes as described below under
"Defeasance"; (viii) Guarantees of the New Notes and Guarantees
of Indebtedness of the Company by any Restricted Subsidiary
provided the Guarantee of such Indebtedness is permitted by and
made in accordance with the "Limitation on Issuance of Guarantees
by Restricted Subsidiaries" covenant described below and any
Guarantee by the Company of Indebtedness or other obligations of
any of its Restricted Subsidiaries so long as the incurrence of
such Indebtedness Incurred by such Restricted Subsidiary is
permitted under the terms of this covenant; (ix) Indebtedness
Incurred to finance the cost (including, without limitation, the
cost of design, development, acquisition, construction,
installation, improvement, transportation or integration) to
acquire equipment, inventory, assets, services and related costs
in connection with the Internet Service Business or the
Telecommunications Business (including, without limitation,
acquisitions by way of acquisitions of real property, leasehold
improvements, licenses, rights-of-use, Capitalized Leases,
installment sales and acquisitions of the Capital Stock of a
Person that becomes a Restricted Subsidiary to the extent of the
fair market value of the equipment, inventory or network assets
so acquired) by the Company or a Restricted Subsidiary after the
Closing Date; (x) Indebtedness of the Company not to exceed, at
any one time outstanding, the sum (without duplication) of (A)
two times the Net Cash Proceeds received by the Company from the
sale of ICG Common Stock contributed by ICG to the Company after
the Closing Date to a Person that is not a Subsidiary of the
Company (1.6 times the closing price, last sale price or similar
price of such ICG Common Stock at the time received by the
Company to the extent such ICG Common Stock has not been sold)
plus (B) two times cash or cash equivalents contributed by ICG or
its Subsidiaries (other than the Company and its Subsidiaries) to
the Company after the Closing Date plus (C) 1.6 times the fair
market value of other assets (including, without limitation,
Capital Stock) acquired by the Company or its Restricted
Subsidiaries to the extent that the consideration therefor
consists of ICG Common Stock plus (D) 1.6 times the fair market
value of other assets contributed by ICG or its Subsidiaries
(other than the Company and its Subsidiaries) to the Company
after the Closing Date plus (E) two times the Net Cash Proceeds
received by the Company after the Closing Date from the issuance
and sale of its Capital Stock (other than Disqualified Stock) to
a Person that is not a Subsidiary of the Company plus (F) 1.6
times the fair market value of property (other than cash and cash
equivalents) received by the Company after the Closing Date from
the sale of its Capital Stock (other than Disqualified Stock) to
a Person that is not a Subsidiary of the Company, in each case,
to the extent such Net Cash Proceeds, ICG Common Stock, cash or
cash equivalents or such other assets or property have not been
used pursuant to clause (C)(2) of the first paragraph or clause
(iii) or (iv), as the case may be, of the second paragraph of the
"Limitation on Restricted Payments" covenant described below;
provided that such Indebtedness does not mature prior to the
Stated Maturity of the New Notes and has a then current Average
Life at least as long as the New Notes; (xi) Indebtedness
Incurred by the Company or any of its Restricted Subsidiaries
constituting reimbursement obligations with respect to letters of
credit in the ordinary course of business, including, without
limitation, letters of credit in respect of workers' compensation
claims or self insurance, or other Indebtedness with respect to
reimbursement type obligations regarding workers' compensation
claims; provided, however, that upon the drawing of such letters
of credit or the Incurrence of such Indebtedness, such
obligations are reimbursed within 30 days following such drawing
or Incurrence; (xii) Acquired Indebtedness or Indebtedness of
Persons that are acquired by the Company or any of its Restricted
Subsidiaries or merged into a Restricted Subsidiary in accordance
with the terms of the Indenture; provided that such Indebtedness
is not incurred in contemplation of such acquisition or merger;
and (xiii) Strategic Subordinated Indebtedness.
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(b) Notwithstanding any other provision of this "Limitation
on Indebtedness" covenant, the maximum amount of Indebtedness
that the Company or a Restricted Subsidiary may Incur pursuant to
this "Limitation on Indebtedness" covenant shall not be deemed to
be exceeded, with respect to any outstanding Indebtedness due
solely to the result of fluctuations in the exchange rates of
currencies. Accretion on an instrument issued at a discount will
not be deemed to constitute an Incurrence of Indebtedness.
(c) For purposes of determining any particular amount of
Indebtedness under this "Limitation on Indebtedness" covenant,
(1) Guarantees, Liens or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and
(2) any Liens granted pursuant to the equal and ratable
provisions referred to in the "Limitation on Liens" covenant
described below shall not be treated as Indebtedness. For
purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the types of Indebtedness
described in the above clauses, the Company, in its sole
discretion, shall classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in
one of such clauses.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, (i) declare or pay any
dividend or make any distribution on or with respect to its
Capital Stock (other than (x) dividends or distributions payable
solely in shares of its Capital Stock (other than Disqualified
Stock) or in options, warrants or other rights to acquire shares
of such Capital Stock and (y) pro rata dividends or distributions
on common stock of Restricted Subsidiaries held by minority
stockholders) held by Persons other than the Company or any of
its Restricted Subsidiaries, (ii) purchase, redeem, retire or
otherwise acquire for value any shares of Capital Stock of (A)
the Company or an Unrestricted Subsidiary (including options,
warrants or other rights to acquire such shares of Capital Stock)
held by any Person or (B) a Restricted Subsidiary (including
options, warrants or other rights to acquire such shares of
Capital Stock) held by any Affiliate of the Company (other than a
Wholly Owned Restricted Subsidiary), (iii) make any voluntary or
optional principal payment, or voluntary or optional redemption,
repurchase, defeasance, or other acquisition or retirement for
value, of Indebtedness of the Company that is subordinated in
right of payment to the Notes (other than the purchase,
redemption, repurchase or other acquisition of such subordinated
Indebtedness purchased in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in each
case due within six months of the date of acquisition) or (iv)
make any Investment, other than a Permitted Investment, in any
Person (such payments or any other actions described in clauses
(i) through (iv) above being collectively "Restricted Payments")
if, at the time of, and after giving effect to, the proposed
Restricted Payment: (A) a Default or Event of Default shall have
occurred and be continuing, (B) except with respect to making any
Investments, the Company could not Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant or (C) the aggregate amount of all
Restricted Payments (the amount, if other than in cash, to be
determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board
Resolution) made after the Closing Date shall exceed the sum of
(1) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss,
minus 100% of the amount of such loss) (determined by excluding
income resulting from transfers of assets by the Company or a
Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting
period) beginning on the first day of the fiscal quarter
immediately following the Closing Date and ending on the last day
of the last fiscal quarter preceding the Transaction Date for
which reports have been filed with the Commission or provided to
the Trustee pursuant to the "Commission Reports and Reports to
Holders" covenant plus (2) 100% of (I) the aggregate Net Cash
Proceeds or fair market value of any Capital Stock and the amount
of cash from any capital contributions to the Company after the
Closing Date from Persons other than Subsidiaries of the Company
(including contributions of ICG Common Stock, cash and cash
equivalents and other assets to the Company by ICG) plus (II) the
aggregate Net Cash Proceeds received by the Company after the
Closing Date from an issuance and sale of its Capital Stock
(other than Disqualified Stock) to a Person who is not a
Subsidiary of the Company, including, without limitation, an
issuance or sale permitted by the Indenture of Indebtedness of
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the Company for cash subsequent to the Closing Date upon the
conversion of such Indebtedness into Capital Stock (other than
Disqualified Stock) of the Company, or from the issuance to a
Person who is not a Subsidiary of the Company of any options,
warrants or other rights to acquire Capital Stock of the Company
(in each case, exclusive of any Disqualified Stock or any
options, warrants or other rights that are redeemable at the
option of the holder, or are required to be redeemed, prior to
the Stated Maturity of the New Notes), to the extent such Net
Cash Proceeds, Capital Stock, marketable securities or amount
have not been previously applied pursuant to clauses (iii) or
(iv), as the case may be, of the second paragraph of the
"Limitation on Restricted Payments" covenant or used to support
the Incurrence of Indebtedness pursuant to clause (x) under the
"Limitation of Indebtedness" covenant plus (3) amounts received
from Investments (other than Permitted Investments) in any Person
resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in
each case to the Company or any Restricted Subsidiary or from the
Net Cash Proceeds from the sale of any such Investment (except,
in each case, to the extent any such payment or proceeds are
included in the calculation of Adjusted Consolidated Net Income),
or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition
of "Investments"), not to exceed, in each case, the amount of
Investments previously made by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment
would comply with the foregoing paragraph; (ii) the redemption,
repurchase, defeasance or other acquisition or retirement for
value of Indebtedness that is subordinated in right of payment to
the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness
Incurred under clause (v) of the second paragraph of part (a) of
the "Limitation on Indebtedness" covenant; (iii) the making of
any principal payment or the repurchase, redemption, retirement,
defeasance or other acquisition for value of Indebtedness of the
Company which is subordinated in right of payment to the New
Notes (A) with cash or cash equivalents contributed by ICG to the
Company after the Closing Date or (B) with, or out of the Net
Cash Proceeds of, ICG Common Stock or other assets (other than
cash or cash equivalents) contributed by ICG to the Company after
the Closing Date, or (C) in exchange for, or out of, the Net Cash
Proceeds of a substantially concurrent offering of shares of
Capital Stock (other than Disqualified Stock) of the Company (or
options, warrants or other rights to acquire such Capital Stock),
to the extent such Net Cash Proceeds, cash or cash equivalents,
ICG Common Stock, Capital Stock or such other assets have not
been used pursuant to clause (C)(2) of the first paragraph or
clause (iv) of the second paragraph, as the case may be, of the
"Limitation on Restricted Payments Covenant" or used to support
the Incurrence of Indebtedness pursuant to clause (x) under the
"Limitation on Indebtedness Covenant"; (iv) the repurchase,
redemption or other acquisition of Capital Stock of the Company
or an Unrestricted Subsidiary (or options, warrants or other
rights to acquire such Capital Stock) in exchange for, or out of
the proceeds of a substantially concurrent offering of, shares of
Capital Stock (other than Disqualified Stock) of the Company (or
options, warrants or other rights to acquire such Capital Stock);
or (v) other Restricted Payments in an aggregate amount not to
exceed $10 million; provided that, except in the case of clauses
(i), (ii), (iii) and (iv), no Default or Event of Default shall
have occurred and be continuing or occur as a consequence of the
actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding
paragraph (other than the Restricted Payment referred to in
clause (ii) thereof) shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant have been met with
respect to any subsequent Restricted Payments.
Any Restricted Payments made other than in cash shall be
valued at fair market value. The amount of any Investment
"outstanding" at any time shall be deemed to be equal to the
amount of such Investment on the date made, less the return of
capital to the Company and its Restricted Subsidiaries with
respect to such Investment by distribution, sale or otherwise (up
to the amount of such Investment on the date made).
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Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries
The Company will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any
kind on the ability of any Restricted Subsidiary to (i) pay
dividends or make any other distributions permitted by applicable
law on any Capital Stock of such Restricted Subsidiary owned by
the Company or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Company or any other Restricted
Subsidiary, (iii) make loans or advances to the Company or any
other Restricted Subsidiary or (iv) transfer any of its property
or assets to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances
or restrictions: (i) existing on the Closing Date the Indenture
or any other agreements in effect on the Closing Date, and any
extensions, refinancings, renewals or replacements of such
agreements; provided that the encumbrances and restrictions in
any such extensions, refinancings, renewals or replacements are
no less favorable in any material respect to the Holders than
those encumbrances or restrictions that are then in effect and
that are being extended, refinanced, renewed or replaced; (ii)
existing under or by reason of applicable law, rule, regulation
or order; (iii) existing with respect to any Person or the
property or assets of such Person acquired by the Company or any
Restricted Subsidiary, existing at the time of such acquisition
and not incurred in contemplation thereof, which encumbrances or
restrictions are not applicable to any Person or the property or
assets of any Person other than such Person or the property or
assets of such Person so acquired; (iv) in the case of clause
(iv) of the first paragraph of this "Limitation on Dividend and
Other Payment Restrictions Affecting Restricted Subsidiaries"
covenant, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is a lease,
license, right-of-use, conveyance or contract or similar property
or asset, (B) existing by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary
not otherwise prohibited by the Indenture, (C) arising or agreed
to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate,
detract from the value of property or assets of the Company or
any Restricted Subsidiary in any manner material to the Company
or any Restricted Subsidiary or (D) purchase money obligations
(including, without limitation, Capitalized Leases and
installment sales) for property acquired in the ordinary course
of business that impose restrictions of the nature discussed in
clause (iv) above on the property so acquired; (v) with respect
to a Restricted Subsidiary and imposed pursuant to an agreement
that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets
of, such Restricted Subsidiary; (vi) contained in the terms of
any Indebtedness or any agreement pursuant to which such
Indebtedness was issued if (A)(1) the encumbrances or
restrictions apply only in the event of a payment default or a
default with respect to a financial covenant contained in such
Indebtedness or agreement or (2) the encumbrances or restrictions
are similar in nature and substance to the "Limitation on
Restricted Payments" covenant contained herein, as determined by
the Board of Directors in good faith, (B) the encumbrances or
restrictions are not materially more disadvantageous to the
Holders of the New Notes than is customary in comparable
financings (as determined by the Company) and (C) the Company
determines that any such encumbrances or restrictions will not
materially affect the Company's ability to make principal or
interest payments on the New Notes; (vii) customary provisions in
joint venture agreements and other similar agreements entered
into in the ordinary course of business; and (viii) any
encumbrances or restrictions of the type referred to in clauses
(i) through (iv) of the first paragraph of this covenant imposed
by any amendments, modifications, renewals, restatements,
increases, supplements, refundings, replacements or refinancings
of the contracts referred to in clause (i) through (vii) above;
provided that such amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or
refinancings are, in the good faith judgment of the Company, not
materially more disadvantageous to the Holders than those
contained in the restriction prior to such amendment,
modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing. Nothing contained in this
"Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries" covenant shall prevent the Company or
any Restricted Subsidiary from (1) creating, incurring, assuming
or suffering to exist any Liens otherwise permitted in the
"Limitation on Liens" covenant or (2) restricting the sale or
other disposition of property or assets of the Company or any of
its Restricted Subsidiaries that secure Indebtedness of the
Company or any of its Restricted Subsidiaries.
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Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries
The Company will not sell, and will not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell,
any shares of Capital Stock of a Restricted Subsidiary (including
options, warrants or other rights to purchase shares of such
Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary; (ii) issuances of director's qualifying
shares or sales to foreign nationals of shares of Capital Stock
of foreign Restricted Subsidiaries, to the extent required by
applicable law; (iii) if, immediately after giving effect to such
issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary and any Investment in such
Person remaining after giving effect to such issuance or sale
would have been permitted to be made under the "Limitation on
Restricted Payments" covenant if made on the date of such
issuance or sale; or (iv) issuances or sales of common stock of a
Restricted Subsidiary, provided that the Company or any
Restricted Subsidiary applies an amount equal to the Net Cash
Proceeds thereof in accordance with the "Limitation on Asset
Sales" covenant.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary,
directly or indirectly, to Guarantee any Indebtedness of the
Company which is pari passu with or subordinate in right of
payment to the New Notes ("Guaranteed Indebtedness"), unless (i)
such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a Guarantee
(a "Subsidiary Guarantee") of payment of the New Notes by such
Restricted Subsidiary and (ii) such Restricted Subsidiary waives
and will not in any manner whatsoever claim or take the benefit
or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other
Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Subsidiary Guarantee; provided
that this paragraph shall not be applicable to any Guarantee of
any Restricted Subsidiary that existed at the time such Person
became a Restricted Subsidiary and was not Incurred in connection
with, or in contemplation of, such Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) pari passu in
right of payment with the New Notes, then the Guarantee of such
Guaranteed Indebtedness shall be pari passu in right of payment
with, or subordinated to, the Subsidiary Guarantee or (B)
subordinated in right of payment to the New Notes, then the
Guarantee of such Guaranteed Indebtedness shall be subordinated
in right of payment to the Subsidiary Guarantee at least to the
extent that the Guaranteed Indebtedness is subordinated to the
New Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary may provide by its terms that it shall be
automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially
all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by the Indenture) or (ii)
the release or discharge of the Guarantee which resulted in the
creation of such Subsidiary Guarantee, except a discharge or
release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, enter into, renew or
extend any transaction (including, without limitation, the
purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any Affiliate of the Company or
any Restricted Subsidiary, except upon fair and reasonable terms
no less favorable to the Company or such Restricted Subsidiary
than could be obtained, at the time of such transaction or, if
such transaction is pursuant to a written agreement, at the time
of the execution of the agreement providing therefor, in a
comparable arm's-length transaction with a Person that is not
such an Affiliate.
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The foregoing limitation does not limit, and shall not apply
to (i) transactions (A) approved by a majority of the
disinterested members of the Board of Directors or (B) for which
the Company or a Restricted Subsidiary delivers to the Trustee a
written opinion of a nationally recognized investment banking
firm or a nationally recognized firm having expertise in the
specific area which is the subject of such determination stating
that the transaction is fair to the Company or such Restricted
Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Restricted Subsidiaries
or solely between Restricted Subsidiaries; (iii) the payment of
reasonable and customary regular fees to, and indemnity provided
on behalf of, officers, directors, employees or consultants of
the Company or its Restricted Subsidiaries; (iv) any payments or
other transactions pursuant to any tax-sharing agreement between
the Company and any other Person with which the Company files a
consolidated tax return or with which the Company is part of a
consolidated group for tax purposes; or (v) any Permitted
Investments and Restricted Payments not prohibited by the
"Limitation on Restricted Payments" covenant. Notwithstanding the
foregoing, any transaction or series of related transactions
covered by the first paragraph of this "Limitation on
Transactions with Shareholders and Affiliates" covenant and not
covered by clauses (ii) through (v) of this paragraph the
aggregate amount of which exceeds $2.0 million in value, must be
approved or determined to be fair in the manner provided for in
clause (i) (A) or (B) above.
Limitation on Liens
The Company will not, and will not permit any Restricted
Subsidiary to, create, incur, assume or suffer to exist any Lien
on any of its assets or properties of any character (including,
without limitation, licenses), or any shares of Capital Stock or
Indebtedness of any Restricted Subsidiary, without making
effective provision for all of the New Notes and all other
amounts due under the Indenture to be directly secured equally
and ratably with (or, if the obligation or liability to be
secured by such Lien is subordinated in right of payment to the
New Notes, prior to) the obligation or liability secured by such
Lien.
The foregoing limitation does not apply to (i) Liens
existing on the Closing Date or required on the Closing Date to
be provided in the future; (ii) Liens granted after the Closing
Date on any assets or Capital Stock of the Company or its
Restricted Subsidiaries created in favor of the Holders; (iii)
Liens with respect to the assets of a Restricted Subsidiary
granted by such Restricted Subsidiary to the Company or a
Restricted Subsidiary to secure Indebtedness owing to the Company
or such other Restricted Subsidiary; (iv) Liens securing
Indebtedness which is Incurred to refinance secured Indebtedness
which is permitted to be Incurred under clause (v) of the second
paragraph of the "Limitation on Indebtedness" covenant; provided
that such Liens do not extend to or cover any property or assets
of the Company or any Restricted Subsidiary other than the
property or assets securing the Indebtedness being refinanced;
(v) Liens on any property or assets of Restricted Subsidiaries
securing Indebtedness of Restricted Subsidiaries permitted under
the "Limitation on Indebtedness" covenant; or (vi) Permitted
Liens.
Limitation on Sale-Leaseback Transactions
The Company will not, and will not permit any Restricted
Subsidiary to, enter into any sale-leaseback transaction
involving any of its assets or properties whether now owned or
hereafter acquired, whereby the Company or a Restricted
Subsidiary sells or transfers such assets or properties and then
or thereafter leases such assets or properties or any part
thereof or any other assets or properties which the Company or
such Restricted Subsidiary, as the case may be, intends to use
for substantially the same purpose or purposes as the assets or
properties sold or transferred.
The foregoing restriction does not apply to any sale-
leaseback transaction if (i) the lease is for a period, including
renewal rights, of not in excess of three years; (ii) the lease
secures or relates to industrial revenue or pollution control
bonds; (iii) the transaction is solely between the Company and
any Wholly Owned Restricted Subsidiary or solely between Wholly
Owned Restricted Subsidiaries; or (iv) the Company or such
Restricted Subsidiary, within 12 months after the sale or
transfer of any assets or properties is completed, applies an
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amount not less than the net proceeds received from such sale in
accordance with clause (A) or (B) of the first paragraph of the
"Limitation on Asset Sales" covenant described below.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted
Subsidiary to, consummate any Asset Sale, unless (i) the
consideration received by the Company or such Restricted
Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 75% of the
consideration received consists of cash or Temporary Cash
Investments. For purposes of this covenant, the following are
deemed to be cash: (x) the principal amount or accreted value
(whichever is larger) of Indebtedness of the Company or any
Restricted Subsidiary with respect to which the Company or such
Restricted Subsidiary has either (I) received a written release
or (II) been released by operation of law, in either case, from
all liability on such Indebtedness in connection with such Asset
Sale and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash. In the event and
to the extent that the Net Cash Proceeds received by the Company
or any of its Restricted Subsidiaries from one or more Asset
Sales occurring on or after the Closing Date in any period of 12
consecutive months exceed 10% of Adjusted Consolidated Net
Tangible Assets (determined as of the date closest to the
commencement of such 12-month period for which a consolidated
balance sheet of the Company and its Subsidiaries has been filed
with the Commission or provided to the Trustee pursuant to the
"Commission Reports and Reports to Holders" covenant), then the
Company shall or shall cause the relevant Restricted Subsidiary
to (i) within 12 months after the date Net Cash Proceeds so
received exceed 10% of Adjusted Consolidated Net Tangible Assets
(A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Company, or
any Restricted Subsidiary providing a Subsidiary Guarantee
pursuant to the "Limitation on Issuances of Guarantees by
Restricted Subsidiaries" covenant described above or Indebtedness
of any other Restricted Subsidiary, in each case owing to a
Person other than the Company or any of its Restricted
Subsidiaries or (B) invest an equal amount, or the amount not so
applied pursuant to clause (A) (or enter into a definitive
agreement committing to so invest within 12 months after the date
of such agreement), (x) in property or assets (other than current
assets) of a nature or type or that are used in a business (or in
a Person (other than a natural person) having property and assets
of a nature or type, or engaged in a business) similar or related
to the nature or type of the property and assets of, or the
business of, the Company and its Restricted Subsidiaries existing
on the date of such investment (as determined in good faith by
the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution) or (y) in property or assets
(other than current assets) related to the Telecommunications
Business, including, without limitation, telecommunications
switches and related equipment, services, leases, licenses,
capacity and rights-of-use, (or in a person (other than a natural
person) having property or assets related to the
Telecommunications Business, including, without limitation,
telecommunications switches and related equipment, services,
leases, licenses, capacity and rights-of-use) and (ii) apply (no
later than the end of the 12-month period referred to in clause
(i)) such excess Net Cash Proceeds (to the extent not applied
pursuant to clause (i)) as provided in the following paragraph of
this "Limitation on Asset Sales" covenant. The amount of such
excess Net Cash Proceeds required to be applied (or to be
committed to be applied) during such 12-month period as set forth
in clause (i) of the preceding sentence and not applied as so
required by the end of such period shall constitute "Excess
Proceeds."
If, as of the first day of any calendar month, the aggregate
amount of Excess Proceeds not theretofore subject to an Offer to
Purchase pursuant to this "Limitation on Asset Sales" covenant
totals at least $20.0 million, the Company must commence, not
later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata
basis, and an offer to purchase any outstanding Indebtedness with
similar provisions requiring the Company to make an offer to
purchase such Indebtedness, in an aggregate principal amount at
maturity of New Notes (or, if prior to February 15, 2003, the
Accreted Value of the New Notes) and such pari passu Indebtedness
equal to (A) with respect to the New Notes, the product of such
Excess Proceeds multiplied by a fraction, the numerator of which
is the outstanding principal amount at maturity of the New Notes
(or, if prior to February 15, 2003, the Accreted Value of the New
Notes) and the denominator of which is the sum of the outstanding
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principal amount at maturity of the New Notes (or, if prior to
February 15, 2003, the Accreted Value of the New Notes) and such
pari passu Indebtedness (the product hereinafter referred to as
the "New Note Amount"), and (B) with respect to the pari passu
Indebtedness, the excess of the Excess Proceeds over the New Note
Amount, at a purchase price equal to 100% of the Accreted Value
of the New Notes or such pari passu Indebtedness, as the case may
be, on the relevant Payment Date or such other date set forth in
the documentation governing the pari passu Indebtedness, plus, in
each case, accrued interest (if any) to the Payment Date or such
other date set forth in the documentation governing the pari
passu Indebtedness. If the aggregate purchase price of the New
Notes tendered pursuant to the Offer to Purchase is less than the
Excess Proceeds, the remaining will be available for use by the
Company for general corporate purposes. Upon the consummation of
any Offer to Purchase in accordance with the terms of the
Indenture, the amount of Net Cash Proceeds from Asset Sales
subject to any future Offer to Purchase shall be deemed to be
zero.
REPURCHASE OF NEW NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 30 days of the occurrence
of a Change of Control, and consummate an Offer to Purchase for
all New Notes then outstanding, at a purchase price equal to 101%
of the Accreted Value thereof on the relevant Payment Date, plus
accrued interest (if any) to the Payment Date.
There can be no assurance that the Company will have
sufficient funds available at the time of any Change of Control
to make any debt payment (including repurchases of New Notes)
required by the foregoing covenant (as well as may be contained
in other securities of the Company which might be outstanding at
the time) . The above covenant requiring the Company to
repurchase the New Notes will, unless consents are obtained,
require the Company to repay all indebtedness then outstanding
which by its terms would prohibit such New Note repurchase,
either prior to or concurrently with such Note repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not the Company is required to file reports with
the Commission, the Company shall deliver for filing with the
Commission all such reports and other information as it would be
required to file with the Commission by Sections 13(a) or 15(d)
under the Securities Exchange Act of 1934 if it were subject
thereto. All references herein to reports "filed" with the
Commission shall be deemed to refer to the reports then most
recently delivered for filing, whether or not accepted by the
Commission. The Company shall supply the Trustee and each Holder
or shall supply to the Trustee for forwarding to each such
Holder, without cost to such Holder, copies of such reports and
other information.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default"
in the Indenture: (a) default in the payment of principal of (or
premium, if any, on) any New Note when the same becomes due and
payable at maturity, upon acceleration, redemption or otherwise;
(b) default in the payment of interest on any New Note when the
same becomes due and payable, and such default continues for a
period of 30 days; (c) the Company defaults in the performance of
or breaches any other covenant or agreement of the Company in the
Indenture or under the New Notes (other than a default specified
in clause (a) or (b) above) and such default or breach continues
for a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal
amount of the New Notes; (d) the Company shall have failed to
make or consummate an Offer to Purchase in accordance with the
"Limitation on Asset Sales" covenant above; (e) the Company shall
have failed to make or consummate an Offer to Purchase in
accordance with the provisions of "Repurchase of New Notes upon a
Change of Control" above; (f) there occurs with respect to any
issue or issues of Indebtedness of the Company or any Significant
Subsidiary having an outstanding principal amount of $10 million
or more in the aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be
created, (I) an event of default that has caused the holder
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thereof to declare such Indebtedness to be due and payable prior
to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or
annulled within 30 days of such acceleration and/or (II) the
failure to make a principal payment at the final (but not any
interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment
default; (g) any final judgment or order (not covered by
insurance) for the payment of money in excess of $10 million in
the aggregate (treating any deductibles, self-insurance or
retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or
discharged, and there shall be any period of 30 consecutive days
following entry of the final judgment or order that causes the
aggregate amount for all such final judgments or orders
outstanding and not paid or discharged against the Company or any
of its Significant Subsidiaries to exceed $10 million during
which a stay of enforcement of such final judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect;
(h) a court having jurisdiction in the premises enters a decree
or order for (A) relief in respect of the Company or any
Significant Subsidiary in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (B) appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company or
any Significant Subsidiary or (C) the winding up or liquidation
of the affairs of the Company or any Significant Subsidiary and,
in each case, such decree or order shall remain unstayed and in
effect for a period of 30 consecutive days; or (i) the Company or
any Significant Subsidiary (A) commences a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to
the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of the Company or any Significant Subsidiary or for all
or substantially all of the property and assets of the Company or
any Significant Subsidiary or (C) effects any general assignment
for the benefit of creditors.
If an Event of Default (other than an Event of Default
specified in clause (h) or (i) above that occurs with respect to
the Company) occurs and is continuing under the Indenture, the
Trustee or the Holders of at least 25% in aggregate principal
amount of the New Notes, then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the
Holders), may, and the Trustee at the request of such Holders
shall, declare the Accreted Value of, premium, if any, and
accrued interest on the New Notes to be immediately due and
payable. Upon a declaration of acceleration, such Accreted Value
of, premium, if any, and accrued interest shall be immediately
due and payable. In the event of a declaration of acceleration
because an Event of Default set forth in clause (f) above has
occurred and is continuing, such declaration of acceleration
shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (f)
shall be remedied or cured by the Company or the relevant
Significant Subsidiary or waived by the holders of the relevant
Indebtedness within 60 days after the declaration of acceleration
with respect thereto. If an Event of Default specified in clause
(h) or (i) above occurs with respect to the Company, the Accreted
Value of, premium, if any, and accrued interest on the New Notes
then outstanding shall ipso facto become and be immediately due
and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in
principal amount of the outstanding New Notes by written notice
to the Company and to the Trustee, may waive all past defaults
and rescind and annul a declaration of acceleration and its
consequences if (i) all existing Events of Default, other than
the nonpayment of the Accreted Value of, premium, if any, and
interest on the New Notes that have become due solely by such
declaration of acceleration, have been cured or waived and (ii)
the rescission would not conflict with any judgment or decree of
a court of competent jurisdiction. For information as to the
waiver of defaults, see "-- Modification and Waiver."
The Holders of at least a majority in aggregate principal
amount of the outstanding New Notes may direct the time, method
and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the
Trustee. However, the Trustee may refuse to follow any direction
that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in
good faith may be unduly prejudicial to the rights of Holders of
Notes not joining in the giving of such direction and may take
any other action it deems proper that is not inconsistent with
any such direction received from Holders of Notes. A Holder may
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not pursue any remedy with respect to the Indenture or the Notes
unless: (i) the Holder gives the Trustee written notice of a
continuing Event of Default; (ii) the Holders of at least 25% in
aggregate principal amount of outstanding New Notes make a
written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense; (iv) the Trustee
does not comply with the request within 60 days after receipt of
the request and the offer of indemnity; and (v) during such 60-
day period, the Holders of a majority in aggregate principal
amount of the outstanding New Notes do not give the Trustee a
direction that is inconsistent with the request. However, such
limitations do not apply to the right of any Holder of a New Note
to receive payment of the principal of, premium, if any, or
interest on, such New Note or to bring suit for the enforcement
of any such payment, on or after the due date expressed in the
New Notes, which right shall not be impaired or affected without
the consent of the Holder.
The Indenture will require certain officers of the Company
to certify, on or before a date not more than 90 days after the
end of each fiscal year, that a review has been conducted of the
activities of the Company and its Restricted Subsidiaries and the
Company's and its Restricted Subsidiaries' performance under the
Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default and the nature
and status thereof. The Company will also be obligated to notify
the Trustee of any default or defaults in the performance of any
covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into,
or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or
substantially an entirety in one transaction or a series of
related transactions) to, any Person or permit any Person to
merge with or into the Company unless: (i) the Company shall be
the continuing Person, or the Person (if other than the Company)
formed by such consolidation or into which the Company is merged
or that acquired or leased such property and assets of the
Company shall be a corporation organized and validly existing
under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee,
all of the obligations of the Company on all of the New Notes and
under the Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred
and be continuing; (iii) immediately after giving effect to such
transaction on a pro forma basis, (A) the Company or any Person
becoming the successor obligor of the Notes, as the case may be,
shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such
transaction or (B) the Company or any Person becoming the
successor obligor of the Notes, as the case may be, shall have a
Consolidated Leverage Ratio no more than the greater of (I) 6:1
and (II) the Consolidated Leverage Ratio of the Company
immediately prior to such transaction; provided that this clause
(iii) shall not apply to a consolidation or merger with or into a
Wholly Owned Restricted Subsidiary with a positive net worth;
provided that, in connection with any such merger or
consolidation, no consideration (other than Capital Stock (other
than Disqualified Stock) in the surviving Person or the Company)
shall be issued or distributed to the stockholders of the
Company; and (iv) the Company delivers to the Trustee an
Officers' Certificate (attaching the arithmetic computations to
demonstrate compliance with clause (iii) above) and Opinion of
Counsel, in each case stating that such consolidation, merger or
transfer and such supplemental indenture complies with this
provision and that all conditions precedent provided for herein
relating to such transaction have been complied with; provided,
however, that clause (iii) above does not apply if, in the good
faith determination of the Board of Directors of the Company,
whose determination shall be evidenced by a Board Resolution, the
principal purpose of such transaction is to change the state of
incorporation of the Company; and that any such transaction shall
not have as one of its purposes the evasion of the foregoing
limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture will provide that
the Company will be deemed to have paid and will be discharged
from any and all obligations in respect of the New Notes on the
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123rd day after the deposit referred to below, and the provisions
of the Indenture will no longer be in effect with respect to the
New Notes (except for, among other matters, certain obligations
to register the transfer or exchange of the New Notes, to replace
stolen, lost or mutilated New Notes, to maintain paying agencies
and to hold monies for payment in trust) if, among other things,
(A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of
interest and principal in respect thereof in accordance with
their terms will provide money in an amount sufficient to pay the
principal of, premium, if any, and accrued interest on the New
Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the New Notes, (B) the Company has
delivered to the Trustee (i) either (x) an Opinion of Counsel to
the effect that Holders will not recognize income, gain or loss
for federal income tax purposes as a result of the Company's
exercise of its option under this "Defeasance" provision and will
be subject to federal income tax on the same amount and in the
same manner and at the same times as would have been the case if
such deposit, defeasance and discharge had not occurred, which
Opinion of Counsel must be based upon (and accompanied by a copy
of) a ruling of the Internal Revenue Service to the same effect
unless there has been a change in applicable federal income tax
law after the Closing Date such that a ruling is no longer
required or (y) a ruling directed to the Trustee received from
the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (ii) an Opinion of Counsel
to the effect that the creation of the defeasance trust does not
violate the Investment Company Act of 1940 and after the passage
of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor
Law, (C) immediately after giving effect to such deposit on a pro
forma basis, no Event of Default, or event that after the giving
of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing on the date of
such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a
breach or violation of, or constitute a default under, any other
agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound and (D) if at such time the New Notes are
listed on a national securities exchange, the Company has
delivered to the Trustee an Opinion of Counsel to the effect that
the New Notes will not be delisted as a result of such deposit,
defeasance and discharge, provided that if simultaneously with
the deposit of the money and/or U.S. Government Obligations
referred to in (A) above, the Company has caused an irrevocable,
transferrable, standby letter of credit to be issued by a bank
with capital and surplus exceeding the principal amount of the
New Notes then outstanding, expiring not earlier than 180 days
from its issuance, in favor of the Trustee which permits the
Trustee to draw an amount equal to the principal, premium, if
any, and accrued interest on the New Notes through the expiry
date of the letter of credit, then the Company will be deemed to
have paid and discharged any and all obligations in respect of
the New Notes on the date of the deposit and issuance of the
letter of credit.
Defeasance of Certain Covenants and Certain Events of
Default. The Indenture further will provide that the provisions
of the Indenture will no longer be in effect with respect to
clause (iii) under "Consolidation, Merger and Sale of Assets" and
all the covenants described herein under "Covenants," clause (c)
under "Events of Default" with respect to such other covenants
and clauses (c), (d), (e), (f) and (g) under "Events of Default"
shall be deemed not to be Events of Default upon, among other
things, the deposit with the Trustee, in trust, of money and/or
U.S. Government Obligations that through the payment of interest
and principal in respect thereof in accordance with their terms
will provide money in an amount sufficient to pay the principal
of, premium, if any, and accrued interest on the New Notes on the
Stated Maturity of such payments in accordance with the terms of
the Indenture and the New Notes, the satisfaction of the
provisions described in clauses (B)(ii), (C) and (D) of the
preceding paragraph and the delivery by the Company to the
Trustee of an Opinion of Counsel to the effect that, among other
things, the Holders will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and
defeasance of certain covenants and Events of Default and will be
subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such
deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event
the Company exercises its option to omit compliance with certain
covenants and provisions of the Indenture with respect to the New
Notes as described in the immediately preceding paragraph and the
New Notes are declared due and payable because of the occurrence
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of an Event of Default that remains applicable, the amount of
money and/or U.S. Government Obligations on deposit with the
Trustee will be sufficient to pay amounts due on the New Notes at
the time of their Stated Maturity but may not be sufficient to
pay amounts due on the New Notes at the time of the acceleration
resulting from such Event of Default. However, the Company will
remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by
the Company and the Trustee with the consent of the Holders of
not less than a majority in aggregate principal amount of the
outstanding New Notes; provided, however, that no such
modification or amendment may, without the consent of each Holder
affected thereby, (i) change the Stated Maturity of the principal
of, or any installment of interest on, any New Note, (ii) reduce
the Accreted Value or principal amount of, or premium, if any, or
interest on, any New Note, (iii) change the place or currency of
payment of principal of, or premium, if any, or interest on, any
New Note, (iv) impair the right to institute suit for the
enforcement of any payment on or after the Stated Maturity (or,
in the case of a redemption, on or after the Redemption Date) of
any New Note, (v) reduce the above-stated percentage of
outstanding New Notes the consent of whose Holders is necessary
to modify or amend the Indenture, (vi) waive a default in the
payment of principal of, premium, if any, or interest on the New
Notes or (vii) reduce the percentage or aggregate principal
amount of outstanding New Notes the consent of whose Holders is
necessary for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS,
DIRECTORS, OR EMPLOYEES
The Indenture provides that no recourse for the payment of
the principal of, premium, if any, or interest on any of the New
Notes or for any claim based thereon or otherwise in respect
thereof, and no recourse under or upon any obligation, covenant
or agreement of the Company in the Indenture, or in any of the
New Notes or because of the creation of any Indebtedness
represented thereby, shall be had against any incorporator,
stockholder, officer, director, employee or controlling person of
the Company or of any successor Person thereof. Each Holder, by
accepting the New Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance
of a Default, the Trustee will not be liable, except for the
performance of such duties as are specifically set forth in such
Indenture. If an Event of Default has occurred and is continuing,
the Trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
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The Indenture and provisions of the Trust Indenture Act
incorporated by reference therein contain limitations on the
rights of the Trustee, should it become a creditor of Holdings or
the Guarantor, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such
claims, as security or otherwise. The Trustee is permitted to
engage in other transactions; provided, however, that if it
acquires any conflicting interest, it must eliminate such
conflict or resign.
BOOK ENTRY; DELIVERY AND FORM
All of the Old Notes were originally issued in the form of
one Global Note (the "Global Old Note"). The Global Old Note was
deposited upon issuance with the Trustee as custodian for, and
registered in the name of a nominee of, The Depository Trust
Company ("DTC"), in New York, New York. The New Notes will be
issued in the form of one Global Note (the "Global New Note") and
deposited upon issuance with and registered in the name of, or on
behalf of, DTC or its nominee.
So long as DTC, or its nominee, is the registered owner or
holder of a Global New Note, DTC or such nominee, as the case may
be, will be considered the sole owner or holder of the New Notes
represented by such Global New Note for all purposes under the
Indenture and the New Notes. No beneficial owner of an interest
in a Global New Note will be able to transfer that interest
except in accordance with DTC's applicable procedures, in
addition to those provided for under the Indenture.
Payments of the principal of, and interest on, a Global New
Note will be made to DTC or its nominee, as the case may be, as
the registered owner thereof. Neither the Company, the Trustee
nor any Paying Agent will have any responsibility or liability
for any aspect of the records relating to or payments made on
account of beneficial ownership interests in a Global New Note or
for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of
any payment of principal or interest in respect of a Global New
Note, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the
principal amount of such Global New Note as shown on the records
of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global New
Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the
names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in
the ordinary way in accordance with DTC rules and will be settled
in same-day funds. Transfers between participants in Euroclear &
Cedel Bank will be effected in the ordinary way in accordance
with their respective rules and operating procedures.
New Notes that are issued as described below will be issued
in the form of registered definitive certificates (the
"Certificated New Notes"). Such Certificated New Notes may,
unless the applicable Global New Note has previously been
exchanged for Certificated New Notes, be exchanged for an
interest in the applicable Global New Note representing the
principal amount of Old Notes being transferred.
The Company expects that DTC will take any action permitted
to be taken by a holder of New Notes (including the presentation
of New Notes for exchange as described below) only at the
direction of one or more participants to whose account the DTC
interests in a Global New Note is credited and only in respect of
such portion of the aggregate principal amount of New Notes as to
which such participant or participants has or have given such
direction. However, if there is an Event of Default under the New
Notes, DTC will exchange the applicable Global New Note for
Certificated New Notes, which it will distribute to its
participants and which may be legended as set forth under the
heading "Transfer Restrictions."
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The Company understands that: DTC is a limited purpose trust
company organized under the laws of the State of New York, a
"banking organization" within the meaning of New York Banking
Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code
and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and
settlement of securities transactions between participants
through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement
of certificates and certain other organizations. Indirect access
to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures
in order to facilitate transfers of interests in a Global New
Note among participants of DTC, it is under no obligation to
perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company
nor the Trustee will have any responsibility for the performance
by DTC or its participants or indirect participants of its
obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as a
depositary for the Global New Notes and a successor depositary is
not appointed by the Company within 90 days, the Company will
issue Certificated New Notes, which may bear the legend referred
to under "Transfer Restrictions," in exchange for the Global New
Notes. Holders of an interest in a Global New Note may receive
Certificated New Notes, which may bear the legend referred to
under "Transfer Restrictions," in accordance with the DTC's rules
and procedures in addition to those provided for under the
Indenture.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material anticipated
federal income tax consequences of the purchase, ownership and
disposition of the New Notes. Except where noted, this summary
deals only with New Notes held as capital assets within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"), by United States Holders (as defined
below), and does not deal with special situations, such as those
of dealers in securities or currencies, financial institutions,
life insurance companies, tax exempt organizations, persons
holding New Notes as a part of a hedging or conversion
transaction or a straddle or United States Holders whose
"functional currency" is not the U.S. dollar. Furthermore, the
discussion below is based upon the provisions of the Code and
Treasury regulations, administrative and judicial decisions
thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified with possible retroactive effect so
as to result in federal income tax consequences different from
those discussed below. ALL PROSPECTIVE PURCHASERS ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NEW NOTES.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
As used herein, a "United States Holder" means a beneficial
owner that is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in
or under the laws of the United States or any political
subdivision thereof, an estate the income of which is subject to
United States federal income taxation regardless of its source,
or a trust the administration of which is subject to the primary
supervision of a court within the United States and for which one
or more U.S. persons have the authority to control all
substantial decisions. An individual may, subject to certain
exceptions, be deemed to be a resident (as opposed to a non-
resident alien) of the United States by virtue of being present
in the United States on at least 31 days in the calendar year and
for an aggregate of at least 183 days during a three-year period
ending in the current calendar year (counting for such purposes
all of the days present in the current year, one-third of the
days present in the immediately preceding year, and one-sixth of
the days present in the second preceding year). A "Non-United
States Holder" is a holder that is not a United States Holder.
Exchange of Old Notes for New Notes
The exchange of an Old Note by a United States Holder for a
New Note should not constitute a taxable exchange. A United
States Holder will have the same tax basis and holding period in
the New Note as such Holder did in the Old Note. In addition, a
United States Holder will have the same OID, market discount and
acquisition premium (as described below) in the New Note as such
Holder had in the Old Note.
Payments of Interest on the New Notes
The stated interest on a New Note will not be treated as
interest for federal income tax purposes, but instead will be
subject to the original issue discount ("OID") rules described
below. Payments of stated interest on a New Note will not be
separately included in income, but rather will be treated first
as payments of previously accrued OID and then as payments of
principal and consequently will reduce a United States Holder's
basis in a New Note as described below under "-- Sale, Exchange
or Redemption of New Notes."
Original Issue Discount
The New Notes are being issued with OID. The excess of a New
Note's "stated redemption price at maturity" over its "issue
price" will generally constitute OID for federal income tax
purposes. The "issue price" of a debt instrument issued for cash
is equal to the first price at which a substantial amount of such
debt instruments are sold (excluding sales to bond houses and
brokers). The "stated redemption price at maturity" of a debt
instrument is the sum of its principal amount plus all other
payments required thereunder, other than payments of "qualified
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stated interest" (defined generally as stated interest that is
unconditionally payable in cash or in property (other than the
debt instruments of the issuer), at least annually at a single
fixed rate that appropriately takes into account the length of
intervals between payments).
Because interest on the New Notes is not payable until
August 15, 2003, the stated interest on the New Notes will not be
treated as qualified stated interest. In addition, the New Notes
are being issued at a price that is less than their stated
principal amount. As a result, the New Notes will be treated as
issued with OID equal to the excess of their stated redemption
price at maturity (which will be equal to the sum of the
principal amount plus all payments of stated interest) over their
issue price.
United States Holders of the New Notes should be aware that
they generally must include OID in gross income for federal
income tax purposes on an annual basis under a constant yield
accrual method, regardless of their method of accounting. As a
result, United States Holders will include OID in income in
advance of the receipt of cash attributable to that income.
However, United States Holders of New Notes generally will not be
required to include separately in income cash interest payments
received on the New Notes. The Company will report to United
States Holders of New Notes on a timely basis the reportable
amount of OID based on its understanding of applicable law.
The amount of OID includible in income by the initial United
States Holder of a New Note is the sum of the "daily portions" of
OID with respect to the New Note for each day during the taxable
year or portion of the taxable year in which such United States
Holder held such New Note. The daily portion is determined by
allocating to each day in any "accrual period" a pro rata portion
of the OID allocable to that accrual period. The "accrual period"
for a New Note may be of any length and may vary in length over
the term of the New Note, provided that each accrual period is no
longer than one year and each scheduled payment of principal or
interest occurs on the first day or the final day of an accrual
period. The amount of OID allocable to any accrual period is an
amount equal to the excess, if any, of (a) the product of the New
Note's adjusted issue price at the beginning of such accrual
period and its yield to maturity (determined on the basis of
compounding at the close of each accrual period and properly
adjusted for the length of the accrual period) over (b) the
amount of any qualified stated interest allocable to the accrual
period. OID allocable to a final accrual period is the difference
between the amount payable at maturity (other than a payment of
qualified stated interest) and the adjusted issue price at the
beginning of the final accrual period. The yield of a New Note
is, rounded to two decimal places, 10.00%. The "adjusted issue
price" of a New Note at the beginning of any accrual period is
equal to its issue price increased by the accrued OID for each
prior accrual period (determined without regard to the
amortization of any acquisition or bond premium, as described
below) and reduced by any payments made on such New Note (other
than qualified stated interest) on or before the first day of the
accrual period.
The New Notes may be redeemed prior to their Stated Maturity
at the option of the Company. For purposes of computing the yield
of such instrument, the Company will be deemed to exercise or not
exercise its option to redeem the New Notes in a manner that
minimizes the yield on the New Notes. It is not anticipated that
the Company's ability to redeem prior to stated maturity will
affect the yield of the New Notes. Consequently, the Company does
not intend to treat the redemption option as affecting the
computation of the yield to maturity of the New Notes.
In the event of a change of control, the Company will be
required to offer to repurchase all of the New Notes. The right
of holders to require repurchase upon a Change of Control will
not affect the yield or maturity date of the New Notes provided
that, based on all the facts and circumstances as of the issue
date, the payment schedule on such New Notes that does not
reflect a change of control is significantly more likely than not
to occur. The Company does not intend to treat the change of
control provisions of the New Notes as affecting the computation
of the yield to maturity of the New Notes.
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<PAGE>
Market Discount
With respect to a United States Holder who purchased an Old
Note at original issuance, such instrument, and, accordingly, a
New Note held by such holder, will not be treated as issued with
"market discount" for federal income tax purposes unless the Old
Note was purchased for less than its issue price and the
difference between the purchase price and the issue price is
greater than a specified de minimis amount. With respect to a
subsequent United States Holder who purchased an Old Note or who
purchases a New Note, such Note will not be treated as issued
with market discount for federal income tax purposes unless such
Note was purchased for less than its stated redemption price at
maturity and the difference between the purchase price and the
stated redemption price at maturity is greater than a specified
de minimis amount. Under the market discount rules, a United
States Holder holding a Note with market discount will be
required to treat any principal payment on an Old Note or a New
Note, or any gain on the sale, exchange, retirement or other
disposition of such Note, as ordinary income to the extent of the
market discount which has not previously been included in income
and is treated as having accrued on such Note at the time of such
payment or disposition. In addition, the United States Holder may
be required to defer, until the maturity of such Note or its
earlier disposition in a taxable transaction, the deduction of
all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or carry such Note.
Any market discount will be considered to accrue ratably
during the period from the date of acquisition to the maturity
date of such Note, unless the United States Holder elects to
accrue on a constant interest rate method. A United States Holder
of Note may elect to include market discount in income currently
as it accrues (on either a ratable or constant interest rate
method), in which case the rule described above regarding
deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, applies
to all market discount obligations acquired on or after the first
taxable year to which the election applies and may not be revoked
without the consent of the IRS.
Acquisition Premium
A United States Holder that purchases a New Note for an
amount that is greater than its adjusted issue price but equal to
or less than the sum of all amounts payable on the New Note after
the purchase date, will be considered to have purchased such New
Note at an "acquisition premium." Under the acquisition premium
rules, the amount of OID, if any, which such United States Holder
must include in its gross income with respect to such New Note
for any taxable year will be reduced by the portion of such
acquisition premium properly allocable to such year.
Sale, Exchange or Redemption of New Notes
Upon the sale, exchange or redemption of a New Note, a
United States Holder will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange or
redemption and such United States Holder's adjusted tax basis of
the New Note. A United States Holder's tax basis in a New Note
will, in general, be the United States Holder's cost therefor,
increased by OID and market discount previously included in
income by the United States Holder with respect to the New Notes
and reduced by any principal and stated interest payments on the
New Notes. Such gain or loss will be capital gain or loss.
The Taxpayer Relief Act of 1997 includes substantial changes
to the federal taxation of capital gains recognized by certain
noncorporate taxpayers, such as individuals, including a 20%
maximum tax rate for certain gains from the sale of capital
assets held for more than 18 months. The deduction of capital
losses is subject to certain limitations.
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<PAGE>
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to
certain payments of principal and OID and to the proceeds of
sales of New Notes made to United States Holders other than
certain exempt recipients (such as corporations). A 31% backup
withholding tax will apply to such payments if the United States
Holder (i) fails to provide a taxpayer identification number,
(ii) furnishes an incorrect TIN, (iii) is notified by the
Internal Revenue Service ("IRS") that it has failed to properly
report payments of interest and dividends or (iv) under certain
circumstances, fails to certify, under penalty of perjury, that
it has furnished a correct TIN and has not been notified by the
IRS that it is subject to backup withholding. In the case of
interest paid after December 31, 1999, a United States Holder
generally will be subject to backup withholding at a 31% rate
unless certain IRS certification procedures are complied with
directly or through an intermediary.
The Company will furnish annually to the IRS and to record
holders of the New Notes (other than with respect to certain
exempt holders) information relating to the OID accruing during
the calendar year. The annual accruals of OID included in such
information will be based on the amount of OID that would have
accrued to a United States Holder who acquired the Old Note at
original issue.
Any amounts withheld under the backup withholding rules will
be allowed as a refund or a credit against such United States
Holder's U.S. federal income tax liability provided the required
information is furnished to the IRS.
TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
Interest and OID on New Notes
Subject to the discussion below concerning backup
withholding, no withholding of United States federal income tax
will be required with respect to the payment by the Company or
any paying agent of principal or interest (which for purposes of
this discussion includes OID) on a New Note owned by a Non-United
States Holder, provided that the beneficial owner (i) does not
actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company entitled to
vote within the meaning of Section 871(h)(3) of the Code and the
regulations thereunder, (ii) is not a controlled foreign
corporation related, directly or indirectly, to the Company
through stock ownership, (iii) is not a bank whose receipt of
interest on a New Note is described in Section 881(c)(3)(A) of
the Code and (iv) satisfies the statement requirement (described
generally below) set forth in Section 871(h) and Section 881(c)
of the Code and the regulations thereunder.
To satisfy the requirement referred to in (iv) above, the
beneficial owner of such New Note, or a financial institution
holding the New Note on behalf of such owner, must provide, in
accordance with specified procedures, the Company or its paying
agent with a statement to the effect that the beneficial owner is
not a U.S. person. These requirements will be met if (1) the
beneficial owner provides his name and address, and certifies,
under penalties of perjury, that he is not a U.S. person (which
certification may be made on an IRS Form W-8 (or successor form))
or (2) a financial institution holding the New Note on behalf of
the beneficial owner certifies, under penalties of perjury, that
such statement has been received by it and furnishes a paying
agent with a copy thereof.
In the event that any of the above requirements are not
satisfied, the Company will nonetheless not withhold federal
income tax on interest paid to or accrued by a Non-United States
Holder if it receives IRS Form 4224 (or, after December 31, 1999,
a Form W-8) from that Non-United States Holder, establishing that
such income is effectively connected with the conduct of a trade
or business in the United States, unless the Company has
knowledge to the contrary. Interest (including OID) paid to a
Non-United States Holder (other than a partnership) that is
effectively connected with the conduct by the holder of a trade
or business in the United States is generally taxed at the
graduated rates that are applicable to United States persons. In
the case of a Non-United States Holder that is a corporation,
such effectively connected income may also be subject to the
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<PAGE>
United States federal branch profits tax (which is generally
imposed on a foreign corporation on the deemed repatriation from
the United States of effectively connected earnings and profits)
at a 30% rate (unless the rate is reduced or eliminated by an
applicable income tax treaty and the holder is a qualified
resident of the treaty country). Special rules may apply to
interest paid to or accrued by a partnership with foreign
partners (i.e., persons who would be Non-United States Holders if
they held the New Notes directly).
Sale, Exchange or Redemption of New Notes
A Non-United States Holder will generally not be subject to
United States federal income tax with respect to gain recognized
on a sale, exchange or redemption of New Notes unless (i) the
gain is effectively connected with a trade or business of the
Non-United States Holder in the United States, (ii) in the case
of a Non-United States Holder who is an individual and holds the
New Notes as a capital asset, such holder is present in the
United States for 183 or more days in the taxable year of the
sale or other disposition and certain other conditions are met,
or (iii) the Non-United States Holder is subject to tax pursuant
to certain provisions of the Code applicable to United States
expatriates.
Gains derived by a Non-United States Holder (other than a
partnership) from the sale or other disposition of New Notes that
are effectively connected with the conduct by the Holder of a
trade or business in the United States are generally taxed at the
graduated rates that are applicable to United States persons. In
the case of a Non-United States Holder that is a corporation,
such effectively connected income may also be subject to the
United States branch profits tax. If an individual Non-United
States Holder falls under clause (ii) above, he will be subject
to a flat 30% tax on the gain derived from the sale or other
disposition, which may be offset by United States capital losses
recognized within the same taxable year as such sale or other
disposition (notwithstanding the fact that he is not considered a
resident of the United States). Special rules may apply to the
sale, exchange or redemption of New Notes by partnerships with
foreign partners (i.e., persons who would be Non-United States
Holders if they held the New Notes directly).
Federal Estate Tax
A New Note beneficially owned by an individual who at the
time of death is a Non-United States Holder will not be subject
to United States federal estate tax as a result of such
individual's death, provided that such individual does not
actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company entitled to
vote within the meaning of Section 871(h)(3) of the Code and
provided that the interest payments with respect to such New Note
would not have been, if received at the time of such individual's
death, effectively connected with the conduct of a United States
trade or business by such individual.
Information Reporting and Backup Withholding
No information reporting or backup withholding will be
required with respect to payments made by the Company or any
paying agent to Non-United States Holders if a statement
described in (iv) under "Tax Consequences to Non-United States
Holders -- Interest and OID on New Notes" has been received and
the payor does not have actual knowledge that the beneficial
owner is a United States person.
Information reporting and backup withholding will not apply
if payments of OID on a New Note are paid or collected by a
custodian, nominee, or agent on behalf of the beneficial owner of
such New Note if such custodian, nominee, or agent has
documentary evidence in its records that the beneficial owner is
not a U.S. person and certain other conditions are met, or the
beneficial owner otherwise establishes an exemption.
Payments on the sale, exchange or other disposition of a New
Note made to or through a foreign office of a broker generally
will not be subject to backup withholding. However, if the broker
is a United States person, a controlled foreign corporation for
United States federal income tax purposes, a foreign person 50
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<PAGE>
percent or more of whose gross income is effectively connected
with a United States trade or business for a specified three year
period, or (with respect to payments after December 31, 1999) a
foreign partnership with certain connections to the United
States, such payments will be subject to information reporting
unless the broker has in its records documentary evidence that
the beneficial owner is not a United States person and certain
other conditions are met, or the beneficial owner otherwise
establishes an exemption. Backup withholding may apply to any
payment that such broker is required to report if the broker has
actual knowledge that the payee is a United States person.
Payments to or through the United States office of a broker will
be subject to information reporting and backup withholding unless
the Non-United States Holder certifies, under penalties of
perjury, that it is not a United States person or otherwise
establishes an exemption.
For payments made after December 31, 1999, with respect to
New Notes held by foreign partnerships, IRS regulations require
that the certification described in (iv) under "Interest and OID
on New Notes" above be provided by the partners, rather than by
the foreign partnership, and that the partnership provide certain
information, including a United States taxpayer identification
number. A look-through rule will apply in the case of tiered
partnerships.
Non-United States Holders should consult their tax advisors
regarding the application of information reporting and backup
withholding in their particular situations, the availability of
an exemption therefrom, and the procedures for obtaining such an
exemption, if available. Any amounts withheld under the backup
withholding rules will be allowed as a refund or credit against
the Non-United States Holder's U.S. federal income tax liability
and may entitle such Holder to a refund, provided the required
information is furnished to the IRS.
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<PAGE>
PLAN OF DISTRIBUTION
Except as described below, a broker-dealer may not
participate in the Exchange Offer in connection with a
distribution of the New Notes. Each broker-dealer that receives
New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with
any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired as a
result of market-making activities or other trading activities.
The Company shall for a period of 90 days after the Expiration
Date make this Prospectus, as amended or supplemented, available
to any broker-dealer for use in connection with any such resale.
In addition, until ______________, 1998 all dealers effecting
transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of
New Notes by broker-dealers. New Notes received by broker-dealers
for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the
writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of
resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Notes.
Any broker-dealer that resells New Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such New Notes
may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and
any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the
Exchange Offer other than commissions or concessions of any
brokers or dealers and expenses of counsel for the holders of the
New Notes and will indemnify the holders of the New Notes
(including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby and certain tax
matters will be passed upon by Reid & Priest LLP, New York, New
York.
EXPERTS
The consolidated financial statements of NETCOM On-Line
Communication Services, Inc. at December 31, 1996 and 1997, and
for each of the three years in the period ended December 31,
1997, appearing in this Prospectus and in the Registration
Statement, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing
elsewhere herein and in the Registration Statement and are
included in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
ICG Services, Inc. has appointed KPMG Peat Marwick LLP as
the independent auditors of the Company for the fiscal year ended
December 31, 1998.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
Report of Ernst & Young LLP, Independent Auditors . . . F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997 . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the years ended
December 31, 1995,
1996 and 1997 . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997 . . . F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . F-7
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<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
NETCOM On-Line Communication Services, Inc.
We have audited the accompanying consolidated balance sheets
of NETCOM On-Line Communication Services, Inc. as of December 31,
1996 and 1997, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the
three years in the period ended 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of NETCOM On-Line Communication
Services, Inc. at December 31, 1996 and 1997 and the consolidated
results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
San Jose, California
February 13, 1998
F-2
<PAGE>
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share amounts)
DECEMBER 31,
-------------------
1996 1997
-------- ---------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . .$ 73,408 $ 63,368
Short term investments . . . . . . . . 849 -
Amounts receivable, net of allowance for
doubtful accounts of
$896 and $1,628 in 1996 and 1997,
respectively . . . . . . . . . . . . . 1,284 2,397
Inventory . . . . . . . . . . . . . . . 464 341
Prepaid expenses . . . . . . . . . . . 2,484 3,554
------- -------
Total current assets . . . . . . . . 78,489 69,660
Property and equipment at cost, net . . 84,373 72,945
Deferred subscriber acquisition costs,
net . . . . . . . . . . . . . . . . 5,595 3,115
Deposits and other assets . . . . . . . 1,177 1,127
------- -------
Total assets . . . . . . . . .$169,634 $146,847
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable . . . . . . . .$ 7,517 $ 9,314
Accrued payroll and related expenses . 3,727 5,897
Other accrued expenses and liabilities 10,669 8,090
Deferred revenue . . . . . . . . . . . 2,930 5,170
Short-term capital lease obligations . - 2,491
------ -------
Total current liabilities . . . . . 24,843 30,962
------ -------
Long-term capital lease obligations . . - 3,550
------ -------
Commitments and contingencies
Stockholders' equity:
Preferred stock. $0.01 per value;
5,000,000 authorized and
none issued . . . . . . . . . . . . - -
Common stock, $0.01 par value;
authorized shares - 40,000,000;
11,630,900 and 11,783,100 shares
issued and outstanding
at December 31, 1996 and 1997,
respectively . . . . . . . . . . . . 116 117
Additional paid-in capital . . . . . 205,506 207,208
Accumulated deficit . . . . . . . . . (62,042) (95,134)
Cumulative translation adjustment and
other . . . . . . . . . . . . . . . 1,211 144
------- -------
Total stockholders' equity . . . . 144,791 112,335
------- -------
Total liabilities and
stockholders' equity . . . . . .$169,634 $146,847
======== ========
See accompanying notes
F-3
<PAGE>
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share amounts)
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
Revenue . . . . . . . . . . . . . . $ 52,422 $120,540 $160,660
Costs and expenses:
Cost of revenue . . . . . . . . . 36,641 88,396 118,432
Product development . . . . . . . 2,240 6,020 6,518
Sales and marketing . . . . . . . 18,771 51,237 49,375
General and administrative . . . 11,016 23,610 22,264
Restructuring and related charges - - 1,879
------- ------- -------
Total costs and expenses . . . 68,668 169,263 198,468
------- ------- -------
Loss from operations . . . . . . . (16,246) (48,723) (37,808)
Gain (loss) on investment . . . . . - (1,200) 1,274
Interest income and other, net . . 2,197 5,681 3,480
------- ------- -------
Loss before provision for income
taxes . . . . . . . . . . . . . . (14,049) (44,242) (33,054)
Provision for income taxes . . . . 15 23 38
------- ------- -------
Net loss . . . . . . . . . . . . . $(14,064) $(44,265) $(33,092)
======= ======= =======
Basic and diluted net loss per share $(1.68) $(3.85) $(2.82)
======= ======= =======
Shares used in computing basic and
diluted net loss per share . . . . 8,350 11,498 11,717
======= ======= =======
See accompanying notes
F-4
<PAGE>
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands except per share amounts)
COMMON STOCK ADDITIONAL
-------------- PAID-IN
SHARES AMOUNT CAPITAL
---------- ------ -----------
Balance at December 31,
1994 . . . . . . . . . . . 6,724,500 $67 $31,610
Proceeds from issuance of
common stock, net of
issuance costs . . . 3,750,000 38 169,177
Issuance of common stock
for the acquisition
of Professional
Internet Consulting,
Inc. . . . . . . . . 32,200 - 1,000
Issuance of common stock
for investment
in The McKinley
Group, Inc. . . . . . 12,600 - 300
Exercise of stock options
and purchases under
employee stock purchase
plan and other . . . 576,800 6 1,073
Cumulative translation
adjustment . . . . . - - -
Net loss . . . . . . . . - - -
---------- ------ --------
Balance at December 31,
1995 . . . . . . . . . . . 11,096,100 111 203,160
Exercise of stock options
and purchases under
employee stock purchase
plan and other . . . 534,800 5 2,346
Unrealized gains on
available for sale
investments . . . . . - - -
Cumulative translation
adjustment . . . . . - - -
Net loss . . . . . . . . - - -
---------- ------ -------
Balance at December 31,
1996 . . . . . . . . . . . 11,630,900 116 205,506
Exercise of stock options
and purchases under
employee stock purchase
plan and other . . . 152,200 1 1,702
Change in unrealized gains
on available for sale
investments . . . . . . - - -
Cumulative translation
adjustment . . . . . - - -
Net loss . . . . . . . . - - -
---------- ----- --------
Balance at December 31,
1997 . . . . . . . . . . . 11,783,100 $117 $207,208
========== ====== ========
RETAINED CUMULATIVE
EARNINGS TRANSLATION TOTAL
(ACCUMULATED ADJUSTMENT STOCKHOLDERS'
DEFICIT) AND OTHER EQUITY
------------ ---------- ------------
Balance at December 31, 1994 . . $(3,713) $ - $27,964
Proceeds from issuance of common
stock, net of issuance costs - - 169,215
Issuance of common stock for the
acquisition of Professional
Internet Consulting, Inc. . - - 1,000
Issuance of common stock
for investment
in The McKinley Group, Inc. - - 300
Exercise of stock options and
purchases under employee
stock purchase plan and
other . . . . . . . . . . . - - 1,079
Cumulative translation adjustment - (28) (28)
Net loss . . . . . . . . . . . (14,064) - (14,064)
------- ----- -------
Balance at December 31, 1995 . . (17,777) (28) 185,466
Exercise of stock options and
purchases under employee
stock purchase plan and
other . . . . . . . . . . . - - 2,351
Unrealized gains on available for
sale investments . . . . . - 540 540
Cumulative translation adjustment - 699 699
Net loss . . . . . . . . . . . (44,265) - (44,265)
------- ----- -------
Balance at December 31, 1996 . . (62,042) 1,211 144,791
Exercise of stock options and
purchases under
employee stock purchase plan and
other . . . . . . . . . . . - - 1,703
Change in unrealized gains on
available for sale - (540) (540)
investments . . . . . . . . .
Cumulative translation adjustment - (527) (527)
Net loss . . . . . . . . . . . (33,092) - (33,092)
------- ----- -------
Balance at December 31, 1997 . . $(95,134) $ 144 $112,335
======= ===== ========
See accompanying notes
F-5
<PAGE>
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
YEARS ENDED DECEMBER 31,
------------------------
1995 1996
---- -----
OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . $(14,064) $(44,265)
Adjustments to reconcile net loss to net cash
used in operating activities:
Write-off of fixed assets and deferred
subscriber acquisitions costs . . . . . . . . - -
Depreciation and amortization . . . . . . . . 9,945 29,626
Loss on disposal of assets . . . . . . . . . 1,311 286
(Gain) loss on investments . . . . . . . . . - 1,200
Changes in assets and liabilities:
Accounts receivable, net . . . . . . . . . . (3) 169
Inventory . . . . . . . . . . . . . . . . . (115) (258)
Prepaid expenses and other current assets . (670) (1,013)
Deposits and other assets . . . . . . . . . (477) (657)
Trade accounts payable . . . . . . . . . . . 5,944 (3,872)
Accrued payroll and related expenses . . . . 1,480 1,573
Other accrued expenses and liabilities . . . 1,898 8,248
Deferred subscriber acquisition costs, net . (5,505) (14,368)
(205) 1,680
Deferred revenue . . . . . . . . . . . . . . ------- -------
13,603 22,614
Total adjustments . . . . . . . . . . . . . . ------- -------
(461) (21,651)
Net cash used in operating activities . . . . . . ------- -------
INVESTING ACTIVITIES
Purchase of property and equipment . . . . . . (43,361) (53,992)
Proceeds from disposal of property and equipment - -
Cash acquired from PICnet . . . . . . . . . . . 59 -
Proceeds from sale of Excite . . . . . . . . . - -
Investment in affiliates . . . . . . . . . . . (1,200) -
(240) -
Product development costs . . . . . . . . . . . ------- -------
(44,742) (53,992)
Net cash used in investing activities . . . . . . ------- -------
FINANCING ACTIVITIES
Proceeds from capital lease line . . . . . . . - -
Repayment of capital lease obligations . . . . - -
Proceeds from issuance of common stock, net of 170,294 2,351
issuance costs . . . . . . . . . . . . . . . . ------- -------
170,294 2,351
Net cash provided by financing activities . . . . ------- -------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . 125,091 (73,292)
Effects of exchange rates on cash . . . . . . . . (28) 699
20,938 146,001
Cash and cash equivalents at beginning of period ------- -------
$146,001 $ 73,408
Cash and cash equivalents at end of period . . . ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
$ 7 $ -
Interest paid . . . . . . . . . . . . . . . . . . ======= =======
$ 8 $ 23
Income taxes paid . . . . . . . . . . . . . . . . ======= =======
SUPPLEMENTAL INFORMATION ON NONCASH INVESTING AND
FINANCING ACTIVITIES:
$ 1,300 $ -
Stock issued for investments in affiliates . . . ======= =======
Purchases of equipment under capital lease $ - $ -
obligations . . . . . . . . . . . . . . . . . . . ======= =======
YEARS ENDED
DECEMBER 31,
------------
1997
----
OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $(33,092)
Adjustments to reconcile net loss to net cash used in
operating activities:
Write-off of fixed assets and deferred subscriber 992
acquisitions costs . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . 34,800
Loss on disposal of assets . . . . . . . . . . . . . . . 653
(Gain) loss on investments . . . . . . . . . . . . . . . (1,274)
Changes in assets and liabilities:
Accounts receivable, net . . . . . . . . . . . . . . . . (1,113)
Inventory . . . . . . . . . . . . . . . . . . . . . . . 123
Prepaid expenses and other current assets . . . . . . . (1,070)
Deposits and other assets . . . . . . . . . . . . . . . 50
Trade accounts payable . . . . . . . . . . . . . . . . . 2,012
Accrued payroll and related expenses . . . . . . . . . . 2,170
Other accrued expenses and liabilities . . . . . . . . . (2,079)
Deferred subscriber acquisition costs, net . . . . . . . (6,542)
Deferred revenue . . . . . . . . . . . . . . . . . . . . 2,240
-------
Total adjustments . . . . . . . . . . . . . . . . . . . . 30,962
-------
Net cash used in operating activities . . . . . . . . . . . . (2,130)
-------
INVESTING ACTIVITIES
Purchase of property and equipment . . . . . . . . . . . . (10,865)
Proceeds from disposal of property and equipment . . . . . 253
Cash acquired from PICnet . . . . . . . . . . . . . . . . . -
Proceeds from sale of Excite . . . . . . . . . . . . . . . 1,583
Investment in affiliates . . . . . . . . . . . . . . . . . -
Product development costs . . . . . . . . . . . . . . . . . -
-------
Net cash used in investing activities . . . . . . . . . . . . (9,029)
-------
FINANCING ACTIVITIES
Proceeds from capital lease line . . . . . . . . . . . . . 1,578
Repayment of capital lease obligations . . . . . . . . . . (1,930)
Proceeds from issuance of common stock, net of issuance costs 1,703
-------
Net cash provided by financing activities . . . . . . . . . . 1,351
-------
Net increase (decrease) in cash and cash equivalents . . . . (9,808)
Effects of exchange rates on cash . . . . . . . . . . . . . . (232)
Cash and cash equivalents at beginning of period . . . . . . 73,408
-------
Cash and cash equivalents at end of period . . . . . . . . . $ 63,368
=======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . $ 493
=======
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . $ 26
=======
SUPPLEMENTAL INFORMATION ON NONCASH INVESTING AND FINANCING
ACTIVITIES:
Stock issued for investments in affiliates . . . . . . . . . $ -
=======
Purchases of equipment under capital lease obligations . . . $ 6,393
=======
See accompanying notes
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION
NETCOM On-Line Communication Services, Inc. ("NETCOM" or the
"Company") was incorporated in the state of California in August
1992. In October 1994, the Company reincorporated in the state
of Delaware. The Company provides Internet solutions to
subscribers in the United States, the United Kingdom and Canada.
On January 21, 1998, the Company became a wholly owned subsidiary
of ICG Services, Inc., a Delaware Corporation, which is a wholly
owned subsidiary of ICG Communications, Inc. and ceased to exist
as an independent entity (see note 11).
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Investments in
affiliated companies representing less than a 20% interest and
for which there is no ability to exert significant influence are
carried at cost.
Estimates and Assumptions
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Revenue Recognition
Monthly subscription service revenue is recognized over the
period services are provided. Subscription service and equipment
revenue, which require the use of Company-provided installation
of equipment at a subscriber's location, are recognized when the
service is commenced.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an
original maturity (at the date of purchase) of three months or
less and insignificant interest rate risk to be the equivalent of
cash for the purposes of the balance sheet presentation and
statement of cash flows.
Accounts Receivable and Deferred Revenue
The Company generally bills for subscription service, including
direct access, Web site hosting and dial-up connection services
and initial one-time setup fees, on the first day of each month
for which service is provided. Deferred revenue consists
primarily of prepaid monthly subscriptions and also, to a lesser
extent, billings to customers for equipment shipped that has not
been installed at customer locations.
Inventory
Inventory consists of purchased goods and is stated at the
lower of cost or market on a first-in, first-out basis.
F-7
<PAGE>
Property and Equipment
Property and equipment are carried at cost and depreciated or
amortized using the straight-line method over the estimated
useful life of the assets, which is generally three to five
years. Leasehold improvements are amortized by the straight-line
method over the shorter of their estimated useful lives or the
term of the related lease. Equipment under capital leases is
depreciated on a straight-line basis over lease terms of thirty-
six months.
Deferred Subscriber Acquisition Costs
The Company expenses the costs of advertising as incurred,
except direct response advertising, which are included in
subscriber acquisition costs. Subscriber acquisition costs are
deferred and amortized over a period determined by calculating
the ratio of current revenue related to the direct response
advertising versus the total expected revenue, or twelve months,
whichever is shorter. These costs relate directly to subscriber
solicitations and principally include the printing, production
and shipping of starter packages and the costs of obtaining
qualified prospects by various targeted direct marketing
programs. No indirect costs are included in subscriber
acquisition costs. To date, all subscriber acquisition costs
have been incurred for the solicitation of specifically
identified prospects. It is possible that these estimates of
anticipated gross revenue could be reduced in the future based on
management's periodic evaluation of the estimates used. As a
result, the carrying value and/or the amortization period and
carrying value of the subscriber acquisition costs could be
reduced.
Deferred subscriber acquisition costs capitalized during fiscal
years 1996 and 1997 were $14,368,000 and $6,542,000,
respectively. Amortization and write-offs for fiscal years 1995,
1996 and 1997 were $2,755,000, $12,225,000 and $8,914,000,
respectively, and have been included in sales and marketing
expense in the Company's consolidated statement of operations.
The amounts charged to advertising expense were $4,534,000 in
1995, $7,526,000 in 1996 and $4,680,000 in 1997.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash
investments and trade receivables. The Company's cash investment
policies limit investments to short-term, low-risk instruments.
Concentrations of credit risk with respect to trade receivables
are limited due to the large number of customers comprising the
Company's customer base. During 1995, 1996, and 1997, the Company
incurred bad debt expense in the amount of $182,000, $1,851,000
and $1,511,000, respectively.
Translation Adjustments
The functional currency for all foreign operations is the local
currency. As such, all assets and liabilities denominated in
foreign currencies are translated at the exchange rate on the
balance sheet date. Revenue, costs, and expenses are translated
at weighted average rates of exchange prevailing during the
period. Translation adjustments are carried as a separate
component of stockholders' equity. Gains and losses resulting
from foreign currency transactions are included in income.
Basic and Diluted Net Loss Per Share
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, ("SFAS 128") "Earnings Per Share."
Under SFAS 128, basic loss per share is computed on the basis of
weighted average common shares outstanding. Diluted loss per
share considers potential common stock instruments in the
calculation. The Company adopted SFAS 128 for its fiscal year
ending December 31, 1997, including the requirement for
F-8
<PAGE>
retroactive application. The adoption of SFAS 128 had no effect
on the Company's previously reported loss per share. Potential
common stock instruments, which include options, are not included
in the loss per share calculation as their effect is anti-
dilutive.
Income Taxes
Income taxes are accounted for under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
Under this method, deferred tax assets and liabilities are
determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
NOTE 3 INVESTMENTS
The Company has classified all investments as available-for-
sale. Available-for-sale securities are carried at fair market
value based on quoted market prices with unrealized gains and
losses, net of tax, reported in stockholders' equity. Realized
gains and losses and declines in value judged to be other-than-
temporary on available-for-sale securities are included in
investment income. Interest on securities classified as
available-for-sale is included in investment income.
The following is a summary of available-for-sale securities (in
thousands):
DECEMBER 31,
---------------------------
1996 1997
---- ----
Commercial paper . . . . . . . . $ 61,149 $ 61,119
Money market instruments, net of
overdrafts . . . . . . . . . . . 7,265 1,173
Equity securities . . . . . . . . 849 -
-------- --------
69,263 62,292
Included in cash and cash 68,414 62,292
equivalents . . . . . . . . . . . -------- --------
Included in short-term $ 849 $ -
investments . . . . . . . . . . . ======== ========
At December 31, 1996 and 1997, the estimated fair value of the
commercial paper and money market instruments approximated cost,
and the amount of gross unrealized gains and losses was not
significant. At December 31, 1996, the cost of equity securities
was $309,000 and unrealized gains totaled $540,000. All
commercial paper and money market instruments mature within one
year. During 1997, the Company recorded a realized gain on equity
securities of $1,274,000 (see note 5).
F-9
<PAGE>
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in
thousands):
DECEMBER 31,
-----------------------------
1996 1997
---- ----
Equipment . . . . . . . . . $ 87,771 $100,807
Leasehold improvements . . 7,893 8,617
Furniture, fixtures and
other . . . . . . . . . . . 10,286 11,895
Construction in process . . 1,526 688
-------- --------
107,476 122,007
Less accumulated
depreciation and (23,103) (49,062)
amortization . . . . . . . -------- --------
Net property and equipment $ 84,373 $ 72,945
======== ========
Depreciation expense was $6,563,000, $16,873,000 and
$26,242,000 for 1995, 1996 and 1997, respectively. Equipment
includes $6,393,000 of equipment under capital leases at December
31, 1997. Accumulated depreciation for such equipment was
$1,976,000 at December 31, 1997.
NOTE 5 ACQUISITIONS
In August 1995, the Company completed the acquisition of
Professional Internet Consulting, Inc. ("PICnet") pursuant to an
Agreement and Plan of Reorganization in a transaction accounted
for using the purchase method of accounting. As consideration
for all of the outstanding shares of PICnet, the Company issued
32,207 shares of its common stock at an approximate fair market
value of $31.05 per share with a total value of approximately
$1,000,000. Additionally, the Company acquired net liabilities
with a fair value of approximately $373,000. The resulting
consideration in excess of assets acquired totaling $1,373,000
represents the goodwill acquired. The goodwill was amortized
over a period of eighteen months and is fully amortized at
December 31, 1997. The results of PICnet have been included in
the consolidated financial statements beginning in August 1995.
In June 1995, the Company acquired common stock in The McKinley
Group, Inc. ("McKinley") in exchange for $1,200,000 cash and
$300,000 of common stock. In 1996 Excite, Inc. ("Excite")
acquired all of the outstanding shares of McKinley and the
Company received shares of Excite in exchange for its investment
in McKinley. The Company recorded a loss of $1,200,000 in 1996
to reflect the estimated value of the shares received. During
1997, the Company sold the Excite shares for a net gain of
$1,274,000.
NOTE 6 INDUSTRY SEGMENT REPORTING
The Company operates in one principal industry segment, as a
provider of Internet solutions, and markets its services
internationally through foreign subsidiaries. The Company's
services are provided primarily to the individual and small
business markets.
F-10
<PAGE>
Geographic financial information is as follows (in thousands):
YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
---- ---- ----
Revenue:
United States . . . $ 52,422 $ 118,055 $ 147,467
International . . . - 2,485 13,193
--------- --------- ---------
Consolidated . . . $ 52,422 $ 120,540 $ 160,660
========= ========= =========
Loss from operations:
United States . . . $ (15,263) $ (34,697) $ (20,346)
International . . . (983) (14,026) (17,462)
--------- --------- ---------
Consolidated . . . $ (16,246) $ (48,723) $ (37,808)
========= ========= =========
Identifiable assets:
United States . . . $ 199,208 $ 153,564 $ 134,031
International . . . 3,472 16,070 12,816
--------- --------- ---------
Consolidated . . . $ 202,680 $ 169,634 $ 146,847
========= ========= =========
Intersegment sales and transfers are not material. Revenue is
based on the location of the entity providing service. Loss from
operations represents total revenue less costs and expenses, and
does not include other income or provision for income taxes.
Identifiable assets of geographic areas are those assets used in
the Company's operations in each area. In September 1996, the
Company signed a letter of intent for a joint venture agreement
with a Brazilian conglomerate. No significant operating costs
were incurred during 1996 relating to the joint venture. During
1997, the Company recorded $2,013,000 as its share of operating
losses relating to the joint venture, which have been included in
sales and marketing expense in the Company's consolidated
statement of operations. During December 1997, the Company
transferred its interest in the Brazilian joint venture to its
partner, Grupo Itamarati.
NOTE 7 COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is subject to legal proceedings and claims which
have arisen in the ordinary course of its business and have not
been finally adjudicated. In the opinion of management,
settlement of these actions when ultimately concluded will not
have a material adverse effect on trends in results of operations
or the financial condition of the Company. This conclusion is
based upon current facts and circumstances, however, and it is
possible that a change in the facts and circumstances relating to
such legal proceedings and claims could result in a development
that would have a material adverse effect on the results of
operations or financial condition of the Company.
F-11
<PAGE>
Operating Lease Obligations
The Company has operating leases for all of its premises. The
Company's rental expenses under operating leases in the years
ended December 31, 1995, 1996 and 1997 totaled approximately
$1,603,000, $5,152,000 and $6,192,000, respectively. Future
minimum lease payments for all leases are as follows (in
thousands):
FISCAL YEARS
------------
1998 . . . . . . . . . . . . . . $ 6,168
1999 . . . . . . . . . . . . . . 5,553
2000 . . . . . . . . . . . . . . 2,324
2001 . . . . . . . . . . . . . . 1,475
2002 . . . . . . . . . . . . . . 848
Thereafter . . . . . . . . . . . 278
-------
Total minimum lease payments . . $16,646
=======
Telecommunications Lines
The Company has guaranteed monthly usage levels with its
primary communications vendor. The yearly commitment in each of
the years 1998, 1999, 2000 and 2001 is $9,300,000, $9,300,000,
$7,550,000 and $4,200,000, respectively. These amounts are
exclusive of usage discounts.
Capital Lease Obligations
The Company leases a portion of its equipment under capital
lease agreements with leasing companies in the United States and
Canada. Future minimum payments under all capital leases are as
follows (in thousands):
FISCAL YEARS
------------
1998 . . . . . . . . . . . . . . . $ 3,223
1999 . . . . . . . . . . . . . . . 3,194
2000 . . . . . . . . . . . . . . . 816
--------
Total capital lease obligations . . 7,233
Less: amount representing interest (1,192)
--------
Present value of capital lease
obligations . . . . . . . . . . . . 6,041
Less: current portion . . . . . . . (2,491)
--------
Total minimum lease payments . . . $ 3,550
========
NOTE 8 EMPLOYEE BENEFIT PLANS
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," (APB
25) and related Interpretations in accounting for its employee
stock awards because, as discussed below, the alternative fair
value accounting provided for under SFAS No. 123, "Accounting for
Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock
F-12
<PAGE>
options. Under APB 25, when the exercise price of the Company's
employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is
recognized.
1993 Stock Option Plan
In 1993, the Company approved and adopted its 1993 Stock Option
Plan (the "Plan"). The Plan is administered by the Stock Option
Committee of the Board of Directors. The Plan provides for the
granting of options to purchase common stock to eligible
employees, directors and consultants of the Company. A total of
3,153,571 shares of common stock may be issued pursuant to
options granted under the Plan. The options generally vest over
three to five year periods and are exercisable for up to ten
years following the date of grant.
The following table summarizes stock option activity:
OPTIONS OUTSTANDING
---------------------------
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
------ --------
Balance at December 31,
1994 . . . . . . . . . . 698,200 $ 5.83
Granted . . . . . . . 1,265,600 $ 30.33
Exercised . . . . . . (258,500) $ 2.57
Forfeited . . . . . . (19,900) $ 19.94
--------- -------
Balance at December 31,
1995 . . . . . . . . . . 1,685,400 $ 24.56
Granted . . . . . . . 848,700 $ 25.95
Exercised . . . . . . (193,400) $ 6.08
Forfeited . . . . . . (449,700) $ 28.70
--------- -------
Balance at December 31,
1996 . . . . . . . . . . 1,891,000 $ 26.09
Granted . . . . . . . 2,122,100 $ 13.90
Exercised . . . . . . (89,600) $ 11.18
Forfeited . . . . . . (2,021,400) $ 25.75
--------- -------
Balance at December 31, 1,902,100 $ 13.52
1997 . . . . . . . . . . ========= -------
At December 31, 1995, 1996 and 1997, approximately 335,600,
588,200 and 573,300 options, respectively, were exercisable under
the Plan.
In addition, in January 1994, the Company granted options,
under individual stock option agreements, to purchase 562,500 and
62,500 shares of common stock (of which 40,200 shares expired
upon the director's resignation in October 1994) at an exercise
price per share of $0.80 to the Company's former Chairman of the
Board and Chief Technical Officer and a former director of the
Company, respectively. These options, which were granted outside
the Plan, vested in full upon the Company's December 1994 public
offering. During 1995, 291,400 of the options were exercised
outside the Plan. The remaining 293,400 options were exercised
during 1996.
F-13
<PAGE>
The following table summarizes information about the Company's
stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING
----------------------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE
--------------- ----------- ---------------- ----------------
$2.24 12,500 6.25 $ 2.24
$4.48 1,800 6.36 $ 4.48
$7.84 - $11.20 345,000 8.83 $ 9.62
$12.13 - $17.25 1,432,100 9.25 $13.97
$18.75 - $27.00 108,400 9.61 $21.05
$35.88 - $40.25 2,300 7.93 $37.46
---------
$2,24 - $40.25 1,902,100 9.17 $13.52
=========
OPTIONS EXERCISABLE
--------------------------
RANGE OF NUMBER WEIGHTED AVERAGE
EXERCISE PRICES EXERCISABLE EXERCISE PRICE
--------------- ----------- ----------------
$2.24 12,500 $ 2.24
$4.48 1,800 $ 4.48
$7.84 - $11.20 91,500 $ 8.83
$12.13 - $17.25 456,100 $13.65
$18.75 - $27.00 10,300 $23.85
$3.88 - $40.25 1,100 $37.73
-------
$2.24 - $40.25 573,300 $12.83
=======
During 1996 and 1997, certain outstanding options were
exchanged at the election of the option holder. In September
1996, 67,408 shares were exchanged and repriced for 39,995 shares
and in January 1997, 457,846 shares were exchanged and repriced
for 272,084 shares. On the effective date of the trade in,
eligible options were issued at a price lower than the traded in
option and at a price higher than the market value. The trade in
ratio was set such that the number of old options times their
option price approximates the new number of options times their
exercise price. This program was offered to all employees
excluding members of the Board of Directors and Officers of the
Company. However, option holders participating in the first
exchange were not eligible for the second program.
During May 1997, 1,182,374 outstanding options were
exchanged at the election of certain stock option holders and
repriced for 632,546 options. This was offered to all employees
including members of the Board of Directors and officers of the
Company.
Employee Stock Purchase Plan
In 1994, the Board of Directors of the Company approved and
adopted an Employee Stock Purchase Plan (the "ESPP") to provide
employees of the Company with an opportunity to purchase common
stock through payroll deductions. Under the ESPP, 200,000 shares
of common stock were reserved for issuance, subject to anti-
dilution adjustments. The ESPP was effective upon the
effectiveness of the Company's initial public offering in
December 1994. Each offering period under the ESPP was six
months long, although the Board of Directors had the authority to
determine the duration of offering periods, up to a maximum of 27
months. Eligible employees could participate in the ESPP by
authorizing payroll deductions of an amount determined by the
Board of Directors. The amount of authorized payroll deductions
could not be less than 1% nor more than 10% of an employee's
initial cash compensation, not to exceed $25,000 per year.
Amounts withheld were applied at the end of every six-month
accumulation period to purchase shares of common stock, but not
more than 2,500 shares, or such other number of shares as the
Board of Directors determined.
Participants could withdraw their contributions at any time
before stock was purchased, and such contributions were returned
to the participants without interest. The purchase price was
equal to 85% of the lower of (i) the market price of common stock
immediately before the beginning of the applicable period or (ii)
the market price of common stock at the time of the purchase. As
of December 31, 1996 and 1997, 75,400 and 138,000 shares of
common stock were purchased under the ESPP, respectively.
The Company's ESPP was dissolved in conjunction with
NETCOM's merger with ICG Communications, Inc. (see note 11).
F-14
<PAGE>
Pro Forma Information
In October 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company adopted SFAS No. 123 in 1996. As
allowed by SFAS No. 123, the Company applies APB 25 for purposes
of determining net loss and provides the pro forma disclosure
requirements of SFAS No. 123. Pro forma information regarding
net loss per share as required by SFAS No. 123, also requires
that the information be determined as if the Company has
accounted for its employee stock options (including shares issued
under the stock purchase plan) granted subsequent to December 31,
1994 under the fair value method. The fair value for these
options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average
assumptions for 1995, 1996 and 1997: risk-free interest rate of
6%, a zero percent dividend yield, volatility factor of the
expected market price of the Company's common stock of 80% for
all three years; and a weighted average expected life of the
option of 1.6 years from vest date.
The Black-Scholes option valuation model was developed for
use in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
The weighted average estimated fair value of stock options
granted during 1995, 1996 and 1997 was $18.44, $16.73 and $11.94
per share, respectively. The weighted average estimated fair
value of shares granted under the Employee Stock Purchase Plan
during 1995, 1996 and 1997 was $7.18, $5.75 and $4.86,
respectively.
For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options'
vesting period. The Company's pro forma information follows (in
thousands except for earnings per share information):
YEARS ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
Net loss - as reported $(14,064) $(44,265) $(33,092)
======== ======== ========
Net loss - pro forma $(18,879) $(56,143) $(37,962)
======== ======== ========
Net loss per share - $(1.68) $(3.85) $(2.82)
as reported . . . . . ======== ======== ========
Net loss per share - $(2.26) $(4.88) $(3.24)
pro forma . . . . . . ======== ======== ========
The effect on pro forma disclosures of applying SFAS No. 123
are not likely to be representative of the effects on pro forma
disclosures in future years.
F-15
<PAGE>
Employee Savings Plan
The Company has a savings plan (the "Savings Plan") that
qualifies as a deferred salary arrangement under Section 401(k)
of the Internal Revenue Code. Under the Savings Plan,
participating employees may defer a portion of their pretax
earnings, up to the Internal Revenue Service annual contribution
limit. Prior to 1997, the Company matched 50% of each employee's
contributions up to a maximum of 6% of the employee's eligible
earnings. During 1997, the Company began matching 100% of each
employee's contributions up to a maximum of 3% of the employee's
eligible earnings. Company matches vest over four years.
NOTE 9 INCOME TAXES
The provision for income taxes for 1995, 1996 and 1997 in
the amount of $15,000, $23,000 and $38,000, respectively,
consists entirely of international and state minimum taxes since
the Company incurred pre-tax losses in each year.
Significant components of the Company's deferred tax assets
and liabilities for federal and state income taxes are as follows
(in thousands):
DECEMBER 31,
-----------------------------------
1996 1997
---- ----
Deferred tax assets
Net operating loss
carryforwards . . $ 27,829 $ 43,016
Deferred revenue . . 1,087 1,932
Other, net . . . . . 3,503 2,877
---------- -----------
Total deferred tax
assets . . . . . . 32,419 47,825
Valuation allowance (31,104) (44,598)
---------- -----------
$ 1,315 $ 3,227
========== ===========
Deferred tax
liabilities
Deferred subscriber
acquisition costs $ (1,153) $ (939)
Accumulated
depreciation and
amortization . . . (162) (2,288)
---------- -----------
$ (1,315) $ (3,227)
========== ===========
Realization of deferred tax assets is dependent on future
earnings, the timing and amount of which are uncertain.
Accordingly, a valuation allowance, in an amount equal to the net
deferred tax assets as of December 31, 1996 and 1997 has been
established to reflect these uncertainties. The change in the
valuation allowance was a net increase of $24,446,000 and
$13,494,000 in 1996 and 1997, respectively. Approximately
$124,000 of the valuation allowance at December 31, 1997 is
attributable to the tax benefits of disqualifying dispositions of
stock received through incentive stock options and the Company's
employee stock purchase plan, the benefit of which will be
credited to additional paid-in capital when realized.
F-16
<PAGE>
At December 31, 1997, the Company had federal, state and
foreign net operating loss carryforwards of approximately
$89,000,000, $37,000,000 and $27,000,000, respectively, which
will expire in the years 1999 through 2011. Under the Tax Reform
Act of 1986, the amounts and benefits of net operating losses
that can be carried forward may be impaired in certain
circumstances, including a cumulative change of more than 50%
over a three year period. The Agreement and Plan of Merger, as
amended, with ICG Communications, Inc. which was consummated on
January 21, 1998 (see note 11) resulted in a change in ownership
greater than 50%. Accordingly, the Company's net operating loss
carryforwards incurred prior to January 21, 1998 that can be
utilized to reduce future taxable income are limited to
approximately $15 million per year.
NOTE 10 RESTRUCTURING AND RELATED CHARGES
Restructuring and related charges of $1,879,000 during 1997
are the result of a decision by management to restructure
operations of the Company's subsidiary in the United Kingdom.
The charge includes $1,356,000 in accrued expenses for costs to
terminate excess leased office facilities and a write-off of
office equipment, furniture and building improvements as a result
of consolidating office space, a $356,000 write-down of
previously capitalized deferred subscriber acquisition costs and
$167,000 for severance costs relating to approximately twelve
employees.
The following table depicts the activity in the Company's
restructuring accrual at December 31, 1997 (in thousands):
BALANCE AT
ADDITIONS EXPENDITURES DECEMBER 31,
DURING 1997 DURING 1997 1997
----------- ----------- ----------
Payments on canceled or
vacated facilities . . $ 588 $ 456 $ 132
Payments for legal and
other support . . . . . 132 132 -
Payments to employees
involuntarily
terminated . . . . . . 167 135 32
------- ------- -------
Total restructuring $ 887 $ 723 $ 164
accrual . . . . . . . . ======= ======= =======
NOTE 11 SUBSEQUENT EVENTS
Agreement and Plan of Merger with ICG Communications, Inc.
On October 12, 1997, the Company entered into an Agreement
and Plan of Merger, as amended (the "Merger Agreement"), with ICG
Communications, Inc., a Delaware corporation ("ICG"), pursuant to
which ICG agreed to acquire the Company through a tax-free merger
(the "Merger") of a newly formed Delaware subsidiary of ICG with
and into the Company. On January 21, 1998, all contingencies of
the merger were satisfied and the Merger was consummated. Under
the terms of the Merger Agreement, each share of the Company's
common stock has been exchanged for 0.8628 shares of common stock
of ICG ("ICG Common Stock"). The Company became a wholly owned
subsidiary of ICG Services, Inc., a Delaware corporation, which
is a wholly owned subsidiary of ICG Communications, Inc., and
ceased to exist as an independent entity.
On December 31, 1997, there were $1,500,000 of deferred
merger expenses included in prepaid expenses which were
subsequently expensed in January 1998.
F-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ICG Services' Certificate of Incorporation provides that the
Company will indemnify, to the fullest extent permitted by the
General Corporation Law of the State of Delaware, as amended from
time to time (the "GCL"), all persons, whom it may identify
pursuant thereto. ICG Services' By-laws contain a similar
provision requiring indemnification of its directors and officers
to the fullest extent authorized by the GCL. The GCL permits a
corporation to indemnify its directors and officers (among
others) against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or
proceeding brought (or threatened to be brought) by third
parties, if such directors or officers acted in good faith and in
a manner they reasonably believe to be in or not opposed to the
best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe
their conduct was unlawful. In a derivative action, i.e., one by
or in the right of the corporation, indemnification may be made
for expenses (including attorneys' fees) actually and reasonably
incurred by directors and officers in connection with the defense
or settlement of such action if they had acted in good faith and
in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation, except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged liable to
the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity of
such expenses. The GCL further provides that, to the extent any
director or officer has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in this paragraph, or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by
him in connection therewith. In addition, ICG Services'
Certificate of Incorporation contains a provision limiting the
personal liability of its directors for monetary damages for
certain breaches of their fiduciary duty. ICG Services and ICG
Equipment are additional insureds under ICG Communications'
indemnification insurance under which directors and officers are
insured against certain liability that may incur in their
capacity as such.
See Item 22 of this Registration Statement regarding the
position of the Securities and Exchange Commission on
indemnification for liabilities arising under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(1) Underwriting Agreement.
----------------------
1.1: Placement Agreement, dated February 9, 1998, among ICG
Services, Inc., NETCOM On-Line Communication Services,
Inc. and Morgan Stanley & Co. Incorporated.
(2) Plan of Acquisition, Reorganization, Arrangement,
-------------------------------------------------
Liquidation or Succession. None.
-------------------------
(3) Articles of Incorporation.
-------------------------
3.1: Certificate of Incorporation of ICG Services, Inc. *
3.2: By-laws of ICG Services, Inc. *
II-1
<PAGE>
(4) Instruments defining the rights of security holders,
----------------------------------------------------
including indentures.
--------------------
4.1: Form of Old Note.
4.2: Form of New Note. *
4.3: Form of Letter of Transmittal with respect to the
Exchange Offer. *
4.4: Indenture, dated as of February 12, 1998, between ICG
Services, Inc. and Norwest Bank Colorado, National
Association.
4.5: Registration Rights Agreement, dated February 12, 1998,
between ICG Services, Inc. and Morgan Stanley & Co.
Incorporated with respect to the Senior Discount Notes.
(5) Opinion regarding legality.
--------------------------
5.1: Opinion of Reid & Priest LLP.
(8) Opinion regarding tax matters.
-----------------------------
8.1: Opinion of Reid & Priest LLP.
(9) Voting Trust Agreement. Not Applicable.
----------------------
(10) Material Contracts.
------------------
10.1(1): Office Building Lease by and between Pacific
Gateway Properties, Inc. and NETCOM On-Line
Communication Services, Inc. ("NETCOM") dated
February 1, 1994. *
10.2(1): Office Building Lease between Pacific Gateway
Properties, Inc. and NETCOM dated May 11,
1994. *
10.3(1): Office Building Lease between Pacific Gateway
Properties, Inc. and NETCOM dated August 26,
1994. *
10.4(1): 1994 Employee Stock Purchase Plan of NETCOM. *
10.5(1): Form of Incentive Stock Option Agreement used
in connection with 1993 Stock Option Plan of
NETCOM. *
10.6(1): Form of Nonstatutory Stock Option Agreement
used in connection with 1993 Stock Option
Plan of NETCOM. *
10.7(1): Brochure Bundling Agreement between NETCOM
and Hayes Microcomputer Products, Inc. dated
April 28, 1994. *
10.8(1): Joint Marketing and Distribution Agreement
between NETCOM and Tandem Computers
Incorporated dated October 18, 1994. *
10.9(1): Agreement between NETCOM and Auto-Graphics
dated July 17, 1994. *
II-2
<PAGE>
10.10(1): Terms and Conditions agreed upon by NETCOM
and ClariNet Communications Corp. dated
September 30, 1994. *
10.11(1): Revenue Plan Application for service between
NETCOM and WilTel, Inc. dated October 1,
1994, as amended effective November 1, 1994. *
10.12(1): Distribution Agreement between NETCOM and
Ingram Micro Inc. dated September 15, 1994.*
10.13(1): Distribution Agreement dated January 18, 1995
between NETCOM and Merisel Americas, Inc. *
10.14(1): Horizon Center Office Lease Agreement between
NETCOM and Horizon Center LLC, dated as of
December 11, 1995. *
10.15(1): Lease Agreement between Park West E-3
Associates and NETCOM, dated as of February
23, 1996. *
10.16(1): 1993 Stock Option Plan, as amended of NETCOM. *
(11) Statement re Computation of Per Share Earnings. Not
----------------------------------------------
Applicable.
(12) Statement re Computation of Ratios. Not Applicable.
----------------------------------
(13) Annual Report. Not Applicable.
-------------
(15) Letter re Unaudited Interim Financial Statements. Not
------------------------------------------------
Applicable.
(16) Letter re Change in Certifying Accountant. Not Applicable.
-----------------------------------------
(21) Subsidiaries of Registrant.
--------------------------
21.1: Subsidiaries of Registrant.
(23) Consents.
--------
23.1: Consent of Ernst & Young LLP, Independent Auditors.
23.2: Consent of Reid & Priest LLP (included in
Exhibit 5.1).
(24) Power of Attorney.
-----------------
24.1: Power of Attorney with respect to ICG Services, Inc.
(included on the signature page hereto).
(25) Statement of Eligibility of Trustee.
-----------------------------------
25.1: Form T-1 Statement of Eligibility and Qualification
under the Trust Indenture Act of 1939 of Norwest
Bank Colorado, National Association. *
II-3
<PAGE>
(26) Invitation for Competitive Bids. Not Applicable.
-------------------------------
(27) Financial Data Schedule.
-----------------------
27.1: Financial Data Schedule for the fiscal year
ended December 31, 1997.
27.2: Financial Data Schedule for the fiscal year
ended December 31, 1996.
27.1: Financial Data Schedule for the fiscal year
ended December 31, 1995.
(99) Additional Exhibits. Not Applicable.
-------------------
_____________________________
* To be filed by amendment.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Company pursuant to the foregoing
provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To respond to requests for information that is
incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one
business day of receipt of such request, and to send the
incorporated documents by first class mail or other
equally prompt means. This includes information contained
in documents filed subsequent to the effective date of
the Registration Statement through the date of responding
to the request;
(2) To supply by means of a post-effective amendment all
information concerning a transaction, and the company
being acquired involved therein, that was not the subject
of and included in the registration statement when it
became effective;
(3) To file, during any period in which offers or sales are
being made, a post-effective amendment to this
registration statement;
II-4
<PAGE>
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(4) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and
the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective
amendment any of the securities being registered which
remain unsold at the termination of the offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Act, the Registrant
has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City
of Englewood, State of Colorado, on the 24th day of April, 1998.
ICG SERVICES, INC.
By: /s/ J. Shelby Bryan
---------------------------
J. Shelby Bryan
Chairman of the Board,
President and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below under the heading "Signatures" constitutes and
appoints J. Shelby Bryan, James D. Grenfell and H. Don Teague,
each as his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any or
all amendments (including post-effective amendments) and
supplements to this Registration Statement and any related
Registration Statement filed pursuant to Rule 462(b) of the
Securities Act of 1933, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-
in-fact and agents, and each of them, full power and authority to
do and to perform each and every act and thing requisite and
necessary to be done in connection with the above premises, as
fully for all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-
in-fact and agents, or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons
in the capacities and on the dates indicated:
Signature Title Date
/s/ J. Shelby Bryan
-------------------------- Chairman of the April 24, 1998
J. Shelby Bryan Board, President
and Chief Executive
Officer (Principal
executive officer)
/s/ James D. Grenfell
-------------------------- Executive Vice April 24, 1998
James D. Grenfell President,
Chief Financial
Officer and
Director (Principal
financial officer)
/s/ Richard Bambach
-------------------------- Vice President and April 24, 1998
Richard Bambach Corporate
Controller
(Principal
accounting officer)
/s/ H. Don Teague
-------------------------- Executive Vice April 24, 1998
H. Don Teague President, General
Counsel, Secretary
and Director
/s/ David W. Garrison
-------------------------- Executive Vice April 24, 1998
David W. Garrison President and
Director
/s/ Sheldon S. Ohringer
-------------------------- Director April 24, 1998
Sheldon S. Ohringer
II-6
<PAGE>
EXHIBIT INDEX
(1) Underwriting Agreement.
----------------------
1.1: Placement Agreement, dated February 9, 1998, among
ICG Services, Inc., NETCOM On-Line Communication
Services, Inc. and Morgan Stanley & Co.
Incorporated.
(4) Instruments defining the rights of security holders,
----------------------------------------------------
including indentures.
--------------------
4.1: Form of Old Note.
4.4: Indenture, dated as of February 12, 1998, between
ICG Services, Inc. and Norwest Bank Colorado,
National Association.
4.5: Registration Rights Agreement, dated February 12,
1998, between ICG Services, Inc. and Morgan Stanley
& Co. Incorporated with respect to the Senior
Discount Notes.
(5) Opinion regarding legality.
--------------------------
5.1: Opinion of Reid & Priest LLP.
(8) Opinion regarding tax matters.
-----------------------------
8.1: Opinion of Reid & Priest LLP.
(21) Subsidiaries of Registrant.
--------------------------
21.1: Subsidiaries of Registrant.
(23) Consents.
--------
23.1: Consent of Ernst & Young LLP, Independent Auditors.
23.2: Consent of Reid & Priest LLP (included in
Exhibit 5.1).
(24) Power of Attorney.
-----------------
24.1: Power of Attorney with respect to ICG Services,
Inc. (included on the signature page hereto).
(27) Financial Data Schedule.
-----------------------
27.1: Financial Data Schedule for the fiscal
year ended December 31, 1997.
27.2: Financial Data Schedule for the fiscal
year ended December 31, 1996.
27.3: Financial Data Schedule for the fiscal
year ended December 31, 1995.
II-7
$490,000,000
ICG SERVICES, INC.
SENIOR DISCOUNT NOTES DUE 2008
PLACEMENT AGREEMENT
February 9, 1998
<PAGE>
February 9, 1998
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
ICG Services, Inc., a Delaware corporation (the
"COMPANY"), proposes to issue and sell to you (the "PLACEMENT
AGENT") $490,000,000 aggregate principal amount at maturity of
10% Senior Discount Notes due 2008 of the Company (the
"SECURITIES") issued pursuant to the provisions of an Indenture
to be dated as of February 12, 1998 (the "INDENTURE") among the
Company and Norwest Bank Colorado, National Association, trustee
(in such capacity, the "TRUSTEE").
The Securities will be offered without being registered
under the Securities Act of 1933, as amended (the "SECURITIES
ACT"), to qualified institutional buyers in compliance with the
exemption from registration provided by Rule 144A under the
Securities Act, in offshore transactions in reliance on
Regulation S under the Securities Act ("REGULATION S") and to
institutional accredited investors (as defined in Rule 501(a)(1),
(2), (3) or (7) under the Securities Act) that deliver a letter
in the form annexed to the Final Memorandum (as defined below).
The Placement Agent and its direct and indirect
transferees will be entitled to the benefits of a Registration
Rights Agreement to be dated the Closing Date (as defined below)
and to be substantially in the form attached hereto as Exhibit A
(the "REGISTRATION RIGHTS AGREEMENT").
In connection with the sale of the Securities, the
Company has prepared a preliminary offering memorandum (the
"PRELIMINARY MEMORANDUM") and will prepare a final offering
memorandum (the "FINAL MEMORANDUM" and, with the Preliminary
Memorandum, each a "MEMORANDUM") including a description of the
terms of the Securities, the terms of the offering and a
description of the Company.
1. Representations and Warranties of the Company.
The Company represents and warrants to, and agrees with, you
that:
(a) The Preliminary Memorandum does not contain and
the Final Memorandum, in the form used by the Placement
Agent to confirm sales and on the Closing Date, will not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements
therein, in the light of the circumstances under which they
were made, not misleading, except that the representations
and warranties set forth in this paragraph do not apply to
statements or omissions in either Memorandum based upon
information relating to the Placement Agent furnished to the
Company in writing by the Placement Agent expressly for use
therein.
(b) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of
the State of Delaware, has the corporate power and authority
to own its property and to conduct its business as described
in each Memorandum and is duly qualified to transact
business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or
leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good
standing could not reasonably be expected to have a material
adverse effect on the Company and its subsidiaries, taken as
a whole.
(c) Each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own
its property and to conduct its business as described in
each Memorandum and is duly qualified to transact business
and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing
could not reasonably be expected to have a material adverse
effect on the Company and its subsidiaries, taken as a
whole; all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
are owned directly by the Company, free and clear of all
liens, encumbrances, equities or claims.
(d) This Agreement has been duly authorized, executed
and delivered by each of the Company and NETCOM On-Line
Communication Services, Inc., a Delaware corporation
("NETCOM").
(e) The Registration Rights Agreement has been duly
authorized by the Company, and when executed and delivered
by the Company will be a valid and binding agreement of the
Company, enforceable against the Company in accordance with
its terms except as (x) the enforceability thereof may be
limited by the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws now
or hereafter in effect relating to or affecting creditors'
rights generally and (y) the availability of equitable
remedies may be limited by equitable principles of general
applicability.
(f) The Securities have been duly authorized by the
Company and, when executed, authenticated and delivered in
accordance with the Indenture and paid for by the Placement
Agent in accordance with the terms of this Agreement, will
(x) be valid and binding obligations of the Company
enforceable against Company in accordance with their terms,
except as (A) the enforceability thereof may be limited by
the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter
in effect relating to or affecting creditors' rights
generally and (B) rights of acceleration, if applicable, and
the availability of equitable remedies may be limited by
equitable principles of general applicability and (y) be
entitled to the benefits of the Indenture.
(g) The Indenture has been duly authorized by the
Company and, when executed and delivered by the Company and
the Trustee, will be a valid and binding agreement of the
Company enforceable against the Company in accordance with
its terms except as (x) the enforceability thereof may be
limited by the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter
in effect relating to or affecting creditors' rights
generally and (y) rights of acceleration, if applicable, and
the availability of equitable remedies may be limited by
equitable principles of general applicability.
(h) The execution and delivery by the Company of, and
the performance by the Company of its obligations under,
this Agreement, the Indenture, the Registration Rights
Agreement and the Securities and the issuance and sale of
the Securities will not contravene any provision of
applicable law or the certificate of incorporation or
by-laws of the Company or any agreement or other instrument
binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a
whole, or any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Company
or any subsidiary, and no consent, approval, authorization
or order of, or qualification with, any governmental body or
agency is required for the performance by the Company of its
obligations under this Agreement, the Indenture, the
Registration Rights Agreement or the Securities or the
issuance and sale of the Securities, except such as may be
required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the
Securities.
(i) There has not occurred any material adverse
change, or any development involving a prospective material
adverse change, in the condition, financial or otherwise, or
in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, from that set forth in
the Preliminary Memorandum.
(j) There are no legal or governmental proceedings
pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of
the Company or any of its subsidiaries is subject other than
proceedings accurately described in all material respects in
each Memorandum and proceedings that could not reasonably be
expected to have a material adverse effect on the Company
and its subsidiaries, taken as a whole, or on the power or
ability of the Company to perform its obligations under this
Agreement, the Indenture, the Registration Rights Agreement
or the Securities or to consummate the transactions
contemplated by the Final Memorandum.
(k) The Company and its subsidiaries (i) are in
compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the
protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all
permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such
permits, licenses or approvals would not, singly or in the
aggregate, have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(l) The Company is not, and after giving effect to the
offering and sale of the Securities and the application of
the proceeds thereof as described in the Final Memorandum,
will not be an "investment company" or an entity
"controlled" by an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended.
(m) Neither the Company nor any affiliate (as defined
in Rule 501(b) of Regulation D under the Securities Act, an
"AFFILIATE") of the Company has directly, or through any
agent, (i) sold, offered for sale, solicited offers to buy
or otherwise negotiated in respect of, any security (as
defined in the Securities Act) which is or will be
integrated with the sale of the Securities in a manner that
would require the registration under the Securities Act of
the Securities or (ii) engaged in any form of general
solicitation or general advertising in connection with the
offering of the Securities (as those terms are used in
Regulation D under the Securities Act), or in any manner
involving a public offering within the meaning of Section
4(2) of the Securities Act.
(n) None of the Company, its Affiliates or any person
acting on its or their behalf (other than the Placement
Agent) has engaged or will engage in any directed selling
efforts (within the meaning of Regulation S) with respect to
the Securities and the Company and its Affiliates and any
person acting on its or their behalf (other than the
Placement Agent) have complied and will comply with the
offering restrictions requirement of Regulation S.
(o) It is not necessary in connection with the offer,
sale and delivery of the Securities to the Placement Agent
in the manner contemplated by this Agreement to register the
Securities under the Securities Act or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended.
(p) The Securities satisfy the requirements set forth
in Rule 144A(d)(3) under the Securities Act.
(q) The Company has complied with all provisions of
Section 517.075, Florida Statutes (Chapter 92-198, Laws of
Florida).
(r) Except as set forth in each Memorandum, the
Company and its subsidiaries have all necessary permits,
licenses, authorizations, consents and approvals and have
made all necessary filings required under any federal,
state, local or foreign supranational, national or regional
law, regulation or rule, and have obtained all necessary
authorizations, consents and approvals from other persons,
material to the conduct of their respective businesses, in
each case except to the extent that the failure to obtain
such permits, licenses, authorizations, consents or
approvals or to make such filings would not, singly or in
the aggregate, have a material adverse effect on the
properties, assets, prospects, condition, financial or
otherwise, business or operations of the Company and its
subsidiaries, taken as a whole; except as set forth in each
Memorandum, the Company and its subsidiaries have not
received any notice of proceedings which remain unresolved
relating to revocation or modification of any such permits,
licenses, authorizations, consents or approvals, nor is the
Company or any of its subsidiaries in violation of, or in
default under, any such license, authorization, consent or
approval or any federal, state, local or foreign
supranational, national or regional law, regulation or rule
or any decree, order or judgment applicable to the Company
or its subsidiaries the effect of which would reasonably be
expected to have a material adverse effect on the
properties, assets, condition, financial or otherwise,
business or operations of the Company and its subsidiaries,
taken as a whole.
(s) (1) The merger of ICG Acquisition, Inc., a
Delaware corporation ("ACQUISITION SUB"), with and into
NETCOM has been consummated pursuant to the Agreement and
Plan of Merger, dated October 12, 1997, as amended (the
"MERGER AGREEMENT"), by and among ICG Communications, Inc.,
a Delaware corporation ("ICG"), Acquisition Sub and NETCOM,
(2) ICG transferred all of the capital stock of NETCOM to
the Company and (3) all required consents, waivers and
agreements in connection with such consummation or transfer,
including any such consents, waivers and agreements from
suppliers, customers and lessors of NETCOM, have been
obtained prior to such consummation or transfer, as the case
may be, except where the failure to obtain such consents,
waivers or agreements would not have a material adverse
effect on the Company and its subsidiaries, taken as a
whole.
2. Representations and Warranties of NETCOM. NETCOM
represents and warrants to, and agrees with, you that:
(a) The Preliminary Memorandum does not contain and
the Final Memorandum, in the form used by the Placement
Agent to confirm sales and on the Closing Date, will not
contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements
therein, in the light of the circumstances under which they
were made, not misleading, except that the representations
and warranties set forth in this paragraph apply only to
statements or omissions in either Memorandum based upon
information relating to NETCOM and its subsidiaries.
(b) NETCOM has been duly incorporated, is validly
existing as a corporation in good standing under the laws of
the State of Delaware, has the corporate power and authority
to own its property and to conduct its business as described
in each Memorandum and is duly qualified to transact
business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or
leasing of property requires such qualification, except to
the extent that the failure to be so qualified or be in good
standing could not reasonably be expected to have a material
adverse effect on NETCOM and its subsidiaries, taken as a
whole.
(c) Each subsidiary of NETCOM has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own
its property and to conduct its business as described in
each Memorandum and is duly qualified to transact business
and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing
could not reasonably be expected to have a material adverse
effect on NETCOM and its subsidiaries, taken as a whole; all
of the issued shares of capital stock of each subsidiary of
NETCOM have been duly and validly authorized and issued, are
fully paid and non-assessable and are owned directly by
NETCOM, free and clear of all liens, encumbrances, equities
or claims. None of the subsidiaries of NETCOM would be
considered a "significant subsidiary" under clause (2) of
Rule 102(w) of Regulations S-X under the Securities Act.
(d) This Agreement has been duly authorized, executed
and delivered by NETCOM.
(e) The execution and delivery by NETCOM of, and the
performance by NETCOM of its obligations under, this
Agreement will not contravene any provision of applicable
law or the certificate of incorporation or by-laws of NETCOM
or any agreement or other instrument binding upon NETCOM or
any of its subsidiaries that is material to NETCOM and its
subsidiaries, taken as a whole, or any judgment, order or
decree of any governmental body, agency or court having
jurisdiction over NETCOM or any subsidiary, and no consent,
approval, authorization or order of, or qualification with,
any governmental body or agency is required for the
performance by NETCOM of its obligations under this
Agreement.
(f) There has not occurred any material adverse
change, or any development involving a prospective material
adverse change, in the condition, financial or otherwise, or
in the earnings, business or operations of NETCOM and its
subsidiaries, taken as a whole, from that set forth in the
Preliminary Memorandum.
(g) There are no legal or governmental proceedings
pending or threatened to which NETCOM or any of its
subsidiaries is a party or to which any of the properties of
NETCOM or any of its subsidiaries is subject other than
proceedings accurately described in all material respects in
each Memorandum and proceedings that could not reasonably be
expected to have a material adverse effect on NETCOM and its
subsidiaries, taken as a whole, or on the power or ability
of NETCOM to perform its obligations under this Agreement.
(h) NETCOM and its subsidiaries (i) are in compliance
with Environmental Laws, (ii) have received all permits,
licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective
businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such
permits, licenses or approvals would not, singly or in the
aggregate, have a material adverse effect on NETCOM and its
subsidiaries, taken as a whole.
(i) NETCOM is not, and after giving effect to the
offering and sale of the Securities and the application of
the proceeds thereof as described in the Final Memorandum,
will not be an "investment company" or an entity
"controlled" by an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended.
(j) NETCOM has complied with all provisions of Section
517.075, Florida statutes (Chapter 92-198, Laws of Florida).
(k) Except as set forth in each Memorandum, NETCOM and
its subsidiaries have all necessary permits, licenses,
authorizations, consents and approvals and have made all
necessary filings required under any federal, state, local
or foreign supranational, national or regional law,
regulation or rule, and have obtained all necessary
authorizations, consents and approvals from other persons,
material to the conduct of their respective businesses, in
each case except to the extent that the failure to obtain
such permits, licenses, authorizations, consents or
approvals or to make such filings would not, singly or in
the aggregate, have a material adverse effect on the
properties, assets, prospects, condition, financial or
otherwise, business or operations of NETCOM and its
subsidiaries, taken as a whole; except as set forth in each
Memorandum, NETCOM and its subsidiaries have not received
any notice of proceedings which remain unresolved relating
to revocation or modification of any such permits, licenses,
authorizations, consents or approvals, nor is NETCOM or any
of its subsidiaries in violation of, or in default under,
any such license, authorization, consent or approval or any
federal, state, local or foreign supranational, national or
regional law, regulation or rule or any decree, order or
judgment applicable to NETCOM or its subsidiaries the effect
of which would reasonably be expected to have a material
adverse effect on the properties, assets, condition,
financial or otherwise, business or operations of NETCOM and
its subsidiaries, taken as a whole.
(l) Subsequent to the date as of which information is
given in the Preliminary Memorandum, (1) NETCOM and its
subsidiaries have not incurred any material liability or
obligation, direct or contingent, nor entered into any
material transaction not in the ordinary course of business;
and (2) there has not been any material change in short-term
debt or long-term debt of NETCOM and its subsidiaries,
except in each case as described in the Final Memorandum.
(m) NETCOM and its subsidiaries have good and
marketable title in fee simple to all real property and good
and marketable title to all personal property owned by them
which is material to the business of NETCOM and its
subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in
each Memorandum or such as do not materially affect the
value of such property and do not interfere with the use
made and proposed to be made of such property by NETCOM and
its subsidiaries; and any real property and buildings held
under lease by NETCOM and its subsidiaries are held by them
under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and
buildings by NETCOM and its subsidiaries, in each case
except as described in each Memorandum.
(n) NETCOM and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent
rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade
names currently employed by them in connection with the
business now operated by them, and neither NETCOM nor any of
its subsidiaries has received any notice of infringement of
or conflict with asserted rights of others with respect to
any of the foregoing which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding,
would have a material adverse affect on NETCOM and its
subsidiaries, taken as a whole.
(o) No material labor dispute with the employees of
NETCOM or any of its subsidiaries exists, except as
described in each Memorandum, or, to the knowledge of
NETCOM, is imminent; and NETCOM is not aware of any
existing, threatened or imminent labor disturbance by the
employees of any of its principal suppliers, manufacturers
or contractors that could have a material adverse effect on
NETCOM and its subsidiaries, taken as a whole.
(p) NETCOM and its subsidiaries are insured by the
insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and
customary in the businesses in which they are engaged;
neither NETCOM nor any of its subsidiaries has been refused
any insurance coverage sought or applied for; and neither
NETCOM nor any of its subsidiaries has any reason to believe
that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not have a
material adverse effect on NETCOM and its subsidiaries,
taken as a whole, except as described in each Memorandum.
(q) NETCOM and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide
reasonable assurance that (1) transactions are executed in
accordance with management's general or specific
authorizations; (2) transactions are recorded as necessary
to permit preparation of financial statements in conformity
with generally accepted accounting principles and to
maintain asset accountability; (3) access to assets is
permitted only in accordance with management's general or
specific authorization; and (4) the recorded accountability
for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with
respect to any differences.
(r) (1) The merger of Acquisition Sub with and into
NETCOM has been consummated pursuant to the Merger
Agreement, (2) ICG transferred all of the capital stock of
NETCOM to the Company and (3) all required consents, waivers
and agreements in connection with such consummation or
transfer, including any such consents, waivers and
agreements from suppliers, customers and lessors of NETCOM,
have been obtained prior to such consummation or transfer,
as the case may be, except where the failure to obtain such
consents, waivers or agreements would not have a material
adverse effect on the Company and its subsidiaries, taken as
a whole.
3. Agreements to Sell and Purchase. The Company
hereby agrees to sell to the Placement Agent, and the Placement
Agent, upon the basis of the representations and warranties
herein contained, but subject to the conditions hereinafter
stated, agrees to purchase from the Company the Securities at a
purchase price of $291,553,773 for the Securities plus accrued
original issue discount, if any, from February 12, 1998 to the
date of payment and delivery.
4. Terms of Offering. The Placement Agent has
advised the Company that it will make an offering of the
Securities purchased by it hereunder on the terms set forth in
the Final Memorandum, as soon as practicable after this Agreement
is entered into as in its judgment is advisable.
5. Payment and Delivery. Payment for the Securities
shall be made against delivery of the Securities at a closing
(the "CLOSING") to be held at the office of Shearman & Sterling,
599 Lexington Avenue, New York, New York, at 9:00 A.M., New York
City time, on February 12, 1998 or at such other time on the same
or such other date, not later than February 27, 1998, as shall be
designated in writing by you. The time and date of such payment
are herein referred to as the "CLOSING DATE". Payment for the
Securities shall be made by wire transfer to an account
previously designated to the Placement Agent by the Company in
immediately available funds.
Certificates for the Securities shall be in definitive
form or global form, as specified by you, and registered in such
names and in such denominations as you shall request in writing
not later than one full business day prior to the Closing Date.
The certificates evidencing the Securities shall be delivered to
you on the Closing Date, with any transfer taxes payable in
connection with the transfer of the Securities to the Placement
Agent duly paid, against payment of the purchase price therefor.
6. Conditions to the Placement Agent's Obligations.
The obligations of the Placement Agent to purchase and pay for
the Securities on the Closing Date are subject to the following
conditions:
(a) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date there shall not have
occurred any change, or any development involving a
prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the
Company and its subsidiaries, taken as a whole, from that
set forth in the Preliminary Memorandum that, in your
reasonable judgment, is material and adverse and that makes
it, in your reasonable judgment, impracticable to market the
Securities on the terms and in the manner contemplated in
the Final Memorandum.
(b) You shall have received on the Closing Date
certificates, dated the Closing Date and signed,
respectively, by an executive officer of the Company and
NETCOM to the effect that the representations and warranties
of the Company and NETCOM contained in this Agreement are
true and correct as of the Closing Date and that each of the
Company and NETCOM has complied with all of the agreements
and satisfied all of the conditions on its part to be
performed or satisfied pursuant to the transactions
contemplated hereby or by the Memorandum on or before the
Closing Date.
The officers signing and delivering such certificates
may rely upon the best of their knowledge as to proceedings
threatened.
(c) You shall have received on the Closing Date an
opinion of Reid & Priest LLP, independent counsel for the
Company and special counsel for NETCOM, dated the Closing
Date, to the effect set forth in Exhibit B. Such opinion
shall be rendered to you at the request of the Company and
shall so state therein.
(d) You shall have received on the Closing Date an
opinion of Pillsbury, Madison & Sutro LLP, independent
counsel for NETCOM, dated the Closing Date, to the effect
set forth in Exhibit C. Such opinion shall be rendered to
you at the request of NETCOM or the Company and shall so
state therein.
(e) You shall have received on the Closing Date an
opinion of Shearman & Sterling, counsel for the Placement
Agent, dated the Closing Date, with respect to such matters
as you may request.
(f) You shall have received on each of the date hereof
and the Closing Date a letter, dated the date hereof or the
Closing Date, as the case may be, in form and substance
satisfactory to you from Ernst & Young LLP, independent
public accountants, containing statements and information of
the type ordinarily included in accountants "comfort
letters" to underwriters with respect to the financial
statements and certain financial information contained in
the Final Memorandum; provided that the letters delivered on
the Closing Date shall use a "cut-off date" not earlier than
the date hereof.
(g) You shall have received on the date hereof a
letter, dated the date hereof, in form and substance
satisfactory to you from KPMG Peat Marwick LLP, independent
public accountants, containing statements and information of
the type ordinarily included in accountants "comfort
letters" to underwriters with respect to certain financial
information contained in the Final Memorandum.
(h) The Placement Agent and its counsel shall have
been furnished with such other documents and certificates as
they shall reasonably request.
7. Covenants of the Company. In further consideration
of the agreements of the Placement Agent contained in this
Agreement, the Company covenants and agrees as follows:
(a) To furnish to you in New York City, without
charge, prior to 5:00 P.M. New York City time on the
business day next succeeding the date of this Agreement and
during the period mentioned in Section 7(c), as many copies
of the Final Memorandum and any supplements and amendments
thereto as you may reasonably request.
(b) Before amending or supplementing either
Memorandum, to furnish to you a copy of each such proposed
amendment or supplement and not to use any such proposed
amendment or supplement to which you reasonably object.
(c) If, during such period after the date hereof and
prior to the date on which all of the Securities shall have
been sold by the Placement Agent, any event shall occur or
condition exist as a result of which it is necessary in your
judgment to amend or supplement the Final Memorandum in
order to make the statements therein, in the light of the
circumstances when the Final Memorandum is delivered to a
purchaser, not misleading, or if, in the opinion of counsel
for the Placement Agent, it is necessary to amend or
supplement the Final Memorandum to comply with applicable
law, forthwith to prepare and furnish, at its own expense,
to the Placement Agent, either amendments or supplements to
the Final Memorandum so that the statements in the Final
Memorandum as so amended or supplemented will not, in the
light of the circumstances when the Final Memorandum is
delivered to a purchaser, be misleading or so that the Final
Memorandum, as amended or supplemented, will comply with
applicable law.
(d) To endeavor to qualify the Securities for offer
and sale under the securities or Blue Sky laws of such
jurisdictions as you shall reasonably request.
(e) Whether or not any sale of the Securities is
consummated, to pay all expenses incident to the performance
of its obligations under this Agreement, including: (i) the
preparation of each Memorandum and all amendments and
supplements thereto, (ii) the preparation, issuance and
delivery of the Securities, (iii) the fees and disbursements
of the Company's and NETCOM's counsel and accountants and
the Trustee and its counsel, (iv) the qualification of the
Securities under securities or Blue Sky laws in accordance
with the provisions of Section 7(d), including filing fees
and the fees and disbursements of counsel for the Placement
Agent in connection therewith and in connection with the
preparation of any Blue Sky or legal investment memoranda,
(v) the printing and delivery to the Placement Agent in
quantities as hereinabove stated of copies of the Memorandum
and any amendments or supplements thereto, (vi) any fees
charged by rating agencies for the rating of the Securities,
(vii) the fees and expenses incurred in connection with the
admission of the Securities for trading in PORTAL or any
other market system, (viii) the costs and expenses incurred
by the Company and NETCOM relating to investor presentations
on any "road show" undertaken in connection with the
marketing of the Securities, including, without limitation,
expenses associated with the production of road show slides
and graphics, fees and expenses of any consultants engaged
in connection with the road show presentations with the
prior approval of the Company, travel and lodging expense of
the representatives and officers of the Company and NETCOM
and any such consultants, and the cost of any aircraft
chartered in connection with the road show, and (ix) all
other costs and expenses incident to the performance of the
obligations of the Company and ICG hereunder for which
provision is not otherwise made in this Section.
(f) Neither the Company nor any Affiliate will sell,
offer for sale or solicit offers to buy or otherwise
negotiate in respect of any security (as defined in the
Securities Act) which could be integrated with the sale of
the Securities in a manner which would require the
registration under the Securities Act of the Securities.
(g) Not to solicit any offer to buy or offer or sell
the Securities by means of any form of general solicitation
or general advertising (as those terms are used in
Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section
4(2) of the Securities Act.
(h) While any of the Securities remain "restricted
securities" within the meaning of the Securities Act, to
make available, upon request, to any seller of such
Securities, the information specified in Rule 144A(d)(4)
under the Securities Act, unless the Company is then subject
to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT").
(i) To use its best efforts to permit the Securities
to be designated PORTAL securities in accordance with the
rules and regulations adopted by the National Association of
Securities Dealers, Inc. relating to trading in the PORTAL
Market.
(j) None of the Company, its Affiliates or any person
acting on its or their behalf (other than the Placement
Agent) will engage in any directed selling efforts (as that
term is defined in Regulation S) with respect to the
Securities, and the Company and its Affiliates and each
person acting on its or their behalf (other than the
Placement Agent) will comply with the offering restrictions
requirement of Regulation S.
(k) During the period of two years after the Closing
Date, the Company will not, and will not permit any of its
affiliates (as defined in Rule 144A under the Securities
Act) to, resell any of the Securities which constitute
"restricted securities" under Rule 144A that have been
reacquired by any of them.
8. Offering of Securities; Restrictions on Transfer.
(a) The Placement Agent represents and warrants that it is a
qualified institutional buyer as defined in Rule 144A under the
Securities Act (a "QIB"). The Placement Agent agrees with the
Company that (i) it will not solicit offers for, or offer or
sell, such Securities by any form of general solicitation or
general advertising (as those terms are used in Regulation D
under the Securities Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act
and (ii) it will solicit offers for such Securities only from,
and will offer such Securities only to, persons that it
reasonably believes to be (A) in the case of offers inside the
United States, (1) QIBs or (2) other institutional accredited
investors (as defined in Rule 501(a)(1), (2), (3) or (7) under
the Securities Act ("INSTITUTIONAL ACCREDITED INVESTORS") that,
prior to their purchase of the Securities, deliver to the
Placement Agent a letter containing the representations and
agreements set forth in Exhibit A to the Final Memorandum and (B)
in the case of offers outside the United States, to persons other
than U.S. persons ("FOREIGN PURCHASERS," which term shall include
dealers or other professional fiduciaries in the United States
acting on a discretionary basis for foreign beneficial owners
(other than an estate or trust)) in reliance upon Regulation S
under the Securities Act that, in each case, in purchasing such
Securities are deemed to have represented and agreed as provided
in the Final Memorandum under the caption "Transfer
Restrictions".
(b) The Placement Agent represents, warrants, and
agrees with respect to offers and sales outside the United States
that:
(i) it understands that no action has been or will be
taken in any jurisdiction by the Company that would permit a
public offering of the Securities, or possession or
distribution of either Memorandum or any other offering or
publicity material relating to the Securities, in any
country or jurisdiction where action for that purpose is
required;
(ii) it will comply with all applicable laws and
regulations in each jurisdiction in which it acquires,
offers, sells or delivers Securities or has in its
possession or distributes either Memorandum or any such
other material, in all cases at its own expense;
(iii) the Securities have not been registered under
the Securities Act and may not be offered or sold within the
United States or to, or for the account or benefit of, U.S.
persons except in accordance with Rule 144A or Regulation S
under the Securities Act or pursuant to another exemption
from the registration requirements of the Securities Act;
(iv) it has offered the Securities and will offer and
sell the Securities (A) as part of its distribution at any
time and (B) otherwise until 40 days after the later of the
commencement of the offering and the Closing Date, only in
accordance with Rule 903 of Regulation S or as otherwise
permitted in Section 8(a); accordingly, neither the
Placement Agent, its Affiliates nor any persons acting on
its or their behalf have engaged or will engage in any
directed selling efforts (within the meaning of Regulation
S) with respect to the Securities, and any Placement Agent,
its Affiliates and any such persons have complied and will
comply with the offering restrictions requirement of
Regulation S;
(v) it has (A) not offered or sold and, prior to the
date six months after the Closing Date, will not offer or
sell any Securities to persons in the United Kingdom except
to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will
not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities
Regulations 1995; (B) complied and will comply with all
applicable provisions of the Financial Services Act 1986
with respect to anything done by it in relation to the
Securities in, from or otherwise involving the United
Kingdom, and (C) only issued or passed on and will only
issue or pass on in the United Kingdom any document received
by it in connection with the issue of the Securities to a
person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document
may otherwise lawfully be issued or passed on;
(vi) it understands that the Securities have not been
and will not be registered under the Securities and Exchange
Law of Japan, and represents that it has not offered or
sold, and agrees not to offer or sell, directly or
indirectly, any Securities in Japan or for the account of
any resident thereof except pursuant to any exemption from
the registration requirements of the Securities and Exchange
Law of Japan and otherwise in compliance with applicable
provisions of Japanese law; and
(vii) it agrees that, at or prior to confirmation
of sales of the Securities, it will have sent to each
distributor, dealer or person receiving a selling
concession, fee or other remuneration that purchases
Securities from it during the restricted period a
confirmation or notice to substantially the following
effect:
"The Securities covered hereby have not been registered
under the U.S. Securities Act of 1933, as amended (the
"SECURITIES ACT"), and may not be offered and sold within
the United States or to, or for the account or benefit of,
U.S. persons (i) as part of their distribution at any time
or (ii) otherwise until 40 days after the later of the
commencement of the offering and the closing date, except in
either case in accordance with Regulation S (or Rule 144A if
available) under the Securities Act. Terms used above have
the meaning given to them by Regulation S".
Terms used in this Section 8(b) have the meanings given to them
by Regulation S.
9. Indemnity and Contribution. (a) Each of the
Company and NETCOM jointly and severally agrees to indemnify and
hold harmless the Placement Agent, and each person, if any, who
controls the Placement Agent within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange
Act, or is under common control with, or is controlled by, the
Placement Agent, from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal
or other expenses reasonably incurred by the Placement Agent or
any such controlling or affiliated person in connection with
defending or investigating any such action or claim) caused by
any untrue statement or alleged untrue statement of a material
fact contained in either Memorandum (as amended or supplemented
if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state
therein a material fact necessary to make the statements therein
in light of the circumstances under which they were made not
misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission
or alleged untrue statement or omission based upon information
relating to the Placement Agent furnished to the Company in
writing by the Placement Agent expressly for use therein.
(b) The Placement Agent agrees to indemnify and hold
harmless the Company and NETCOM, their directors, their officers
and each person, if any, who controls the Company or NETCOM
within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act or is under common control with,
or is controlled by, the Company or NETCOM to the same extent as
the foregoing indemnity from the Company and NETCOM to the
Placement Agent, but only with reference to information relating
to the Placement Agent furnished to the Company in writing by the
Placement Agent expressly for use in either Memorandum or any
amendments or supplements thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in
respect of which indemnity may be sought pursuant to either
paragraph (a) or (b) of this Section 9, 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 request of the
indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the 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 indemnifying
party and the indemnified party and 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
(in addition to any local counsel) for all such indemnified
parties and that all such fees and expenses shall be reimbursed
as they are incurred. Such firm shall be designated in writing
by the Placement Agent in the case of parties indemnified
pursuant to paragraph (a) above and by the Company in the case of
parties indemnified pursuant to paragraph (b) above. The
indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent, but if settled
with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an indemnified party shall
have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel as contemplated by the
second and third sentences of this paragraph, the indemnifying
party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by
such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified
party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement
of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the
subject matter of such proceeding.
(d) To the extent the indemnification provided for in
paragraph (a) or (b) of this Section 9 is unavailable to an
indemnified party or insufficient in respect of any losses,
claims, damages or liabilities, then each indemnifying party
under such paragraph, in lieu of indemnifying such indemnified
party thereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company and
NETCOM, on the one hand, and the Placement Agent, on the other
hand, from the offering of the Securities or (ii) if the
allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above
but also the relative fault of the Company and NETCOM on the one
hand and the Placement Agent on the other hand 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 benefits received by the Company
and NETCOM on the one hand and the Placement Agent on the other
hand in connection with the offering of the Securities shall be
deemed to be in the same respective proportions as the net
proceeds from the offering of the Securities (before deducting
expenses) received by the Company and NETCOM and the total
discounts and commissions received by the Placement Agent in
respect thereof bear to the aggregate offering price of the
Securities. The relative fault of the Company and NETCOM on the
one hand and of the Placement Agent on the other hand 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 the Company or NETCOM or by the Placement
Agent and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement
or omission.
(e) The Company, NETCOM and the Placement Agent agree
that it would not be just or equitable if contribution pursuant
to this Section 9 were determined by pro rata allocation or by
--- ----
any other method of allocation that does not take account of the
equitable considerations referred to in paragraph (d) of this
Section 9. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages and liabilities referred
to in paragraph (d) of this Section 9 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 Section 9, the
Placement Agent shall not be required to contribute any amount in
excess of the amount by which the total price at which the
Securities resold by it in the initial placement of the
Securities were offered to investors exceeds the amount of any
damages that the Placement Agent 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. The
indemnity and contribution provisions contained in this Section 9
and the representations and warranties of the Company and NETCOM
contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of the
Placement Agent or any person controlling the Placement Agent or
by or on behalf of the Company or NETCOM, their officers or
directors or any person controlling the Company or NETCOM and
(iii) acceptance of and payment for any of the Securities. The
remedies provided for in this Section 9 are not exclusive and
shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
10. Termination. This Agreement shall be subject to
termination by notice given by you to the Company, if (a) after
the execution and delivery of this Agreement and prior to the
Closing Date (i) trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the National
Association of Securities Dealers, Inc., the Chicago Board of
Options Exchange, the Chicago Mercantile Exchange or the Chicago
Board of Trade, (ii) trading of any securities of the Company or
ICG shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial
banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change
in financial markets or any calamity or crisis that, in your
judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 10(a)(i) through 10(a)(iv), such
event, singly or together with any other such event, makes it, in
your judgment, impracticable to market the Securities on the
terms and in the manner contemplated in the Final Memorandum.
11. Effectiveness. This Agreement shall become
effective upon the execution and delivery hereof by the parties
hereto.
If this Agreement shall be terminated by the Placement
Agent because of any failure or refusal on the part of the
Company or NETCOM to comply with the terms or to fulfill any of
the conditions of this Agreement, or if for any reason the
Company or NETCOM shall be unable to perform its obligations
under this Agreement, the Company will reimburse the Placement
Agent for all out-of-pocket expenses (including the reasonable
fees and disbursements of its counsel) reasonably incurred by the
Placement Agent in connection with this Agreement or the offering
contemplated hereunder.
12. Counterparts. This Agreement may be signed
manually or by facsimile in any number of counterparts, each of
which shall be deemed to be an original, with the same effect as
if the signatures thereto and hereto were upon the same
instrument.
13. Applicable Law; Submission to Jurisdiction. This
Agreement shall be governed by and construed in accordance with
the laws of the State of New York. Each of the Company and
NETCOM agrees to submit to the jurisdiction of any federal or
state court located in The City of New York in any suit, action
or proceeding with respect to this Agreement and for actions
brought under the U.S. federal or state securities laws brought
in any such court.
14. Headings. The headings of the sections of this
Agreement have been inserted for convenience of reference only
and shall not be deemed a part of this Agreement.
Very truly yours,
ICG SERVICES, INC.
By: /s/ Don Teague
-------------------------------
Name: H. Don Teague
Title: Executive Vice President,
General Counsel and
Secretary
NETCOM ON-LINE COMMUNICATION
SERVICES, INC.
By: /s/ James D. Grenfell
-----------------------------
Name: James D. Grenfell
Title: Executive Vice President
and Chief Financial Officer
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
By: /s/ James B. Avery
--------------------------
Name: James B. Avery
Title: Principal
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR
TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT;
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED
TO IN RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF
RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE), RESELL
OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR
ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
ACCRETED VALUE OF NOTES AT THE TIME OF TRANSFER OF LESS THAN
$250,000 AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT,
(D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR
(F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION
WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD
REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX
SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF
SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE.
IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH
TO EACH OF THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS SUCH PERSONS MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF
THE FOREGOING RESTRICTIONS.
UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED
IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS
MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF,
CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF
CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.08 OF THE INDENTURE.
<PAGE>
ICG SERVICES INC.
10% Senior Discount Note Due 2008
CUSIP 44924SAA7
No. 2 $200,000,000
The following information is supplied for purposes of
Sections 1273 and 1275 of the Internal Revenue Code:
Issue Date: February 12, 1998 Original issue discount under
Section 1273 of the Internal
Yield to maturity for period Revenue Code (for each $1,000
from Issue Date to February principal amount at maturity):
15, 2008: 10.00%, compounded $886.59
semiannually on February 15 and
August 15 commencing February
12, 1998 (computed without Issue Price (for each $1,000
giving effect to the additional principal amount at maturity):
payments of interest in the $613.41
event the issuer fails to
commence the exchange offer
and fails to cause the shelf
registration statement to be
declared effective, each as
referred to on the reverse
hereof)
ICG SERVICES, INC., a Delaware corporation (the
"Company", which term includes any successor under the Indenture
hereinafter referred to), for value received, promises to pay to
CEDE & CO., or its registered assigns, the principal sum of TWO
HUNDRED Million Dollars ($200,000,000) on February 15, 2008.
Interest Payment Dates: February 15 and August 15,
commencing August 15, 2003.
Regular Record Dates: February 1 and August 1.
Reference is hereby made to the further provisions of
this Note set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set
forth at this place.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to
be signed manually or by facsimile by its duly authorized
officers.
Date: February 12, 1998 ICG SERVICES, INC.
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
(Form of Trustee's Certificate of Authentication)
This is one of the 10% Senior Discount Notes due 2008 described
in the within-mentioned Indenture.
NORWEST BANK COLORADO,
NATIONAL ASSOCIATION, as Trustee
By:
--------------------------------
Authorized Signatory
<PAGE>
[REVERSE SIDE OF NOTE]
ICG SERVICES, INC.
10% Senior Discount Note due 2008
1. Principal and Interest.
----------------------
The Company will pay the principal of this 10% Senior
Discount Note due 2008 (the "Note") on February 15, 2008.
The Company promises to pay interest on the principal
amount of this Note on each Interest Payment Date, as set forth
below, at the rate per annum shown above.
Interest will be payable semiannually (to the holders
of record of the Notes at the close of business on the February 1
or August 1 immediately preceding the Interest Payment Date) on
each Interest Payment Date, commencing August 15, 2003; provided
that no interest shall accrue on the principal amount of this
Note prior to February 15, 2003 and no interest shall be paid on
this Note prior to August 15, 2003, except as provided in the
next paragraph.
If an exchange offer registered under the Securities
Act is not consummated, and a shelf registration statement under
the Securities Act with respect to resales of the Notes is not
declared effective by the Commission, on or before August 12,
1998 in accordance with the terms of the Registration Rights
Agreement dated February 12, 1998 between the Company and Morgan
Stanley & Co. Incorporated, interest (in addition to the accrual
of original discount during the period ending February 15, 2003
and in addition to the interest otherwise due on the Notes after
such date) will accrue from August 12, 1998, at an annual rate of
.5% of the Accreted Value on the preceding Semi-Annual Accrual
Date, payable in cash semiannually, in arrears, on February 15
and August 15 of each year, commencing February 15, 1999, until
the exchange offer is consummated or the shelf registration
statement is declared effective. The Holder of this Note is
entitled to the benefits of such Registration Rights Agreement.
From and after February 15, 2003, interest on the Notes
will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from February 15, 2003;
provided that, if there is no existing default in the payment of
interest and this Note is authenticated between a Regular Record
Date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such Interest
Payment Date. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and
premium, if any, and interest on overdue installments of
interest, to the extent lawful, at a rate per annum that is 2% in
excess of the rate otherwise payable.
2. Method of Payment.
-----------------
The Company will pay principal as provided above and
interest (except defaulted interest) on the principal amount of
the Notes as provided above on each February 15 and August 15 to
the Persons who are Holders (as reflected in the Note Register at
the close of business on such February 1 and August 1 immediately
preceding the Interest Payment Date), in each case, even if the
Note is cancelled on registration of transfer or registration of
exchange after such record date; provided that, with respect to
the payment of principal, the Company will not make payment to
the Holder unless this Note is surrendered to a Paying Agent.
The Company will pay principal, premium, if any, and as
provided above, interest in money of the United States that at
the time of payment is legal tender for payment of public and
private debts. However, the Company may pay principal, premium,
if any, and interest by its check payable in such money. It may
mail an interest check to a Holder's registered address (as
reflected in the Note Register). If a payment date is a date
other than a Business Day at a place of payment, payment may be
made at that place on the next succeeding day that is a Business
Day and no interest shall accrue for the intervening period.
3. Paying Agent and Registrar.
--------------------------
Initially, the Trustee will act as authenticating
agent, Paying Agent and Registrar. The Company may change any
authenticating agent, Paying Agent or Registrar without notice.
The Company, any Subsidiary or any Affiliate of any of them may
act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Issuance of Additional Notes.
---------------------------------------
The Company issued the Notes under an Indenture dated
as of February 12, 1998 (the "Indenture"), between the Company
and Norwest Bank Colorado, N.A., as trustee (the "Trustee").
Capitalized terms herein are used as defined in the Indenture
unless otherwise indicated. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to
all such terms, and Holders are referred to the Indenture and the
Trust Indenture Act for a statement of all such terms. To the
extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
The Notes are general unsecured obligations of the
Company. The Company may, subject to Article Four of the
Indenture, issue additional Notes under the Indenture.
5. Redemption.
----------
The Notes will be redeemable, at the Company's option,
in whole or in part, at any time or from time to time, on or
after February 15, 2003 and prior to maturity, upon not less than
30 nor more than 60 days' prior notice mailed by first class mail
to each Holder's last address as it appears in the Note Register,
at the following Redemption Prices (expressed in percentages of
their principal amount at maturity), plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date that is on
or prior to the Redemption Date to receive interest due on an
Interest Payment Date), if redeemed during the 12-month period
commencing February 15, of the years set forth below:
YEAR REDEMPTION PRICE
---- ----------------
2003 . . . . . . 105.0000%
2004 . . . . . . 103.3333
2005 . . . . . . 101.6667
2006 and
thereafter . . . 100.0000
In addition, at any time or from time to time, on or
prior to February 15, 2001, the Company may, at its option,
redeem Notes having an aggregate principal amount at maturity of
up to 35% of the aggregate principal amount at maturity of the
Notes with the proceeds of one or more public or private Equity
Offerings, at a Redemption Price equal to 110.0% of the
Accreted Value thereof on the Redemption Date; provided that at
least 65% of the aggregate principal amount of Notes initially
issued remains outstanding after each such redemption.
6. Notice of Redemption.
--------------------
Notice of any optional redemption will be mailed at
least 30 days but not more than 60 days before the Redemption
Date to each Holder of Notes to be redeemed at his last address
as it appears in the Note Register. Notes in original
denominations larger than $1,000 of principal amount at maturity
may be redeemed in part. On and after the Redemption Date,
interest ceases to accrue on Notes or portions of Notes called
for redemption, unless the Company defaults in the payment of the
Redemption Price.
7. Repurchase upon Change in Control.
---------------------------------
Upon the occurrence of any Change of Control, each
Holder shall have the right to require the repurchase of its
Notes by the Company in cash pursuant to the offer described in
the Indenture at a purchase price equal to 101% of the Accreted
Value thereof plus accrued and unpaid interest, if any, to the
date of purchase (the "Change of Control Payment").
A notice of such Change of Control will be mailed
within 30 days after any Change of Control occurs to each Holder
at his last address as it appears in the Note Register. Notes in
original denominations larger than $1,000 of principal amount at
maturity may be sold to the Company in part. On and after the
date of the Change of Control Payment, interest ceases to accrue
on Notes or portions of Notes surrendered for purchase by the
Company, unless the Company defaults in the payment of the Change
of Control Payment.
8. Denominations; Transfer; Exchange.
---------------------------------
The Notes are in registered form without coupons in
denominations of $1,000 of principal amount at maturity and
multiples of $1,000 in excess thereof. A Holder may register the
transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to
pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer or
exchange of any Notes selected for redemption. Also, it need not
register the transfer or exchange of any Notes for a period of 15
days before a selection of Notes to be redeemed is made.
9. Persons Deemed Owners.
---------------------
A Holder shall be treated as the owner of a Note for
all purposes.
10. Unclaimed Money.
---------------
If money for the payment of principal, premium, if any,
or interest remains unclaimed for two years, the Trustee and the
Paying Agent will pay the money back to the Company at its
request. After that, Holders entitled to the money must look to
the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
11. Discharge Prior to Redemption or Maturity.
-----------------------------------------
If the Company deposits with the Trustee money and/or
U.S. Government Obligations sufficient to pay the then
outstanding principal of, premium, if any, and accrued interest
on the Notes (a) to redemption or maturity, the Company will be
discharged from the Indenture and the Notes, except in certain
circumstances for certain sections thereof, and (b) to Stated
Maturity, the Company will be discharged from certain covenants
set forth in the Indenture.
12. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture or the
Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount at maturity of
the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of
the Holders of at least a majority in principal amount at
maturity of the Notes then outstanding. Without notice to or the
consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things,
cure any ambiguity, defect or inconsistency and make any change
that does not materially and adversely affect the rights of any
Holder.
13. Restrictive Covenants.
---------------------
The Indenture imposes certain limitations on the
ability of the Company and its Restricted Subsidiaries, among
other things, to Incur Indebtedness, make Restricted Payments,
use the proceeds from Asset Sales, engage in transactions with
Affiliates or, with respect to the Company, merge, consolidate or
transfer substantially all of its assets. Within 90 days after
the end of the last fiscal quarter of each year, the Company must
report to the Trustee on compliance with the terms of the
Indenture.
14. Successor Persons.
-----------------
When a successor Person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture,
the predecessor Person will be released from those obligations.
15. Defaults and Remedies.
---------------------
The following events constitute "Events of Default"
under the Indenture: (a) default in the payment of principal of
(or premium, if any, on) any Note when the same becomes due and
payable at maturity, upon acceleration, redemption or otherwise;
(b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period
of 30 days; (c) the Company defaults in the performance of or
breaches any other covenant or agreement of the Company in the
Indenture or under the Notes (other than a default specified in
clause (a) or (b) above) and such default or breach continues for
a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal
amount of the Notes; (d) the Company fails to make or consummate
an Offer to Purchase in accordance with Section 4.11 of the
Indenture; (e) the Company fails to make or consummate an Offer
to Purchase in accordance with Section 4.12 of the Indenture; (f)
there occurs with respect to any issue or issues of Indebtedness
of the Company or any Significant Subsidiary having an
outstanding principal amount of $10 million or more in the
aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) an
event of default that has caused the holder thereof to declare
such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30
days of such acceleration and/or (II) the failure to make a
principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made,
waived or extended within 30 days of such payment default; (g)
any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million in the aggregate
(treating any deductibles, self-insurance or retention as not so
covered) shall be rendered against the Company or any Significant
Subsidiary and shall not be paid or discharged, and there shall
be any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such
final judgments or orders outstanding and not paid or discharged
against the Company or any of its Significant Subsidiaries to
exceed $10 million during which a stay of enforcement of such
final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; (h) a court having
jurisdiction in the premises enters a decree or order for (A)
relief in respect of the Company or any Significant Subsidiary in
an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, (B) appointment
of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the
property and assets of the Company or any Significant Subsidiary
or (C) the winding up or liquidation of the affairs of the
Company or any Significant Subsidiary and, in each case, such
decree or order shall remain unstayed and in effect for a period
of 30 consecutive days; or (i) the Company or any Significant
Subsidiary (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company or
any Significant Subsidiary or (C) effects any general assignment
for the benefit of creditors.
If an Event of Default (other than an Event of Default
specified in clause (h) or (i) above that occurs with respect to
the Company) occurs and is continuing under the Indenture, the
Trustee or the Holders of at least 25% in aggregate principal
amount at maturity of the Notes, then outstanding, by written
notice to the Company (and to the Trustee if such notice is given
by the Holders), may, and the Trustee at the request of such
Holders shall, declare the Accreted Value of, premium, if any,
and accrued interest, if any, on the Notes to be immediately due
and payable.
If an Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in aggregate principal
amount at maturity of the Notes then outstanding may declare all
the Notes to be due and payable. If a bankruptcy or insolvency
default with respect to the Company or any Restricted Subsidiary
occurs and is continuing, the Notes automatically become due and
payable. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or
the Notes. Subject to certain limitations, Holders of at least a
majority in principal amount at maturity of the Notes then
outstanding may direct the Trustee in its exercise of any trust
or power.
16. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or
any other capacity, may make loans to, accept deposits from and
perform services for the Company or its Affiliates and may
otherwise deal with the Company or its Affiliates as if it were
not the Trustee.
17. No Recourse Against Others.
--------------------------
No incorporator or any past, present or future partner,
stockholder, other equity holder, officer, director, employee or
controlling person as such, of the Company or of any successor
Person shall have any liability for any obligations of the
Company under the Notes or the Indenture or for any claim based
on, in respect of or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases
all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
18. Authentication.
--------------
This Note shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on
the other side of this Note.
19. Abbreviations.
-------------
Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants
with right of survivorship and not as tenants in common), CUST
(= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act).
THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK.
The Company will furnish to any Holder upon written
request and without charge a copy of the Indenture. Requests may
be made to ICG Services, Inc., 9605 East Maroon Circle, P.O. Box
6742, Englewood, Colorado, 80155-6742, Attention: Chief
Financial Officer.
<PAGE>
TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder
hereby sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
----------------------------------
-----------------------------------------------------------------
Please print or typewrite name and address including zip code of
-----------------------------------------------------------------
assignee the within Note and all rights thereunder, hereby
irrevocably constituting and appointing
-------------------------
attorney to transfer said Note on the books of the Company with
full power of substitution in the premises.
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of an effective
Registration or (ii) the end of the period referred to in Rule
144(k) under the Securities Act, the undersigned confirms that
without utilizing any general solicitation or general advertising
that:
[Check One]
---------
[ ] (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of
1933, as amended, provided by Rule 144A thereunder.
or
--
[ ] (b) this Note is being transferred other than in accordance
with (a) above and documents are being furnished which
comply with the conditions of transfer set forth in
this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other
Registrar shall not be obligated to register this Note in the
name of any Person other than the Holder hereof unless and until
the conditions to any such transfer of registration set forth
herein and in Section 2.08 of the Indenture shall have been
satisfied.
Date:
---------- ----------------------------------------
NOTICE: The signature to this
assignment must correspond with the name
as written upon the face of the within-
mentioned instrument in every
particular, without alteration or any
change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is
purchasing this Note for its own account or an account with
respect to which it exercises sole investment discretion and that
it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act of 1933,
as amended, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated:
------------------------ -------------------------------
NOTICE: To be executed by an
executive officer
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to Section 4.11 or Section 4.12 of the Indenture, check
the Box: [ ]
If you wish to have a portion of this Note purchased by
the Company pursuant to Section 4.11 or Section 4.12 of the
Indenture, state the amount (in principal amount at maturity):
$
--------------.
Date:
-------------------
Your Signature:
------------------------------------------------
(Sign exactly as your name appears on the
other side of this Note)
Signature Guarantee:
----------------------------
ICG SERVICES, INC.,
as Issuer
and
NORWEST BANK COLORADO, NATIONAL ASSOCIATION,
as Trustee
-------------------
Indenture
Dated as of February 12, 1998
-------------------
10% Senior Discount Notes due 2008
=================================================================
<PAGE>
CROSS-REFERENCE TABLE
---------------------
TIA Sections Indenture Sections
------------ ------------------
S.310(a)(1) . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . 7.08
S.313(c) . . . . . . . . . . . . . . . 7.06; 10.02
S.314(a) . . . . . . . . . . . . . . . 4.18; 10.02
(a)(4) . . . . . . . . . . . . . . 4.17; 10.02
(c)(1) . . . . . . . . . . . . . . 10.03
(c)(2) . . . . . . . . . . . . . . 10.03
(e) . . . . . . . . . . . . . . . 10.04
S.315(b) . . . . . . . . . . . . . . . 7.05; 10.02
S.316(a)(1)(A) . . . . . . . . . . . . 6.05
(a)(1)(B) . . . . . . . . . . . . 6.04
(b) . . . . . . . . . . . . . . . 6.07
S.317(a)(1) . . . . . . . . . . . . . . 6.08
(a)(2) . . . . . . . . . . . . . . 6.09
S.318(a) . . . . . . . . . . . . . . . 10.01
(c) . . . . . . . . . . . . . . . 10.01
Note: The Cross-Reference Table shall not for any purpose be
deemed to be a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
Page
RECITALS OF THE COMPANY . . . . . . . . . . . . . . . . . . . 1
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Incorporation by Reference of
Trust Indenture Act . . . . . . . . . . . 25
SECTION 1.03. Rules of Construction . . . . . . . . . . . . 25
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating . . . . . . . . . . . . . . . 26
SECTION 2.02. Restrictive Legends . . . . . . . . . . . . . 27
SECTION 2.03. Execution, Authentication and Denominations . 29
SECTION 2.04. Registrar and Paying Agent . . . . . . . . . . 30
SECTION 2.05. Paying Agent to Hold Money in Trust . . . . . 31
SECTION 2.06. Transfer and Exchange . . . . . . . . . . . . 31
SECTION 2.07. Book-Entry Provisions for Global Notes . . . . 32
SECTION 2.08. Special Transfer Provisions . . . . . . . . . 34
SECTION 2.09. Replacement Notes . . . . . . . . . . . . . . 37
SECTION 2.10. Outstanding Notes . . . . . . . . . . . . . . 38
SECTION 2.11. Temporary Notes . . . . . . . . . . . . . . . 38
SECTION 2.12. Cancellation . . . . . . . . . . . . . . . . . 39
SECTION 2.13. CUSIP Numbers . . . . . . . . . . . . . . . . 39
SECTION 2.14. Defaulted Interest . . . . . . . . . . . . . . 39
SECTION 2.15. Issuance of Additional Notes . . . . . . . . . 39
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption . . . . . . . . . . . . . 40
SECTION 3.02. Notices to Trustee . . . . . . . . . . . . . . 40
SECTION 3.03. Selection of Notes to Be Redeemed . . . . . . 40
SECTION 3.04. Notice of Redemption . . . . . . . . . . . . . 41
SECTION 3.05. Effect of Notice of Redemption . . . . . . . . 42
SECTION 3.06. Deposit of Redemption Price . . . . . . . . . 42
SECTION 3.07. Payment of Notes Called for Redemption . . . . 42
SECTION 3.08. Notes Redeemed in Part . . . . . . . . . . . . 43
--------------------
Note: The Table of Contents shall not for any purposes be deemed
to be a part of the Indenture.
<PAGE>
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes . . . . . . . . . . . . . . . 43
SECTION 4.02. Maintenance of Office or Agency . . . . . . . 43
SECTION 4.03. Limitation on Indebtedness . . . . . . . . . . 44
SECTION 4.04. Limitation on Restricted Payments . . . . . . 47
SECTION 4.05. Limitation on Dividend and Other
Payment Restrictions Affecting
Restricted Subsidiaries . . . . . . . . . 50
SECTION 4.06. Limitation on the Issuance and Sale of
Capital Stock of Restricted Subsidiaries . 52
SECTION 4.07. Limitation on Issuances of Guarantees by
Restricted Subsidiaries . . . . . . . . . 52
SECTION 4.08. Limitation on Transactions with Shareholders
and Affiliates . . . . . . . . . . . . . . 53
SECTION 4.09. Limitation on Liens . . . . . . . . . . . . . 54
SECTION 4.10. Limitation on Sale-Leaseback Transactions . . 54
SECTION 4.11. Limitation on Asset Sales . . . . . . . . . . 55
SECTION 4.12. Repurchase of Notes upon a Change of Control . 57
SECTION 4.13. Existence . . . . . . . . . . . . . . . . . . 57
SECTION 4.14. Payment of Taxes and Other Claims . . . . . . 57
SECTION 4.15. Maintenance of Properties and Insurance . . . 57
SECTION 4.16. Notice of Defaults . . . . . . . . . . . . . . 58
SECTION 4.17. Compliance Certificates . . . . . . . . . . . 58
SECTION 4.18. Commission Reports and Reports to Holders . . 59
SECTION 4.19. Waiver of Stay, Extension or Usury Laws . . . 59
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc. . . . . . . . . . 60
SECTION 5.02. Successor Substituted . . . . . . . . . . . . 61
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default . . . . . . . . . . . . . . 61
SECTION 6.02. Acceleration . . . . . . . . . . . . . . . . . 62
SECTION 6.03. Other Remedies . . . . . . . . . . . . . . . . 63
SECTION 6.04. Waiver of Past Defaults . . . . . . . . . . . 64
SECTION 6.05. Control by Majority . . . . . . . . . . . . . 64
SECTION 6.06. Limitation on Suits . . . . . . . . . . . . . 64
SECTION 6.07. Rights of Holders to Receive Payment . . . . . 65
SECTION 6.08. Collection Suit by Trustee . . . . . . . . . . 65
SECTION 6.09. Trustee May File Proofs of Claim . . . . . . . 65
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . . . 66
SECTION 6.11. Undertaking for Costs . . . . . . . . . . . . 66
SECTION 6.12. Restoration of Rights and Remedies . . . . . . 66
SECTION 6.13. Rights and Remedies Cumulative . . . . . . . . 67
SECTION 6.14. Delay or Omission Not Waiver . . . . . . . . . 67
<PAGE>
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General . . . . . . . . . . . . . . . . . . . 67
SECTION 7.02. Certain Rights of Trustee . . . . . . . . . . 67
SECTION 7.03. Individual Rights of Trustee . . . . . . . . . 68
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . . . . 69
SECTION 7.05. Notice of Default . . . . . . . . . . . . . . 69
SECTION 7.06. Reports by Trustee to Holders . . . . . . . . 69
SECTION 7.07. Compensation and Indemnity . . . . . . . . . . 69
SECTION 7.08. Replacement of Trustee . . . . . . . . . . . . 70
SECTION 7.09. Successor Trustee by Merger, Etc. . . . . . . 71
SECTION 7.10. Eligibility . . . . . . . . . . . . . . . . . 71
SECTION 7.11. Money Held in Trust . . . . . . . . . . . . . 71
SECTION 7.12. Withholding Taxes . . . . . . . . . . . . . . 71
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of the Company's Obligations . . . 72
SECTION 8.02. Defeasance and Discharge of Indenture . . . . 73
SECTION 8.03. Defeasance of Certain Obligations . . . . . . 74
SECTION 8.04. Application of Trust Money . . . . . . . . . . 75
SECTION 8.05. Repayment to Company . . . . . . . . . . . . . 75
SECTION 8.06. Reinstatement . . . . . . . . . . . . . . . . 76
SECTION 8.07. Defeasance and Certain Other
Events of Default . . . . . . . . . . . . 76
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders . . . . . . . . . . 76
SECTION 9.02. With Consent of Holders . . . . . . . . . . . 77
SECTION 9.03. Revocation and Effect of Consent . . . . . . . 78
SECTION 9.04. Notation on or Exchange of Notes . . . . . . . 78
SECTION 9.05. Trustee to Sign Amendments, Etc. . . . . . . . 79
SECTION 9.06. Conformity with Trust Indenture Act . . . . . 79
<PAGE>
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. Trust Indenture Act of 1939 . . . . . . . . . 79
SECTION 10.02. Notices . . . . . . . . . . . . . . . . . . . 79
SECTION 10.03. Certificate and Opinion As to
Conditions Precedent . . . . . . . . . . . 80
SECTION 10.04. Statements Required in Certificate
or Opinion . . . . . . . . . . . . . . . . 81
SECTION 10.05. Rules by Trustee, Paying Agent
or Registrar . . . . . . . . . . . . . . . 81
SECTION 10.06. Payment Date Other Than a Business Day . . . 81
SECTION 10.07. Governing Law; Submission to Jurisdiction . . 81
SECTION 10.08. No Adverse Interpretation of
Other Agreements . . . . . . . . . . . . . 81
SECTION 10.09. No Recourse Against Others . . . . . . . . . 82
SECTION 10.10. Successors . . . . . . . . . . . . . . . . . 82
SECTION 10.11. Duplicate Originals . . . . . . . . . . . . . 82
SECTION 10.12. Separability . . . . . . . . . . . . . . . . 82
SECTION 10.13. Table of Contents, Headings, Etc. . . . . . . 82
EXHIBIT A Form of Note . . . . . . . . . . . . . . . . A-1
EXHIBIT B Form of Certificate . . . . . . . . . . . . B-1
EXHIBIT C Form of Certificate to Be Delivered
in Connection with Transfers Pursuant
to Regulation S . . . . . . . . . . . . . C-1
EXHIBIT D Form of Certificate to Be Delivered
in Connection with Transfers to
Non-QIB Accredited Investors . . . . . . . D-1
<PAGE>
INDENTURE, dated as of February 12, 1998, between ICG
SERVICES INC., a Delaware corporation (the "Company"), and
-------
NORWEST BANK COLORADO, NATIONAL ASSOCIATION (the "Trustee").
-------
RECITALS OF THE COMPANY
The Company has duly authorized the execution and
delivery of this Indenture to provide for the issuance from time
to time of 10% Senior Discount Notes due 2008 (the "Notes")
-----
issuable as provided in this Indenture. Pursuant to the terms of
a Placement Agreement dated February 9, 1998 (the "Placement
---------
Agreement") among the Company, NETCOM On-Line Communication
---------
Services, Inc. and Morgan Stanley & Co. Incorporated, the Company
has agreed to issue and sell $490,000,000 aggregate principal
amount at maturity of the Notes. All things necessary to make
this Indenture a valid agreement of the Company, in accordance
with its terms, have been done, and the Company has done all
things necessary to make the Notes, when executed by the Company
and authenticated and delivered by the Trustee hereunder and duly
issued by the Company, the valid obligations of the Company as
hereinafter provided.
This Indenture is subject to, and shall be governed by,
the provisions of the Trust Indenture Act of 1939, as amended,
that are required to be a part of and to govern indentures
qualified under the Trust Indenture Act of 1939, as amended.
For and in consideration of the premises and the
purchase of the Notes by the Holders thereof, it is mutually
covenanted and agreed, for the equal and proportionate benefit of
all Holders, as follows.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
-----------
"Accreted Value" means, for any Specified Date, the amount
calculated pursuant to (i), (ii), (iii) or (iv) for each $1,000
principal amount at maturity of Notes:
(i) if the Specified Date occurs on one of the
following dates (each a "Semi-Annual Accrual Date"), the
------------------------
Accreted Value will equal the amount set forth below for
such Semi-Annual Accrual Date:
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
------------ ----
August 15, 1998 $ 644.60
February 15, 1999 $ 676.83
August 15, 1999 $ 710.68
February 15, 2000 $ 746.21
August 15, 2000 $ 783.52
February 15, 2001 $ 822.70
August 15, 2001 $ 863.83
February 15, 2002 $ 907.02
August 15, 2002 $ 952.38
February 15, 2003 $ 1,000.00
(ii) if the Specified Date occurs before the first
Semi-Annual Accrual Date, the Accreted Value will equal the
sum of (a) the original issue price and (b) an amount equal
to the product of (1) the Accreted Value for the first Semi-
Annual Accrual Date less the original issue price multiplied
----------
by (2) a fraction, the numerator of which is the number of
days from the issue date of the Notes to the Specified Date,
using a 360-day year of twelve 30-day months, and the
denominator of which is the number of days from the Closing
Date to the first Semi-Annual Accrual Date, using a 360-day
year of twelve 30-day months;
(iii) if the Specified Date occurs between two Semi-
Annual Accrual Dates, the Accreted Value will equal the sum
of (a) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding such Specified Date and (b) an amount
equal to the product of (1) the Accreted Value for the
immediately following Semi-Annual Accrual Date less the
Accreted Value for the immediately preceding Semi-Annual
Accrual Date multiplied by (2) a fraction, the numerator of
which is the number of days from the immediately preceding
Semi-Annual Accrual Date to the Specified Date, using a 360-
day year of twelve 30-day months, and the denominator of
which is 180; or
(iv) if the Specified Date occurs after the last
Semi-Annual Accrual Date, the Accreted Value will equal
$1,000.
"Acquired Indebtedness" means Indebtedness of a Person
existing at the time such Person becomes a Restricted Subsidiary
or assumed in connection with an Asset Acquisition by a
Restricted Subsidiary and not Incurred in connection with, or in
anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition.
"Adjusted Consolidated Net Income" means, for any period,
the aggregate net income (or loss) of the Company and its
Restricted Subsidiaries for such period determined in conformity
with GAAP; provided that the following items shall be excluded in
--------
computing Adjusted Consolidated Net Income (without duplication):
(i) the net income (or loss) of any Person that is not a
Restricted Subsidiary (or is an Unrestricted Subsidiary), except
to the extent of the amount of dividends or other distributions
actually paid to the Company or any of its Restricted
Subsidiaries by such Person or an Unrestricted Subsidiary during
such period; (ii) solely for the purposes of calculating the
amount of Restricted Payments that may be made pursuant to clause
(C) of the first paragraph of Section 4.04 hereof (and in such
case, except to the extent includable pursuant to clause (i)
above), the net income (or loss) of any Person accrued prior to
the date it becomes a Restricted Subsidiary or is merged into or
consolidated with the Company or any of its Restricted
Subsidiaries or all or substantially all of the property and
assets of such Person are acquired by the Company or any of its
Restricted Subsidiaries; (iii) the net income of any Restricted
Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary
of such net income is not at the time permitted by the operation
of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary (except to the extent
such restriction has been legally waived); (iv) any gains or
losses (on an after-tax basis) attributable to Asset Sales or the
termination of discontinued operations; (v) except for purposes
of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of Section 4.04,
any amount paid or accrued as dividends on Preferred Stock of the
Company or any Restricted Subsidiary owned by Persons other than
the Company and any of its Restricted Subsidiaries; (vi) all
extraordinary gains and extraordinary losses; and (vii) at the
irrevocable election of the Company for each occurrence, any net
after-tax income (loss) from discontinued operations; provided
--------
that for purposes of any subsequent Investment in the entity
conducting such discontinued operations under Section 4.04, such
entity shall be treated as an Unrestricted Subsidiary until such
discontinued operations have actually been disposed of.
"Adjusted Consolidated Net Tangible Assets" means the total
amount of assets of the Company and its Restricted Subsidiaries
(less applicable depreciation, amortization and other valuation
reserves), except to the extent resulting from write-ups of
capital assets (excluding write-ups in connection with accounting
for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its
Restricted Subsidiaries (excluding intercompany items) and (ii)
all goodwill, trade names, trademarks, patents, unamortized debt
discount and expense and other like intangibles, all as set forth
on the most recent quarterly or annual consolidated balance sheet
of the Company and its Restricted Subsidiaries, prepared in
conformity with GAAP and filed with the Commission or provided to
the Trustee pursuant to Section 4.18 hereof.
"Affiliate" means, as applied to any Person, any other
Person directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such Person. For
purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as applied to any Person, means
the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agent" means any Registrar, Paying Agent, authenticating
agent or co-Registrar.
"Agent Members" has the meaning provided in Section 2.07(a).
"Asset Acquisition" means (i) an investment by the Company
or any of its Restricted Subsidiaries in any other Person
pursuant to which such Person shall become a Restricted
Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries
of the property and assets of any Person other than the Company
or any of its Restricted Subsidiaries that constitute
substantially all of a division or line of business of such
Person.
"Asset Sale" means any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback
transaction) in one transaction or a series of related
transactions by the Company or any of its Restricted Subsidiaries
to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any
Restricted Subsidiary, (ii) all or substantially all of the
property and assets of an operating unit or business of the
Company or any of its Restricted Subsidiaries or (iii) any other
property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of the Company or any
of its Restricted Subsidiaries outside the ordinary course of
business of the Company or such Restricted Subsidiary and, in
each case, that is not governed by the provisions of Article
Five; provided that "Asset Sale" shall not include (a) sales or
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other dispositions of inventory, receivables and other current
assets, (b) sales or other dispositions of assets for
consideration at least equal to the fair market value of the
assets sold or disposed of, to the extent that the consideration
received would constitute property or assets of the kind
described in clause (B) of the Section 4.11 hereof, (c) a
disposition of cash or Temporary Cash Investments, (d) any
Restricted Payment that is permitted to be made, and is made,
under Section 4.04, (e) sales or other dispositions of assets
with a fair market value (as certified in an Officers'
Certificate) not in excess of $2.0 million (provided that any
series of related sales or dispositions in excess of $2.0 million
shall be considered "Asset Sales"), (f) the lease, license,
transfer of rights-of-use, assignment of a lease, license,
transfer of rights-of-use or sublease or sublicense of any real
or personal property in the ordinary course of business, (g)
foreclosures on assets, (h) substantially simultaneous exchange
by the Company or any Restricted Subsidiary of property or
equipment for other property or equipment; provided that the
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property or equipment received by the Company or such Restricted
Subsidiary has, at least substantially equal market value to the
Company or such Restricted Subsidiary, (i) sales or other
dispositions by the Company or any Restricted Subsidiary, from
time to time, of up to 100% of the Southwest Communications
Business to Central and South West Corporation or its affiliates
or CSW/ICG ChoiceCom, L.P. and (j) transfer or other disposition
by the Company or any Restricted Subsidiary of Capital Stock of
any Restricted Subsidiary or an operating unit or business of the
Company or any Restricted Subsidiary in exchange for an ownership
interest in a joint venture whose primary business is related,
ancillary or complementary to (A) the businesses of the Company
and its Restricted Subsidiaries at the time of determination or
(B) the Telecommunications Business; provided that the fair
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market value of such ownership interest is at least equal to the
fair market value of such Capital Stock or operating unit or
business transferred or disposed of (as determined by the Board
of Directors, where good faith determination shall be conclusive
and evidenced by a board resolution); and provided further that
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the assets or properties so transferred or disposed of pursuant
to this clause (j) do not exceed 20% of Adjusted Consolidated Net
Tangible Assets at the time of such transfer or disposition.
"Average Life" means, at any date of determination with
respect to any debt security, the quotient obtained by dividing
(i) the sum of the products of (a) the number of years from such
date of determination to the dates of each successive scheduled
principal payment of such debt security and (b) the amount of
such principal payment by (ii) the sum of all such principal
payments.
"Board of Directors" means the Board of Directors of the
Company as required by the context or any committee of such Board
of Directors duly authorized to act under this Indenture.
"Board Resolution" means a copy of a resolution, certified
by the Secretary or Assistant Secretary of the Company as
required by the context to have been duly adopted by the Board of
Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in The City of New York, or
in the city of the Corporate Trust Office of the Trustee, are
authorized by law to close.
"Capital Stock" means, with respect to any Person, any and
all shares, interests, participations or other equivalents
(however designated, whether voting or non-voting) in equity of
such Person, whether outstanding on the Closing Date or issued
thereafter, including, without limitation, all Common Stock,
Preferred Stock, partnership or membership interests and any
other right to receive a share of the profits and losses of, or
distributions of assets of, the issuing Person.
"Capitalized Lease" means, as applied to any Person, any
lease of any property (whether real, personal or mixed) of which
the discounted present value of the rental obligations of such
Person as lessee, in conformity with GAAP, is required to be
capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the amount of the
liability in respect of a Capitalized Lease that would at such
time be required to be capitalized and reflected as a liability
on balance sheet prepared in accordance with GAAP.
"Change of Control" means such time as (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Exchange Act) becomes the ultimate "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act) of (A) more than 40% of the
total voting power of the Voting Stock of the Company on a fully
diluted basis and (B) Voting Stock of the Company having a
greater total voting power than the Voting Stock of the Company
(on a fully diluted basis) beneficially owned by ICG or (ii)
individuals who on the Closing Date constitute the Board of
Directors (together with any new directors whose election by the
Board of Directors or whose nomination by the Board of Directors
for election by the Company's stockholders was approved by a vote
of at least a majority of the members of the Board of Directors
then in office who either were members of the Board of Directors
on the Closing Date or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the members of the Board of Directors then in office.
"Closing Date" means the date on which the Notes are
originally issued under this Indenture.
"Commission" means the Securities and Exchange Commission,
as from time to time constituted, created under the Exchange Act
or, if at any time after the execution of this instrument such
Commission is not existing and performing the duties now assigned
to it under the TIA, then the body performing such duties at such
time.
"Common 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 common stock, whether now outstanding or issued after
the date of this Indenture, including, without limitation, all
series and classes of such common stock.
"Company" means the party named as such in the first
paragraph of this Indenture until a successor replaces it
pursuant to the applicable provisions of this Indenture and
thereafter means the successor.
"Company Order" means a written request or order signed in
the name of the Company (i) by its Chairman of the Board, the
Vice Chairman of the Board, its President or a Vice President and
(ii) by its Chief Financial Officer, Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary and delivered
to the Trustee; provided, however, that such written request or
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order may be signed by any two of the officers or directors
listed in clause (i) above in lieu of being signed by one of such
officers or directors listed in such clause (i) and one of the
officers listed in clause (ii) above.
"Consolidated EBITDA" means, for any period, Adjusted
Consolidated Net Income for such period plus, to the extent such
amount was deducted in calculating such Adjusted Consolidated Net
Income, (i) Consolidated Interest Expense, (ii) income taxes
(other than income taxes (either positive or negative)
attributable to extraordinary and non-recurring gains or losses
or sales of assets), (iii) depreciation expense, (iv)
amortization expense and (v) all other non-cash items reducing
Adjusted Consolidated Net Income (other than items that will
require cash payments and for which an accrual or reserve is, or
is required by GAAP to be, made), less all non-cash items
increasing (or, in the case of a loss, decreasing) Adjusted
Consolidated Net Income, determined, with respect to clauses
(ii), (iii) and (iv), on a consolidated basis for the Company and
its Restricted Subsidiaries in conformity with GAAP; provided
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that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to
the extent not otherwise reduced in accordance with GAAP) by an
amount equal to (A) the amount of the Adjusted Consolidated Net
Income attributable to such Restricted Subsidiary multiplied by
(B) the percentage ownership interest in the income of such
Restricted Subsidiary not owned on the last day of such period by
the Company or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the
aggregate amount (without duplication) of interest in respect of
Indebtedness (including, without limitation, amortization of
original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in
accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing;
the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any
of its Restricted Subsidiaries) and the interest component of
Capitalized Lease Obligations paid, accrued or scheduled to be
paid or to be accrued by the Company and its Restricted
Subsidiaries during such period; excluding, however, (i) any
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amount of such interest of any Restricted Subsidiary if the net
income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof (but only in the same
proportion as the net income of such Restricted Subsidiary is
excluded from the calculation of Adjusted Consolidated Net Income
pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof)
payable in connection with the offering of the Notes, all as
determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Leverage Ratio" means, on any Transaction
Date, the ratio of (i) the aggregate amount of Indebtedness of
the Company and its Restricted Subsidiaries on a consolidated
basis outstanding on such Transaction Date to (ii) the aggregate
amount of Consolidated EBITDA for the then most recent four
fiscal quarters for which financial statements of the Company
have been filed with the Commission or provided to the Trustee
pursuant to Section 4.18 hereof (such four fiscal quarter period
being the "Four Quarter Period"); provided that, in making the
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foregoing calculation, pro forma effect shall be given to the
following events which occur from the beginning of the Four
Quarter Period through the Transaction Date (the "Reference
---------
Period"): (i) the Incurrence of the Indebtedness with respect to
------
which the computation is being made and (if applicable) the
application of the net proceeds therefrom, including to refinance
other Indebtedness, as if such Indebtedness was incurred, and the
application of such proceeds occurred, at the beginning of the
Four Quarter Period; (ii) the Incurrence, repayment or retirement
of any other Indebtedness by the Company and its Restricted
Subsidiaries since the first day of the Four Quarter Period as if
such Indebtedness was incurred, repaid or retired at the
beginning of the Four Quarter Period; (iii) in the case of
Acquired Indebtedness, the related acquisition, as if such
acquisition occurred at the beginning of the Four Quarter Period;
(iv) any acquisition or disposition by the Company and its
Restricted Subsidiaries of any company or any business or any
assets out of the ordinary course of business, whether by merger,
stock purchase or sale or asset purchase or sale or any related
repayment of Indebtedness, in each case since the first day of
the Four Quarter Period, assuming such acquisition or disposition
had been consummated on the first day of the Four Quarter Period
and after giving pro forma effect to net cost savings that the
Company reasonably believes in good faith could have been
achieved during the Four Quarter Period as a result of such
acquisition or disposition (provided that both (A) such cost
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savings were identified and quantified in an Officers'
Certificate delivered to the Trustee at the time of the
consummation of the acquisition or disposition and (B) with
respect to each acquisition or disposition completed prior to the
90th day preceding such date of determination, actions were
commenced or initiated by the Company within 90 days of such
acquisition or disposition to effect such cost savings identified
in such Officers' Certificate and with respect to any other
acquisition or disposition, such Officers' Certificate sets forth
the specific steps to be taken within the 90 days after such
acquisition or disposition to accomplish such cost savings); and
provided further that (x) in making such computation, the
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Consolidated Interest Expense attributable to interest on any
Indebtedness computed on a pro forma basis and (A) bearing a
floating interest rate shall be computed as if the rate in effect
on the date of computation had been the applicable rate for the
entire period and (B) which was not outstanding during the period
for which the computation is being made but which bears, at the
option of the Company, a fixed or floating rate of interest shall
be computed by applying, at the option of the Company, either the
fixed or floating rate, and (y) in making such computation, the
Consolidated Interest Expense of the Company attributable to
interest on any Indebtedness under a revolving credit facility
computed on a pro forma basis shall be computed based upon the
pro forma average daily balance of such Indebtedness during the
applicable period; and (v) the occurrence of any of the events
described in clauses (i)-(iv) above by any Person that has become
a Restricted Subsidiary or has been merged with or into the
Company or any Restricted Subsidiary during such Reference
Period.
"Consolidated Net Worth" means, at any date of
determination, stockholders' equity as set forth on the most
recently available quarterly or annual consolidated balance sheet
of the Company and its Restricted Subsidiaries (which shall be as
of a date not more than 90 days prior to the date of such
computation, and which shall not take into account Unrestricted
Subsidiaries), less any amounts attributable to Disqualified
Stock or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount
of any promissory notes receivable from the sale of the Capital
Stock of the Company or any of its Restricted Subsidiaries, each
item to be determined in conformity with GAAP (excluding the
effects of foreign currency exchange adjustments under Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 52).
"Corporate Trust Office" means the office of the Trustee at
which the corporate trust business of the Trustee shall, at any
particular time, be principally administered, which office is, at
the date of this Indenture, located at 1740 Broadway, Denver,
Colorado 80274-8693, Attention: Corporate Trust and Escrow
Services.
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or
arrangement.
"Default" means any event that is, or after notice or
passage of time or both would be, an Event of Default.
"Depository" shall mean The Depository Trust Company, its
nominees, and their respective successors.
"Disqualified Stock" means any class or series of Capital
Stock of any Person that by its terms or otherwise is (i)
required to be redeemed prior to the Stated Maturity of the
Notes, (ii) redeemable at the option of the holder of such class
or series of Capital Stock at any time prior to the Stated
Maturity of the Notes or (iii) convertible into or exchangeable
for Capital Stock referred to in clause (i) or (ii) above or
Indebtedness having a scheduled maturity prior to the Stated
Maturity of the Notes; provided that any Capital Stock that would
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not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock (or the security for
which such Capital Stock is convertible into or exchangeable for)
upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not
constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock (or the
security for which such Capital Stock is convertible into or
exchangeable for) are no more favorable to the holders of such
Capital Stock (or the security for which such Capital Stock is
convertible into or exchangeable for) than the provisions
contained in Sections 4.11 and 4.12 hereof and such Capital Stock
(or the security for which such Capital Stock is convertible into
or exchangeable for) specifically provides that such Person will
not repurchase or redeem any such stock pursuant to such
provision prior to the Company's repurchase of such Notes as are
required to be repurchased pursuant to Sections 4.11 and 4.12
hereof.
"Equity Offering" means any public or private sale of
Capital Stock of the Company (excluding Disqualified Stock),
other than public offerings with respect to the Company's Common
Stock registered on Form S-8.
"Event of Default" has the meaning provided in Section 6.01.
"Excess Proceeds" has the meaning provided in Section 4.11.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means any notes of the Company containing
terms identical to the Notes (except that such Exchange Notes (i)
shall be registered under the Securities Act, (ii) will not
provide for an increase in the rate of interest (other than with
respect to overdue amounts) and (iii) will not contain terms with
respect to transfer restrictions) that are issued and exchanged
for the Notes pursuant to the Registration Rights Agreement and
this Indenture.
"Exchange Offer" means Exchange Offer as defined in the
Registration Rights Agreement.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller
under no compulsion to sell and an informed and willing buyer
under no compulsion to buy; fair market value may be determined
in good faith by the Board of Directors of the Company, whose
determination shall be conclusive if evidenced by a Board
Resolution.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect as of the Closing Date,
including, without limitation, those set forth in the opinions
and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or
in such other statements by such other entity as approved by a
significant segment of the accounting profession. All ratios and
computations contained or referred to in the Indenture shall be
computed in conformity with GAAP applied on a consistent basis,
except that calculations made for purposes of determining
compliance with the terms of the covenants and with other
provisions of the Indenture shall be made without giving effect
to (i) the amortization of any expenses incurred in connection
with the offering of the Notes and (ii) except as otherwise
provided, the amortization of any amounts required or permitted
by Accounting Principles Board Opinion Nos. 16 and 17.
"Global Notes" has the meaning provided in Section 2.01.
"Guarantee" means any obligation, contingent or otherwise,
of any Person directly or indirectly guaranteeing any
Indebtedness of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect,
contingent or otherwise, of such Person (i) to purchase or pay
(or advance or supply funds for the purchase or payment of) such
Indebtedness of such other Person (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services, to take-or-pay
(unless such purchase arrangements or such obligations are on
arm's length terms and are entered into in the ordinary course of
business), or to maintain financial statement conditions or
otherwise) or (ii) entered into for purposes of assuring in any
other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect
thereof (in whole or in part); provided that the term "Guarantee"
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shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb
has a corresponding meaning.
"Guaranteed Indebtedness" has the meaning provided in
Section 4.07.
"ICG" means ICG Communications, Inc., a Delaware
corporation.
"ICG Common Stock" means common stock, par value $.01 per
share, of ICG.
"Incur" means, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for
or with respect to, or become responsible for, the payment of,
contingently or otherwise, such Indebtedness, including an
"Incurrence" of Acquired Indebtedness; provided that neither the
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accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness of
such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all obligations of such Person in respect of
letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding
trade letters of credit), (iv) all obligations of such Person to
pay the deferred and unpaid purchase price of property or
services, which purchase price is due more than six months after
the date of placing such property in service or taking delivery
and title thereto or the completion of such services, except
Trade Payables and accrued current liabilities arising in the
ordinary course of business, (v) all Capitalized Lease
Obligations of such Person, (vi) all Indebtedness referred to in
clauses (i) through (v) hereof of other Persons secured by a Lien
on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided that the amount of such
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Indebtedness shall be the lesser of (A) the fair market value of
such asset at such date of determination and (B) the amount of
such Indebtedness, (vii) all Indebtedness of other Persons
Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person and (viii) to the extent not otherwise
included in this definition, obligations under Currency
Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding
balance at such date (or, in the case of a revolving credit or
other similar facility, the total amount of principal or interest
outstanding on the date of determination) of all unconditional
obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation of the types described
above, provided (A) that the amount outstanding at any time of
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any Indebtedness issued with original issue discount is the
original issue price of such Indebtedness, (B) that money
borrowed and set aside at the time of the Incurrence of any
Indebtedness in order to refund the payment of the interest on
such Indebtedness shall not be deemed to be "Indebtedness" and
(C) that Indebtedness shall not include any liability for
federal, state, local or other taxes.
"Indenture" means this Indenture as originally executed or
as it may be amended or supplemented from time to time by one or
more indentures supplemental to this Indenture entered into
pursuant to the applicable provisions of this Indenture.
"Institutional Accredited Investor" shall mean an
institution that is an "accredited investor" as that term is
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Interest Payment Date" means each semiannual interest
payment date on February 15 and August 15 of each year,
commencing August 15, 2003.
"Interest Rate Agreement" means any interest rate protection
agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement, interest rate hedge
agreement, option or future contract or other similar agreement
or arrangement.
"Internet Service Business" means any business operating an
internet connectivity or internet enhancement service as it
exists from time to time, including, without limitation, dial-up
or dedicated internet service, web hosting or collocation
services, security solutions, the provision and development of
software in connection therewith, configuration services,
electronic commerce, intranet solutions, data backup and
restoral, business, content and collaboration, communications
tools or network equipment products or services.
"Investment" means, with respect to any Person, all
investments by such Person in other Persons in the form of any
direct or indirect advance, loan or other extension of credit
(including, without limitation, by way of Guarantee or similar
arrangement; but excluding installment sales, capital leasing
arrangements and financings for and advances to customers, in
each case in the ordinary course of business that are, in
conformity with GAAP, recorded as assets on the balance sheet of
the Company or its Restricted Subsidiaries and commissions,
travel and similar advances to officers and employees made in the
ordinary course of business) or capital contribution to (by means
of any transfer of cash or other property to others or any
payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds,
notes, debentures or other similar instruments issued by, such
other Person and shall include (i) the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the
fair market value of the Capital Stock (or any other Investment),
held by the Company or any of its Restricted Subsidiaries, of (or
in) any Person that has ceased to be a Restricted Subsidiary,
including without limitation, by reason of any transaction
permitted by clause (iii) of the Section 4.06 hereof; provided
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that the fair market value of the Investment remaining in any
Person that has ceased to be a Restricted Subsidiary shall not
exceed the aggregate amount of Investments previously made in
such Person valued at the time such Investments were made less
the net reduction of such Investments; and provided further that
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any disposition, sale, lease, transfer, license, transfer of
rights-of-use of, communications equipment, software and capacity
and/or provision of services, by the Company or any Restricted
Subsidiary to ICG or its subsidiaries for fair market value (if,
at the time of such disposition, sale, lease or transfer, the
Company or such Restricted Subsidiary is a Subsidiary of ICG)
will not be deemed to be an Investment. For purposes of the
definition of "Unrestricted Subsidiary" and Section 4.04 hereof,
(i) "Investment" shall include the fair market value of the
assets (net of liabilities (other than liabilities to the Company
or any of its Restricted Subsidiaries)) of any Restricted
Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary, (ii) the fair market value
of the assets (net of liabilities (other than liabilities to the
Company or any of its Restricted Subsidiaries)) of any
Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments and (iii) any
property transferred to or from an Unrestricted Subsidiary shall
be valued at its fair market value at the time of such transfer.
"Investment Grade Securities" means (i) securities issued or
directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof (other than
cash equivalents), (ii) debt securities or debt instruments with
a rating of BBB+ or higher by S&P or Baa1 or higher by Moody's or
the equivalent of such rating by such rating organization, or, if
no rating of S&P or Moody's then exists, the equivalent of such
rating by any other nationally recognized securities rating
agency, but excluding any debt securities or instruments
constituting loans or advances among the Company and its
Subsidiaries, and (iii) investment in any fund that invests
exclusively in investments of the type described in clauses (i)
and (ii) which fund may also hold cash pending investment and/or
distribution.
"Lien" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without
limitation, any conditional sale or other title retention
agreement or lease in the nature thereof or any agreement to give
any security interest).
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Net Cash Proceeds" means (a) with respect to any Asset
Sale, the proceeds of such Asset Sale in the form of cash or cash
equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations
are financed or sold with recourse to the Company or any
Restricted Subsidiary) and proceeds from the conversion of other
property received when converted to cash or cash equivalents, net
of (i) brokerage commissions and other commissions, fees and
expenses (including fees and expenses of counsel, accountants and
investment bankers) related to such Asset Sale and any relocation
expenses incurred as a result thereof, (ii) provisions for all
taxes (whether or not such taxes will actually be paid or are
payable) as a result of such Asset Sale without regard to the
consolidated results of operations of the Company and its
Restricted Subsidiaries, taken as a whole, (iii) payments made to
repay Indebtedness or any other obligation outstanding at the
time of such Asset Sale that either (A) is secured by a Lien on
the property or assets sold or (B) is required to be paid as a
result of such sale and (iv) appropriate amounts to be provided
by the Company or any Restricted Subsidiary as a reserve against
any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and
(b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment
obligations (to the extent corresponding to the principal, but
not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations
are financed or sold with recourse to the Company or any
Restricted Subsidiary) and proceeds from the conversion of other
property received when converted to cash or cash equivalents, net
of attorney's fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant
and other fees incurred in connection with such issuance or sale
and net of taxes paid or payable as a result thereof.
"Non-U.S. Person" means a Person who is not a U.S. person,
as defined in Regulation S.
"Note Amount" has the meaning provided in Section 4.11
hereof.
"Note Register" has the meaning provided in Section 2.04.
"Notes" means any of the notes, as defined in the first
paragraph of the recitals hereof, that are authenticated and
delivered under this Indenture. For all purposes of this
Indenture, the term "Notes" shall include any Exchange Notes to
be issued and exchanged for any Notes pursuant to the
Registration Rights Agreement and this Indenture and, for
purposes of this Indenture, all Notes and Exchange Notes shall
vote together as one series of Notes under this Indenture.
"Offer to Purchase" means an offer to purchase Notes by the
Company from the Holders commenced by mailing a notice to the
Trustee and each Holder stating: (i) the covenant pursuant to
which the offer is being made and that all Notes validly tendered
will be accepted for payment on a pro rata basis; (ii) the
purchase price and the Payment Date; (iii) that any Note not
tendered will continue to accrue interest pursuant to its terms;
(iv) that, unless the Company defaults in the payment of the
purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the
Payment Date; (v) that Holders electing to have a Note purchased
pursuant to the Offer to Purchase will be required to surrender
the Note, together with the form entitled "Option of the Holder
to Elect Purchase" on the reverse side of the Note completed, to
the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding
the Payment Date; (vi) that Holders will be entitled to withdraw
their election if the Paying Agent receives, not later than the
close of business on the third Business Day immediately preceding
the Payment Date, a telegram, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of
Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii)
that Holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount at maturity to the
unpurchased portion of the Notes surrendered; provided that each
--------
Note purchased and each new Note issued shall be in a principal
amount of $1,000 or an integral multiple thereof. On the Payment
Date, the Company shall (i) accept for payment on a pro rata
basis Notes or portions thereof tendered pursuant to an Offer to
Purchase; (ii) deposit with the Paying Agent money sufficient to
pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the
Trustee all Notes or portions thereof so accepted together with
an Officers' Certificate specifying the Notes or portions thereof
accepted for payment by the Company. The Paying Agent shall
promptly mail to the Holders of Notes so accepted payment in an
amount equal to the purchase price (or, if the Notes are
represented by one or more permanent global Notes registered in
the name of The Depository Trust Company or its nominee, by such
other method as required thereby), and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in
principal amount at maturity to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new
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Note issued shall be in a principal amount at maturity of $1,000
or an integral multiple thereof. The Company will publicly
announce the results of an Offer to Purchase as soon as
practicable after the Payment Date. The Trustee shall act as the
Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that the Company is
required to repurchase Notes pursuant to an Offer to Purchase.
"Officer" means, with respect to the Company, (i) the
Chairman of the Board, the Vice Chairman of the Board, the
President, the Chief Executive Officer, the Chief Financial
Officer or a Vice President, and (ii) the Treasurer or any
Assistant Treasurer, or the Secretary or any Assistant Secretary
of the Company.
"Officers' Certificate" means a certificate signed by one
Officer listed in clause (i) of the definition thereof and one
Officer listed in clause (ii) of the definition thereof;
provided, however, that any such certificate may be signed by any
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two of the Officers listed in clause (i) of the definition
thereof in lieu of being signed by one Officer listed in clause
(i) of the definition thereof and one Officer listed in clause
(ii) of the definition thereof. Each Officers' Certificate
(other than certificates provided pursuant to TIA Section
314(a)(4)) shall include the statements provided for in TIA
Section 314(e).
"Offshore Certificated Notes" has the meaning provided in
Section 2.01.
"Offshore Global Note" has the meaning provided in Section
2.01.
"Opinion of Counsel" means a written opinion signed by legal
counsel who may be an employee of or counsel to the Company.
Each such Opinion of Counsel shall include the statements
provided for in TIA Section 314(e).
"Paying Agent" has the meaning provided in Section 2.04,
except that, for the purposes of Article Eight, the Paying Agent
shall not be the Company or a Subsidiary of the Company or an
Affiliate of any of them. The term "Paying Agent" includes any
additional Paying Agent.
"Payment Date" means the date of purchase, which shall be a
Business Day no earlier than 30 days nor later than 60 days from
the date of notice is mailed pursuant to an Offer to Purchase.
"Permanent Regulation S Global Notes" means the permanent
global Notes issued in exchange for one or more Temporary
Regulation S Global Notes upon certification that the beneficial
interests in such global Note are owned by either Non-U.S.
Persons or U.S. Persons who purchased such interests pursuant to
an exemption from, or in transactions not subject to, the
registration requirements of the Securities Act.
"Permitted Investment" means (i) an Investment in the
Company or a Restricted Subsidiary or a Person which will, upon
the making of such Investment, become a Restricted Subsidiary or
be merged or consolidated with or into or transfer or convey all
or substantially all its assets to, the Company or a Restricted
Subsidiary; provided that such Person's primary business is
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related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such
Investment; (ii) Temporary Cash Investments and Investment Grade
Securities; (iii) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately
to be treated as expenses in accordance with GAAP and reasonable
advances to sales representatives; (iv) any Investment acquired
by the Company or any of its Restricted Subsidiaries (x) in
exchange for any other Investment or accounts receivable held by
the Company or any such Restricted Subsidiary in connection with
or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other Investment or
accounts receivable or (y) as a result of a foreclosure by the
Company or any of its Restricted Subsidiaries with respect to any
secured Investment or other transfer of title with respect to any
secured Investment in default; (v) Guarantees permitted by
Section 4.03 hereof; (vi) loans or advances to employees of the
Company or any Restricted Subsidiary that do not in the aggregate
exceed at any one time outstanding $2.0 million; (vii) Currency
Agreements and Interest Rate Agreements permitted under Section
4.03; (viii) Investments in prepaid expenses, negotiable
instruments held for collection and lease, utility deposits and
workers' compensation, performance and other similar deposits;
(ix) Investments in debt securities or other evidences of
Indebtedness that are issued by companies engaged in the
Telecommunications Business or the Internet Service Business;
provided that when each Investment pursuant to this clause (ix)
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is made, the aggregate amount of Investments outstanding under
this clause (ix) does not exceed $3.0 million; (x) Strategic
Investments and Investments in Permitted Joint Ventures in an
amount not to exceed $30.0 million at any one time outstanding;
(xi) an Investment in any Person the primary business of which is
related, ancillary or complementary to (I) the business of the
Company and its Subsidiaries on the date of such Investments or
(II) the Telecommunications Business in an amount not to exceed
at any time outstanding the sum of (A) $20.0 million plus (B) 10%
of the Company's Consolidated EBITDA, if positive, for the
immediately preceding four fiscal quarters (valued in each case
as provided in the definition of "Investments"); (xii) securities
received in connection with Asset Sales to the extent
constituting non-cash consideration permitted under Section 4.11
hereof; (xiii) stock, obligations or securities received in
satisfaction of judgments, bankruptcies, workouts or settlements;
(xiv) Investments in CSW/ICG ChoiceCom, L.P.; and (xv) any
Investments acquired as capital contribution, including without
limitation, acquisition of shares of ICG Common Stock.
"Permitted Joint Venture" means any Unrestricted Subsidiary
or any other Person in which the Company or a Restricted
Subsidiary owns, directly or indirectly, an ownership interest
(other than a Restricted Subsidiary) and whose primary business
is related, ancillary or complementary to (i) the businesses of
the Company and its Restricted Subsidiaries at the time of
determination or (ii) the Telecommunications Business.
"Permitted Liens" means (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good
faith by appropriate legal proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP
shall have been made; (ii) statutory and common law Liens of
landlords and carriers, warehousemen, mechanics, attorneys,
suppliers, materialmen, repairmen or other similar Liens arising
in the ordinary course of business, unexercised rights of set
off, in each case with respect to amounts not yet delinquent or
that are bonded or being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted
and for which a reserve or other appropriate provision, if any,
as shall be required in conformity with GAAP shall have been
made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (iv)
Liens incurred or deposits made to secure the performance of
tenders, bids, leases, licenses, statutory or regulatory
obligations, bankers' acceptances, surety, performance and appeal
bonds, trade or government contracts, performance and return-of-
money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (v) easements (including reciprocal
easement agreements), rights-of-way, municipal, building and
zoning ordinances and similar charges, utility agreements,
covenants, reservations, restrictions, encroachments, charges,
encumbrances, title defects or other irregularities that do not
materially interfere with the ordinary course of business of the
Company or any of its Restricted Subsidiaries; (vi) Liens
(including extensions and renewals thereof) upon real or personal
property or other assets or rights acquired after the Closing
Date; provided that (a) such Lien is created solely for the
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purpose of securing Trade Payables that the Company reasonably
expects to pay within 180 days or Indebtedness Incurred, in
accordance with Section 4.03, to finance the cost of (including
the cost of design, development, acquisition, construction,
installment, improvements, transportation or integration) or to
acquire the item of property or assets subject thereto
(including, without limitation, acquisition by way of
acquisitions of real property, leasehold improvements, licenses,
rights-of-use, Capitalized Leases and installment sales, and any
refinancings thereof) and such Lien is created prior to, at the
time of or within six months after the later of the acquisition,
the completion of construction or the commencement of full
operation of such property, (b) the principal amount of the Trade
Payables or Indebtedness secured by such Lien does not exceed
100% of such cost and (c) any such Lien shall not extend to or
cover any property or assets other than such item of property or
assets and any improvements on such item; (vii) leases,
subleases, licenses and rights-of-use granted to others and
rights of purchase pursuant to installment sales that do not
materially interfere with the ordinary course of business of the
Company and its Restricted Subsidiaries, taken as a whole; (viii)
Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of the Company or
its Restricted Subsidiaries relating to such property or assets;
(ix) any interest or title of a lessor in the property subject to
any Capitalized Lease or operating lease; (x) Liens arising from
filing Uniform Commercial Code financing statements regarding
leases or installment sales; (xi) Liens on property of, or on
shares of Capital Stock or Indebtedness of, any Person existing
at the time such Person becomes, or becomes a part of, any
Restricted Subsidiary; provided that such Liens do not extend to
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or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets acquired; (xii)
Liens in favor of the Company or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or
order against the Company or any Restricted Subsidiary that does
not give rise to an Event of Default; (xiv) Liens securing
reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of
credit and the products and proceeds thereof; (xv) Liens in favor
of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the
importation of goods; (xvi) Liens encumbering customary initial
deposits and margin deposits, and other Liens that are within the
general parameters customary in the industry and incurred in the
ordinary course of business, in each case, securing Indebtedness
under Interest Rate Agreements and Currency Agreements and
forward contracts, options, future contracts, futures options or
similar agreements or arrangements designed solely to protect the
Company or any of its Restricted Subsidiaries from fluctuations
in interest rates, currencies or the price of commodities; (xvii)
Liens arising out of conditional sale, installment sales, title
retention, consignment or similar arrangements for the sale of
goods entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business; and (xviii)
Liens on or sales of receivables.
"Person" means an individual, a corporation, a partnership,
a limited liability company, a joint venture, an association, a
trust, an unincorporated organization or any other entity or
organization, including a government or political subdivision or
an agency or instrumentality thereof.
"Preferred Stock" or "preferred stock" means, with respect
to any Person, any and all shares, interests, participation or
other equivalents (however designated, whether voting or non-
voting) of such Person's preferred or preference stock, whether
now outstanding or issued after the date of this Indenture,
including, without limitation, all series and classes of such
preferred or preference stock.
"principal" of a debt security, including the Notes, means
the principal amount due on the Stated Maturity as shown on such
debt security.
"Private Placement Legend" means the legend initially set
forth on the Notes in the form set forth in Section 2.02(a).
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Redemption Date", when used with respect to any Note or
part thereof to be redeemed, means the date fixed for such
redemption by or pursuant to the terms of the Notes and this
Indenture.
"Redemption Price", when used with respect to any Note or
part thereof to be redeemed, means the price at which such Note
is to be redeemed pursuant to the terms of the Notes and this
Indenture.
"Registrar" has the meaning provided in Section 2.04.
"Registration" has the meaning provided in Section 4.18.
"Registration Rights Agreement" means the Registration
Rights Agreement, dated February 12, 1998, between the Company
and Morgan Stanley & Co. Incorporated relating to the Notes.
"Registration Statement" means any registration statement of
the Company that covers any of the Exchange Notes, 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.
"Regular Record Date" for the interest payable on any
Interest Payment Date means the February 1 or August 1 (whether
or not a Business Day), as the case may be, next preceding such
Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Responsible Officer", when used with respect to the
Trustee, means the chairman or any vice chairman of the board of
directors, the chairman or any vice chairman of the executive
committee of the board of directors, the chairman of the trust
committee, the president, any vice president, any assistant vice
president, the secretary, any assistant secretary, the treasurer,
any assistant treasurer, the cashier, any assistant cashier, any
trust officer or assistant trust officer, the controller or any
assistant controller or any other officer of the Trustee
customarily performing functions similar to those performed by
any of the above designated officers and also means, with respect
to a particular corporate trust matter, any other officer to whom
such matter is referred because of his or her knowledge of and
familiarity with the particular subject.
"Restricted Payments" has the meaning provided in Section
4.04.
"Restricted Subsidiary" means any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Ratings Services and its
successors.
"Securities Act" means the Securities Act of 1933, as
amended.
"Shelf Registration Statement" means Shelf Registration
Statement as defined in the Registration Rights Agreement.
"Significant Subsidiary" means, at any date of
determination, any Restricted Subsidiary that, together with its
Subsidiaries, (i) for the most recent fiscal year of the Company,
accounted for more than 10% of the consolidated revenues of the
Company and its Restricted Subsidiaries or (ii) as of the end of
such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted
Subsidiaries, all as set forth on the most recently available
consolidated financial statements of the Company for such fiscal
year.
"Southwest Communications Business" means the Company's or
any of its Subsidiaries' (A) Internet connectivity or Internet
enhancement service as it exists from time to time in the states
of Texas, Louisiana, Arkansas and Oklahoma, including, without
limitation, dial-up or dedicated Internet service, Web site
hosting or collocation services, security solutions, the
provision and development of software in connection therewith,
configuration services, electronic commerce, intranet solutions,
data backup and restoral, business content and collaboration,
communications tools or network equipment products or services
and (B) development, ownership or operations of one or more
telephone, telecommunications or information systems or the
provision of telephony, telecommunications or information
services (including, without limitation, any voice, video, data
or Internet services) and any related, ancillary or complementary
business in the states of Texas, Louisiana, Arkansas and
Oklahoma.
"Specified Date" means any Redemption Date, any Payment Date
for an Offer to Purchase or any date on which the Notes first
become due and payable after an Event of Default.
"Stated Maturity" means (i) with respect to any debt
security, the date specified in such debt security as the fixed
date on which the final installment of principal of such debt
security is due and payable and (ii) with respect to any
scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed
date on which such installment is due and payable.
"Strategic Investments" means (A) Investments that the Board
of Directors has determined in good faith will enable the Company
or any of its Restricted Subsidiaries to obtain additional
business that it might not be able to obtain without making such
Investment and (B) Investments in entities the principal function
of which is to perform research and development with respect to
products and services that may be used or useful in the
Telecommunications Business or the Internet Service Business;
provided that the Company or one of its Restricted Subsidiaries
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is entitled or otherwise reasonably expected to obtain rights to
such products or services as a result of such Investment.
"Strategic Subordinated Indebtedness" means Indebtedness of
the Company that (i) is expressly made subordinate in right of
payment to the Notes and (ii) provides that no payment of
principal, premium or interest on, or any other payment with
respect to, such Indebtedness may be made prior to the payment in
full of all of the Company's obligations under the Notes.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association, or other business entity (other than a
partnership) of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of
determination owned or controlled, directly or indirectly, by
such Person or one or more of the other Subsidiaries of such
Person or a combination thereof and (ii) any partnership, joint
venture, limited liability company or similar entity of which (x)
more than 50% of the capital accounts, distribution rights, total
equity and voting interests or general or limited partnership
interests, as applicable, are owned or controlled, directly or
indirectly, by such Person or one or more of the other
Subsidiaries of such Person or a combination thereof whether in
the form of membership, general, special or limited partnership
or otherwise and (y) such Person or any Wholly Owned Restricted
Subsidiary of such Person is a general partner or otherwise
controls such entity.
"Telecommunications Business" means the development,
ownership or operation of one or more telephone,
telecommunications or information systems or the provision of
telephony, telecommunications or information services (including,
without limitation, any voice, video, data or Internet services)
and any related, ancillary or complementary business.
"Temporary Cash Investment" means any of the following: (i)
direct obligations of the United States of America or any agency
thereof or obligations fully and unconditionally guaranteed by
the United States of America or any agency or instrumentality
thereof, (ii) deposit accounts, time deposit accounts,
certificates of deposit, eurodollar time deposits, overnight bank
deposits and money market deposits maturing within one year or
less of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States of
America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of
$50 million (or the foreign currency equivalent thereof) and has
outstanding debt which is rated "A" (or such similar equivalent
rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a
registered broker dealer or mutual fund distributor, (iii)
repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clauses (i) and
(ii) above entered into with a bank meeting the qualifications
described in clause (ii) above, (iv) commercial paper, maturing
not more than 90 days after the date of acquisition, issued by a
corporation (other than an Affiliate of the Company) organized
and in existence under the laws of the United States of America,
any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to
Moody's or "A-1" (or higher) according to S&P, (v) securities
with maturities of six months or less from the date of
acquisition issued or fully and unconditionally guaranteed by any
state, commonwealth or territory of the United States of America,
or by any political subdivision or taxing authority thereof, and
rated at least "A" by S&P or Moody's, and (vi) investment funds
investing 95% of their assets in securities of the type described
in clauses (i) through (v) above.
"Temporary Regulation S Global Note" means the Global Note
bearing the Private Placement Legend in bearer form without
interest coupons, that will be issued in a denomination equal to
the outstanding principal amount of the Notes sold in reliance on
Regulation S and deposited with the Trustee, as custodian for the
Depository.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act
of 1939, as amended (15 U.S. Code SS. 77aaa-77bbb), as in effect
on the date this Indenture was executed, except as provided in
Section 9.06; provided, however, that, in the event the Trust
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Indenture Act of 1939 is amended after such date, "TIA" or "Trust
Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.
"Trade Payables" means, with respect to any Person, any
accounts payable or any other indebtedness or monetary obligation
to trade creditors created, assumed or Guaranteed by such Person
or any of its Subsidiaries arising in the ordinary course of
business in connection with the acquisition of goods or services
and required to be paid within one year.
"Transaction Date" means, with respect to the Incurrence of
any Indebtedness by the Company or any of its Restricted
Subsidiaries, the date such Indebtedness is to be Incurred and,
with respect to any Restricted Payment, the date such Restricted
Payment is to be made.
"Trustee" means the party named as such in the first
paragraph of this Indenture until a successor replaces it in
accordance with the provisions of Article Seven of this Indenture
and thereafter means such successor.
"United States Bankruptcy Code" means the Bankruptcy Reform
Act of 1978, as amended and as codified in Title 11 of the United
States Code, as amended from time to time hereafter, or any
successor federal bankruptcy law.
"Unrestricted Subsidiary" means (i) any Subsidiary of the
Company that at the time of determination shall be designated an
Unrestricted Subsidiary by the Board of Directors in the manner
provided below; and (ii) any Subsidiary of an Unrestricted
Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed
Subsidiary of the Company) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or
holds any Lien on any property of, the Company or any Restricted
Subsidiary; provided that (A) any Guarantee by the Company or any
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Restricted Subsidiary of any Indebtedness of the Subsidiary being
so designated shall be deemed an "Incurrence" of such
Indebtedness and an "Investment" by the Company or such
Restricted Subsidiary (or both, if applicable) at the time of
such designation; (B) either (I) the Subsidiary to be so
designated has total assets of $1,000 or less or (II) if such
Subsidiary has assets greater than $1,000, such designation would
be permitted under Section 4.04 and (C) if applicable, the
Incurrence of Indebtedness and the Investment referred to in
clause (A) of this proviso would be permitted under Sections 4.03
and 4.04. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that (i) no
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Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to such designation and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately after such designation would, if Incurred
at such time, have been permitted to be Incurred (and shall be
deemed to have been Incurred) for all purposes of this Indenture.
Any such designation by the Board of Directors shall be evidenced
to the Trustee by promptly filing with the Trustee a copy of the
Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied
with the foregoing provisions.
"U.S. Certificated Notes" has the meaning provided in
Section 2.01.
"U.S. Global Note" has the meaning provided in Section 2.01.
"U.S. Government Obligations" means securities that are (i)
direct obligations of the United States of America for the
payment of which its full faith and credit is pledged or (ii)
obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States of America the
payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in
either case, are not callable or redeemable at the option of the
issuer thereof at any time prior to the Stated Maturity of the
Notes, and shall also include depository receipts issued by a
bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment of interest on or
principal of any such U.S. Government Obligation held by such
custodian for the account of the holder of a depository receipt;
provided that (except as required by law) such custodian is not
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authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the
specific payment of interest on or principal of the U.S.
Government Obligation evidenced by such depository receipt.
"U.S. Person" has the meaning ascribed thereto in Rule 902
under the Securities Act.
"Voting Stock" means, with respect to any Person, Capital
Stock of any class or kind ordinarily having the power to vote
for the election of directors, managers or other voting members
of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any
Person, the ownership of all of the outstanding Capital Stock of
such Subsidiary (other than any director's qualifying shares or
Investments by foreign nationals mandated by applicable law) by
such Person or one or more Wholly Owned Subsidiaries of such
Person.
SECTION 1.02. Incorporation by Reference of Trust
-----------------------------------
Indenture Act. Whenever this Indenture refers to a provision of
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the TIA, the provision is incorporated by reference in and made a
part of this Indenture. The following TIA terms used in this
Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder or a
Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means
the Trustee; and
"obligor" on the indenture securities means the Company
or any other obligor on the Notes.
All other TIA terms used in this Indenture that are
defined by the TIA, defined by TIA reference to another statute
or defined by a rule of the Commission and not otherwise defined
herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction. Unless the
---------------------
context otherwise requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and
words in the plural include the singular;
(v) provisions apply to successive events and
transactions;
(vi) "herein," "hereof" and other words of similar
import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision; and
(vii) all references to Sections or Articles refer to
Sections or Articles of this Indenture unless otherwise
indicated.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating. The Notes and the
---------------
Trustee's certificate of authentication shall be substantially in
the form annexed hereto as Exhibit A. The Notes may have such
appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture and may
have letters, notations, legends or endorsements required by law,
stock exchange agreements to which the Company is subject or
usage. Any portion of the text of any Note may be set forth on
the reverse thereof, with an appropriate reference thereto on the
face of the Note. The Company shall approve the form of the
Notes and any notation, legend or endorsement on the Notes. Each
Note shall be dated the date of its authentication.
The terms and provisions contained in the form of the
Notes annexed hereto as Exhibit A shall constitute, and are
hereby expressly made, a part of this Indenture. Each of the
Company and the Trustee, by its execution and delivery of this
Indenture, expressly agrees to the terms and provisions of the
Notes applicable to it and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall
be issued initially in the form of one or more permanent global
Notes in registered form, substantially in the form set forth in
Exhibit A (the "U.S. Global Note"), deposited with the Trustee,
----------------
as custodian for the Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The
aggregate principal amount at maturity of a U.S. Global Note may
from time to time be increased or decreased by adjustments made
on the records of the Trustee, as custodian for the Depository or
its nominee, as hereinafter provided.
Notes offered and sold in offshore transactions in
reliance on Regulation S shall be issued initially in the form of
one or more temporary global Notes in registered form
substantially in the form set forth in Exhibit A (the "Temporary
---------
Regulation S Global Note"), deposited on behalf of the purchasers
------------------------
of the Notes represented thereby with the Trustee, as custodian
for the Depository, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. At any
time following March 24, 1998 upon receipt by the Trustee and the
Company of a certificate substantially in the form of Exhibit B
hereto, one or more permanent global Notes in registered form
substantially in the form set forth in Exhibit A (the "Permanent
---------
Regulation S Global Note" and together with the Temporary
------------------------
Regulation S Global Note, the "Offshore Global Note") duly
--------------------
executed by the Company and authenticated by the Trustee as
hereinafter provided shall be deposited with the Trustee, as
custodian for the Depository, which shall reflect on its books
and records the date and a decrease in the principal amount of
the Temporary Regulation S Global Notes in an amount equal to the
principal amount of the beneficial interest in the Temporary
Regulation S Global Notes transferred. The aggregate principal
amount at maturity of an Offshore Global Note may from time to
time be increased or decreased by adjustments made in the records
of the Trustee, as custodian for the Depository or its nominee,
as herein provided.
Notes offered and sold to Institutional Accredited
Investors which are not QIBs (excluding Non-U.S. Persons) shall
be issued in the form of permanent certificated Notes in
registered form in substantially the form set forth in Exhibit A
(the "U.S. Certificated Notes"). Notes issued pursuant to
-----------------------
Section 2.07 in exchange for interests in the Offshore Global
Note shall be in the form of certificated Notes in registered
form substantially in the form set forth in Exhibit A (the
"Offshore Certificated Notes"). Notes issued pursuant to
---------------------------
Section 2.07 in exchange for interests in the U.S. Global Note
shall be in the form of the U.S. Certificated Note.
The Offshore Certificated Notes and the U.S.
Certificated Notes are sometimes collectively referred to herein
as the "Certificated Notes". The U.S. Global Notes and Offshore
------------------
Global Notes are sometimes collectively herein referred to as the
"Global Notes".
------------
The definitive Notes shall be typed, printed,
lithographed or engraved or produced by any combination of these
methods or may be produced in any other manner permitted by the
rules of any securities exchange on which the Notes may be
listed, all as determined by the officers executing such Notes,
as evidenced by their execution of such Notes.
SECTION 2.02. Restrictive Legends. (a) Note Legends.
------------------- ------------
Unless and until a Note is exchanged for an Exchange Note or
otherwise disposed of in connection with an effective
Registration Statement pursuant to the Registration Rights
Agreement, (i) each U.S. Global Note and each U.S. Certificated
Note shall bear the legend, set forth below on the face thereof
and (ii) each Offshore Certificated Note and each Temporary
Regulation S Global Note shall bear the legend set forth below on
the face thereof until at least 41 days after the Closing Date
and receipt by the Company and the Trustee of a certificate
substantially in the form of Exhibit B hereto.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS, AND ACCORDINGLY, MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED WITHIN THE UNITED STATES OR
TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION
HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL
"ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) (AN
"INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S.
PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT;
(2) AGREES THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED
TO IN RULE 144(k) (TAKING INTO ACCOUNT THE PROVISIONS OF
RULE 144(d) UNDER THE SECURITIES ACT, IF APPLICABLE), RESELL
OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR
ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL
BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(C) INSIDE THE UNITED STATES TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE
TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF
THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE
TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
ACCRETED VALUE OF NOTES AT THE TIME OF TRANSFER OF LESS THAN
$250,000 AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY
THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT,
(D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT,
(E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY
RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR
(F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND (3) AGREES THAT IT WILL DELIVER TO
EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION
WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD
REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX
SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF
SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE.
IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH
TO EACH OF THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS,
LEGAL OPINIONS OR OTHER INFORMATION AS SUCH PERSONS MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION,"
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO
THEM BY REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE TO
REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF
THE FOREGOING RESTRICTIONS.
(b) Global Note Legend. Each Global Note, whether
------------------
or not an Exchange Note, shall also bear the following legend on
the face thereof:
UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE
OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR
SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS
IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS
OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO
TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH
IN SECTION 2.08 OF THE INDENTURE.
SECTION 2.03. Execution, Authentication and
-----------------------------
Denominations. Subject to Article Four, the aggregate principal
-------------
amount at maturity of Notes (including Exchange Notes) which may
be authenticated and delivered under this Indenture is unlimited.
The Notes shall be executed by two Officers of the Company, by
facsimile or manual signature, in the name and on behalf of the
Company.
If an Officer whose signature is on a Note no longer
holds that office at the time the Trustee or authenticating agent
authenticates the Note, the Note shall be valid nevertheless.
A Note shall not be valid until the Trustee or
authenticating agent manually signs the certificate of
authentication on the Note. The signature shall be conclusive
evidence that the Note has been authenticated under this
Indenture.
At any time and from time to time after the execution
of this Indenture, the Trustee or an authenticating agent shall,
upon receipt of a Company Order, authenticate for original issue
Notes in the aggregate principal amount at maturity specified in
such Company Order; provided that the Trustee shall be entitled
--------
to receive an Officers' Certificate and an Opinion of Counsel of
the Company if it so reasonably requests in connection with such
authentication of Notes. Such Company Order shall specify the
amount of Notes to be authenticated, the date on which the issue
of Notes is to be authenticated and in case of an issuance of
Notes pursuant to Section 2.15, shall certify that such issuance
is in compliance with Article Four.
The Trustee may appoint an authenticating agent to
authenticate Notes. An authenticating agent may authenticate
Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes
authentication by such authenticating agent. An authenticating
agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
The Notes shall be issuable only in registered form
without coupons and only in denominations of $1,000 in principal
amount at maturity and any integral multiple of $1,000 in excess
thereof.
SECTION 2.04. Registrar and Paying Agent. The Company
--------------------------
shall maintain an office or agency where Notes may be presented
for registration of transfer or for exchange (the "Registrar"),
---------
an office or agency where Notes may be presented for payment (the
"Paying Agent") and an office or agency where notices and demands
------------
to or upon the Company in respect of the Notes and this Indenture
may be served, which shall be in the Borough of Manhattan, The
City of New York. The Company shall cause the Registrar to keep
a register of the Notes and of their transfer and exchange (the
"Note Register"). The Company may have one or more co-Registrars
-------------
and one or more additional Paying Agents.
The Company shall enter into an appropriate agency
agreement with any Agent not a party to this Indenture. The
agreement shall implement the provisions of this Indenture that
relate to such Agent. The Company shall give prompt written
notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Company
fails to maintain a Registrar, Paying Agent and/or agent for
service of notices and demands, the Trustee shall act as such
Registrar, Paying Agent and/or agent for service of notices and
demands for so long as such failure shall continue. The Company
may remove any Agent upon written notice to such Agent and the
Trustee; provided that no such removal shall become effective
--------
until (i) the acceptance of an appointment by a successor Agent
to such Agent as evidenced by an appropriate agency agreement
entered into by the Company and such successor Agent and
delivered to the Trustee or (ii) notification to the Trustee that
the Trustee shall serve as such Agent until the appointment of a
successor Agent in accordance with clause (i) of this proviso.
The Company, any Subsidiary of the Company, or any Affiliate of
any of them may act as Paying Agent, Registrar or co-Registrar,
and/or agent for service of notice and demands; provided,
--------
however, that neither the Company, a Subsidiary of the Company
-------
nor an Affiliate of any of them shall act as Paying Agent in
connection with the defeasance of the Notes or the discharge of
this Indenture under Article Eight.
The Company initially appoints the Trustee as
Registrar, Paying Agent, authenticating agent and agent for
service of notice and demands. If, at any time, the Trustee is
not the Registrar, the Registrar shall make available to the
Trustee on or before each Interest Payment Date and at such other
times as the Trustee may reasonably request, the names and
addresses of the Holders as they appear in the Note Register.
SECTION 2.05. Paying Agent to Hold Money in Trust.
-----------------------------------
Not later than 10:00 a.m. New York City time on each due date of
the principal, premium, if any, or interest on any Notes, the
Company shall deposit with the Paying Agent money in immediately
available funds sufficient to pay such principal, premium, if
any, or interest so becoming due. The Company shall require each
Paying Agent, if any, other than the Trustee to agree in writing
that such Paying Agent shall hold in trust for the benefit of the
Holders or the Trustee all money held by the Paying Agent for the
payment of principal of, premium, if any, or interest on the
Notes (whether such money has been paid to it by the Company or
any other obligor on the Notes), and that such Paying Agent shall
promptly notify the Trustee of any default by the Company (or any
other obligor on the Notes) in making any such payment. The
Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and account for any funds disbursed,
and the Trustee may at any time during the continuance of any
payment default, upon written request to a Paying Agent, require
such Paying Agent to pay all money held by it to the Trustee and
to account for any funds disbursed. Upon doing so, the Paying
Agent shall have no further liability for the money so paid over
to the Trustee. If the Company or any Subsidiary of the Company
or any Affiliate of any of them acts as Paying Agent, it will, on
or before each due date of any principal of, premium, if any, or
interest on the Notes, segregate and hold in a separate trust
fund for the benefit of the Holders a sum of money sufficient to
pay such principal, premium, if any, or interest so becoming due
until such sum of money shall be paid to such Holders or
otherwise disposed of as provided in this Indenture, and will
promptly notify the Trustee of its action or failure to act as
required by this Section 2.05.
SECTION 2.06. Transfer and Exchange. The Notes are
---------------------
issuable only in registered form. A Holder may transfer a Note
by written application to the Registrar stating the name of the
proposed transferee and otherwise complying with the terms of
this Indenture. No such transfer shall be effected until, and
such transferee shall succeed to the rights of a Holder only upon
registration of the transfer by the Registrar in the Note
Register. Prior to the registration of any transfer by a Holder
as provided herein, the Company, the Trustee, and any agent of
the Company shall treat the Person in whose name the Note is
registered as the owner thereof for all purposes whether or not
the Note shall be overdue, and neither the Company, the Trustee,
nor any such agent shall be affected by notice to the contrary.
Furthermore, any Holder of a Global Note shall, by acceptance of
such Global Note, agree that transfers of beneficial interests in
such Global Note may be effected only through a book-entry system
maintained by the Depository (or its agent), and that ownership
of a beneficial interest in the Note shall be required to be
reflected in a book entry. When Notes are presented to the
Registrar or a co-Registrar with a request to register the
transfer or to exchange them for an equal principal amount at
maturity of Notes of other authorized denominations (including on
exchange of Notes for Exchange Notes), the Registrar shall
register the transfer or make the exchange as requested if its
requirements for such transactions are met; provided that no
--------
exchanges of Notes for Exchange Notes shall occur until a
Registration Statement shall have been declared effective by the
Commission and that any Notes that are exchanged for Exchange
Notes shall be cancelled by the Trustee. To permit registrations
of transfers and exchanges in accordance with the terms,
conditions and restrictions hereof, the Company shall execute and
the Trustee shall authenticate Notes at the Registrar's request.
No service charge shall be made to any Holder for any
registration of transfer or exchange or redemption of the Notes,
but the Company may require payment of a sum sufficient to cover
any transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer taxes or other
similar governmental charge payable upon transfers, exchanges or
redemptions pursuant to Section 2.11, 3.08, 4.11, 4.12 or 9.04).
The Registrar shall not be required (i) to issue,
register the transfer of or exchange any Note during a period
beginning at the opening of business 15 days before the day of
the mailing of a notice of redemption of Notes selected for
redemption under Section 3.03 or Section 3.08 and ending at the
close of business on the day of such mailing, or (ii) to register
the transfer of or exchange any Note so selected for redemption
in whole or in part, except the unredeemed portion of any Note
being redeemed in part.
SECTION 2.07. Book-Entry Provisions for Global Notes.
--------------------------------------
(a) Each U.S. Global Note and Offshore Global Note initially
shall (i) be registered in the name of the Depository for such
Global Notes or the nominee of such Depository, (ii) be delivered
to the Trustee as custodian for such Depository and (iii) bear
legends as set forth in Section 2.02.
Members of, or participants in, the Depository ("Agent
-----
Members") shall have no rights under this Indenture with respect
-------
to any Global Note held on their behalf by the Depository, or the
Trustee as its custodian, or under any Global Note, and the
Depository may be treated by the Company, the Trustee and any
agent of the Company or the Trustee as the absolute owner of such
Global Note for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Company, the Trustee
or any agent of the Company or the Trustee, from giving effect to
any written certification, proxy or other authorization furnished
by the Depository or impair, as between the Depository and its
Agent Members, the operation of customary practices governing the
exercise of the rights of a beneficial owner of any Note.
(b) Transfers of a Global Note shall be limited to
transfers of such Global Note in whole, but not in part, to the
Depository, its successors or their respective nominees.
Interests of beneficial owners in a Global Note may be
transferred in accordance with the applicable rules and
procedures of the Depository and the provisions of Section 2.08.
In addition, U.S. Certificated Notes or Offshore Certificated
Notes shall be transferred to all beneficial owners in exchange
for their beneficial interests in a U.S. Global Note or an
Offshore Global Note, respectively, if (i) the Depository
notifies the Company that it is unwilling or unable to continue
as Depository for the U.S. Global Notes or the Offshore Global
Notes, as the case may be, and a successor depositary is not
appointed by the Company within 90 days of such notice or (ii) an
Event of Default has occurred and is continuing and the Registrar
has received a request to the foregoing effect from the
Depository.
(c) Any beneficial interest in one of the Global
Notes that is transferred to a Person who takes delivery in the
form of an interest in the other Global Note will, upon transfer,
cease to be an interest in such Global Note and become an
interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and
other procedures applicable to beneficial interests in such other
Global Note for as long as it remains such an interest.
(d) In connection with any transfer pursuant to
paragraph (b) of this Section of a portion of the beneficial
interests in a U.S. Global Note or Offshore Global Note to
beneficial owners who are required to hold U.S. Certificated
Notes, the Registrar shall reflect on its books and records the
date and a decrease in the principal amount at maturity of such
U.S. Global Note or Offshore Global Note in an amount equal to
the principal amount at maturity of the beneficial interest in
such U.S. Global Note or Offshore Global Note to be transferred,
and the Company shall execute, and the Trustee shall authenticate
and deliver, one or more U.S. Certificated Notes or Offshore
Certificated Notes, as the case may be, of like tenor and amount.
(e) In connection with the transfer of all the U.S.
Global Notes or Offshore Global Notes to beneficial owners
pursuant to paragraph (b) of this Section, the U.S. Global Notes
or Offshore Global Notes, as the case may be, shall be deemed to
be surrendered to the Trustee for cancellation, and the Company
shall execute, and the Trustee shall authenticate and deliver, to
each beneficial owner identified by the Depository in exchange
for its beneficial interest in the U.S. Global Notes or Offshore
Global Notes, as the case may be, an equal aggregate principal
amount at maturity of U.S. Certificated Notes or Offshore
Certificated Notes, as the case may be, of authorized
denominations.
(f) Any U.S. Certificated Note delivered in exchange
for an interest in a U.S. Global Note pursuant to paragraph (b),
(d) or (e) of this Section shall, except as otherwise provided by
paragraphs (f)(i)(x) and (d) of Section 2.08 hereof, bear the
legend regarding transfer restrictions applicable to the U.S.
Certificated Note set forth in Section 2.02.
(g) Any Offshore Certificated Note delivered in
exchange for an interest in an Offshore Global Note pursuant to
paragraph (b), (d) or (e) of this Section shall, except as
otherwise provided by paragraphs (f)(i)(x) and (d) of Section
2.08 hereof, bear the legend regarding transfer restrictions
applicable to the Offshore Certificated Note set forth in
Section 2.02 hereof.
(h) The registered holder of a Global Note may grant
proxies and otherwise authorize any Person, including Agent
Members and Persons that may hold interests through Agent
Members, to take any action which a Holder is entitled to take
under this Indenture or the Notes.
(i) QIBs that are beneficial owners of interests in
a Global Note may receive Certificated Notes (which shall bear
the Private Placement Legend if required by Section 2.02) in
accordance with the procedures of the Depository. In connection
with the execution, authentication and delivery of such
Certificated Notes, the Registrar shall reflect on its books and
records a decrease in the principal amount of the relevant Global
Note equal to the principal amount of such Certificated Notes and
the Company shall execute and the Trustee shall authenticate and
deliver one or more Certificated Notes having an equal aggregate
principal amount.
SECTION 2.08. Special Transfer Provisions. Unless and
---------------------------
until a Note is exchanged for an Exchange Note in connection with
an effective Registration Statement pursuant to the Registration
Rights Agreement, the following provisions shall apply:
(a) Transfers to QIBs. The following provisions
-----------------
shall apply with respect to the registration of any proposed
transfer of a U.S. Certificated Note or an interest in a
U.S. Global Note to a QIB (excluding Non-U.S. Persons):
(i) If the Note to be transferred consists
of (x) U.S. Certificated Notes, the Registrar shall
register the transfer if such transfer is being made by
a proposed transferor who has checked the box provided
for on the form of Note stating, or has otherwise
advised the Company and the Registrar in writing, that
the sale has been made in compliance with the
provisions of Rule 144A to a transferee who has signed
the certification provided for on the form of Note
stating, or has otherwise advised the Company and the
Registrar in writing, that it is purchasing the Note
for its own account or an account with respect to which
it exercises sole investment discretion and that it and
any such account is a QIB within the meaning of
Rule 144A, and is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it
has received such information regarding the Company as
it has requested pursuant to Rule 144A or has
determined not to request such information and that it
is aware that the transferor is relying upon its
foregoing representations in order to claim the
exemption from registration provided by Rule 144A or
(y) an interest in a U.S. Global Note, the transfer of
such interest may be effected only through the book
entry system maintained by the Depository.
(ii) If the proposed transferee is an Agent
Member, and the Note to be transferred consists of U.S.
Certificated Notes, upon receipt by the Registrar of
the documents referred to in clause (i) and
instructions given in accordance with the Depository's
and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and an
increase in the principal amount at maturity of such
U.S. Global Note in an amount equal to the principal
amount at maturity of the U.S. Certificated Notes to be
transferred, and the Trustee shall cancel the
Certificated Note so transferred.
(b) Transfers of Interests in Offshore Global Notes
-----------------------------------------------
or Offshore Certificated Notes to U.S. Persons. The
----------------------------------------------
following provisions shall apply with respect to any
transfer of interests in Offshore Global Notes or Offshore
Certificated Notes to U.S. Persons:
(i) prior to the removal of the Private
Placement Legend from Offshore Global Notes or Offshore
Certificated Notes pursuant to Section 2.02, the
Registrar shall refuse to register such transfer; and
(ii) after such removal, the Registrar shall
register the transfer of any such Note without
requiring any additional certification.
(c) Transfers to Non-U.S. Persons at Any Time. The
-----------------------------------------
following provisions shall apply with respect to any
transfer of a Note to a Non-U.S. Person:
(i) The Registrar shall register any
proposed transfer to any Non-U.S. Person if the Note to
be transferred is a U.S. Certificated Note or an
interest in a U.S. Global Note only upon receipt of a
certificate substantially in the form of Exhibit C from
the proposed transferor.
(ii) (A) If the proposed transferor is an
Agent Member holding a beneficial interest in a U.S.
Global Note, upon receipt by the Registrar of (x) the
documents required by paragraph (i) and
(y) instructions in accordance with the Depository's
and the Registrar's procedures, the Registrar shall
reflect on its books and records the date and a
decrease in the principal amount at maturity of such
U.S. Global Note in an amount equal to the principal
amount at maturity of the beneficial interest in the
U.S. Global Note to be transferred, and (B) if the
proposed transferee is an Agent Member, upon receipt by
the Registrar of instructions given in accordance with
the Depository's and the Registrar's procedures, the
Registrar shall reflect on its books and records the
date and an increase in the principal amount at
maturity of such Offshore Global Note in an amount
equal to the principal amount at maturity of the U.S.
Certificated Notes or the U.S. Global Notes, as the
case may be, to be transferred, and the Trustee shall
cancel the Certificated Note, if any, so transferred or
decrease the amount of the U.S. Global Notes.
(d) Private Placement Legend. Upon the registration
------------------------
of transfer, exchange or replacement of Notes not bearing
the Private Placement Legend, the Registrar shall deliver
Notes that do not bear the Private Placement Legend. Upon
the registration of transfer, exchange or replacement of
Notes bearing the Private Placement Legend, the Registrar
shall deliver only Notes that bear the Private Placement
Legend unless either (i) the Private Placement Legend is no
longer required by Section 2.02 or (ii) there is delivered
to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect
that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with
the provisions of the Securities Act.
(e) General. By its acceptance of any Note bearing
-------
the Private Placement Legend, each Holder of such a Note
acknowledges the restrictions on transfer of such Note set
forth in this Indenture and in the Private Placement Legend
and agrees that it will transfer such Note only as provided
in this Indenture. The Registrar shall not register a
transfer of any Note unless such transfer complies with the
restrictions on transfer of such Note set forth in this
Indenture. In connection with any transfer of Notes to an
Institutional Accredited Investor, each Holder agrees by its
acceptance of the Notes to furnish the Registrar or the
Company such certifications, legal opinions or other
information as either of them may reasonably require to
confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the
registration requirements of the Securities Act; provided
--------
that the Registrar shall not be required to determine (but
may rely on a determination made by the Company with respect
to) the sufficiency of any such certifications, legal
opinions or other information.
(f) Transfers to Non-QIB Institutional Accredited
---------------------------------------------
Investors. The following provisions shall apply with
---------
respect to the registration of any proposed transfer of a
Note to any Institutional Accredited Investor which is not a
QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the
transfer of any Note, whether or not such Note bears
the Private Placement Legend, if (x) the requested
transfer is after the time period referred to in Rule
144(k) under the Securities Act as in effect with
respect to such transfer or (y) the proposed transferee
has delivered to the Registrar (A) a certificate
substantially in the form of Exhibit D hereto and
(B) if the aggregate Accreted Value of Notes being
transferred is less than $250,000 at the time of such
transfer, an Opinion of Counsel acceptable to the
Company that such transfer is in compliance with the
Securities Act.
(ii) If the proposed transferor is an Agent
Member holding a beneficial interest in a U.S. Global
Note, upon receipt by the Registrar and the Company of
(x) the documents, if any, required by paragraph (i)
and (y) instructions given in accordance with the
Depository's and the Registrar's procedures, the
Registrar shall reflect on its books and records the
date and a decrease in the principal amount at maturity
of such U.S. Global Note in an amount equal to the
principal amount at maturity of the beneficial interest
in the U.S. Global Note to be transferred, and the
Company shall execute, and the Trustee shall
authenticate and deliver, one or more U.S. Certificated
Notes of like tenor and amount.
The Registrar shall retain copies of all letters,
notices and other written communications received pursuant to
Section 2.07 or this Section 2.08. The Company shall have the
right to inspect and make copies of all such letters, notices or
other written communications at any reasonable time upon the
giving of reasonable written notice to the Registrar.
SECTION 2.09. Replacement Notes. If a mutilated Note
-----------------
is surrendered to the Trustee or if the Holder claims that the
Note has been lost, destroyed or wrongfully taken, the Company
shall issue and the Trustee shall authenticate a replacement Note
of like tenor and principal amount and bearing a number not
contemporaneously outstanding; provided that the requirements of
--------
the second paragraph of Section 2.10 are met. If required by the
Trustee or the Company, an indemnity bond must be furnished that
is sufficient in the judgment of both the Trustee and the Company
to protect the Company, the Trustee or any Agent from any loss
that any of them may suffer if a Note is replaced. The Company
may charge such Holder for its expenses and the expenses of the
Trustee in replacing a Note. In case any such mutilated, lost,
destroyed or wrongfully taken Note has become or is about to
become due and payable, the Company in its discretion may pay
such Note instead of issuing a new Note in replacement thereof.
Every replacement Note is an additional obligation of
the Company and shall be entitled to the benefits of this
Indenture.
SECTION 2.10. Outstanding Notes. Notes outstanding at
-----------------
any time are all Notes that have been authenticated by the
Trustee except for those cancelled by it, those delivered to it
for cancellation and those described in this Section 2.10 as not
outstanding.
If a Note is replaced pursuant to Section 2.09, it
ceases to be outstanding unless and until the Trustee and the
Company receive proof reasonably satisfactory to them that the
replaced Note is held by a bona fide purchaser.
If the Paying Agent (other than the Company or an
Affiliate of the Company) holds on the maturity date or a
redemption date money sufficient to pay all principal, premium,
if any, and interest payable on that date with respect to the
Notes (or portions thereof) to be redeemed or payable on that
date, then on and after that date such Notes cease to be
outstanding and interest on them shall cease to accrue or the
principal of such Notes shall cease to accrete, the case may be.
A Note does not cease to be outstanding because the
Company or one of its Affiliates holds such Note; provided,
--------
however, that, in determining whether the Holders of the
-------
requisite principal amount at maturity of the outstanding Notes
have given any request, demand, authorization, direction, notice,
consent or waiver hereunder, Notes owned by the Company or any
other obligor upon the Notes or any Affiliate of the Company or
of such other obligor shall be disregarded and deemed not to be
outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes
which the Trustee knows to be so owned shall be so disregarded.
Notes so owned which have been pledged in good faith may be
regarded as outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with
respect to such Notes and that the pledgee is not the Company or
any other obligor upon the Notes or any Affiliate of the Company
or of such other obligor.
SECTION 2.11. Temporary Notes. Until definitive Notes
---------------
are ready for delivery, the Company may prepare and the Trustee
shall authenticate temporary Notes. Temporary Notes shall be
substantially in the form of definitive Notes but may have
insertions, substitutions, omissions and other variations
determined to be appropriate by the Officers executing the
temporary Notes, as evidenced by their execution of such
temporary Notes. If temporary Notes are issued, the Company will
cause definitive Notes to be prepared without unreasonable delay.
After the preparation of definitive Notes, the temporary Notes
shall be exchangeable for definitive Notes upon surrender of the
temporary Notes at the office or agency of the Company designated
for such purpose pursuant to Section 4.02, without charge to the
Holder. Upon surrender for cancellation of any one or more
temporary Notes the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal
amount at maturity of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall be
entitled to the same benefits under this Indenture as definitive
Notes.
SECTION 2.12. Cancellation. The Company at any time
------------
may deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee
for cancellation any Notes previously authenticated hereunder
which the Company has not issued and sold. The Registrar and the
Paying Agent shall forward to the Trustee any Notes surrendered
to them for registration of transfer, exchange, purchase or
payment. The Trustee shall cancel all Notes surrendered for
registration of transfer, exchange, purchase, payment or
cancellation and shall dispose of them in accordance with its
normal procedure. The Company shall not issue new Notes to
replace Notes it has paid in full or delivered to the Trustee for
cancellation.
SECTION 2.13. CUSIP Numbers. The Company in issuing
-------------
the Notes may use "CUSIP" and "CINS" numbers (if then generally
in use), and the Trustee shall use CUSIP numbers or CINS numbers,
as the case may be, in notices of redemption or exchange as a
convenience to Holders; provided that any such notice shall state
--------
that no representation is made as to the correctness of such
numbers either as printed on the Notes or as contained in any
notice of redemption or exchange and that reliance may be placed
only on the other identification numbers printed on the Notes.
SECTION 2.14. Defaulted Interest. If the Company
------------------
defaults in a payment of interest on the Notes, it shall pay, or
shall deposit with the Paying Agent money in immediately
available funds sufficient to pay, the defaulted interest, plus
(to the extent lawful) interest on the defaulted interest, to
the Persons who are Holders on a subsequent special record date.
A special record date, as used in this Section 2.14 with respect
to the payment of any defaulted interest, shall mean the 15th day
next preceding the date fixed by the Company for the payment of
defaulted interest, whether or not such day is a Business Day.
At least 15 days before the subsequent special record date, the
Company shall mail to each Holder and to the Trustee a notice
that states the subsequent special record date, the payment date
and the amount of defaulted interest to be paid.
SECTION 2.15. Issuance of Additional Notes. The
----------------------------
Company may, subject to Article Four of this Indenture, issue
additional Notes under this Indenture. The Notes issued on the
Closing Date and any additional Notes subsequently issued shall
be treated as a single class for all purposes under this
Indenture.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption. (a) The Notes may
-------------------
be redeemable, at the Company's option, in whole or in part, at
any time or from time to time, on or after February 15, 2003 and
prior to maturity, upon not less than 30 nor more than 60 days'
prior notice mailed by first class mail to each Holder's last
address as it appears in the Note Register, at the Redemption
Prices (expressed in percentages of principal amount at
maturity), plus accrued and unpaid interest, if any, to the
Redemption Date (subject to the right of Holders of record on the
relevant Regular Record Date that is on or prior to the
Redemption Date to receive interest due on an Interest Payment
Date), if redeemed during the 12-month period commencing February
15, of the years set forth below:
YEAR REDEMPTION PRICE
---- ----------------
2003 105.0000%
2004 103.3333
2005 101.6667
2006 and thereafter 100.0000
(b) In addition, at any time or from time to time, on
or prior to February 15, 2001, the Company may, at its option,
redeem Notes having an aggregate principal amount at maturity of
up to 35% of the aggregate principal amount at maturity of the
Notes with the proceeds of one or more public or private Equity
Offerings, at a Redemption Price equal to 110.0% of the Accreted
Value thereof on the Redemption Date; provided that at least 65%
--------
of the aggregate principal amount of Notes initially issued
remains outstanding after each such redemption.
SECTION 3.02. Notices to Trustee. If the Company
------------------
elects to redeem Notes pursuant to Section 3.01, it shall notify
the Trustee in writing of the Redemption Date and the principal
amount at maturity of Notes to be redeemed.
The Company shall give each notice provided for in this
Section 3.02 in an Officers' Certificate at least 60 days before
the Redemption Date (unless a shorter period shall be
satisfactory to the Trustee).
SECTION 3.03. Selection of Notes to Be Redeemed. If
---------------------------------
less than all of the Notes are to be redeemed at any time, the
Trustee shall select the Notes to be redeemed in compliance with
the requirements of the principal national securities exchange,
if any, on which the Notes are listed or if the Notes are not
listed on a national securities exchange, on a pro rata basis or
by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate; provided that
no Notes of $1,000 in principal amount at maturity or less shall
be redeemed in part.
The Trustee shall make the selection from the Notes
outstanding and not previously called for redemption. Notes in
denominations of $1,000 in principal amount at maturity may only
be redeemed in whole. The Trustee may select for redemption
portions (equal to $1,000 in principal amount at maturity or any
integral multiple thereof) of Notes that have denominations
larger than $1,000 in principal amount at maturity. Provisions
of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption. The Trustee
shall notify the Company and the Registrar promptly in writing of
the Notes or portions of Notes to be called for redemption.
SECTION 3.04. Notice of Redemption. With respect to
--------------------
any redemption of Notes pursuant to Section 3.01, at least 30
days but not more than 60 days before a Redemption Date, the
Company shall mail a notice of redemption by first class mail to
each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and
shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be
surrendered to the Paying Agent in order to collect the
Redemption Price;
(v) that, unless the Company defaults in making the
redemption payment, interest on Notes (or portions thereof)
called for redemption ceases to accrue or Notes called for
redemption cease to accrete in value, as the case may be, on
and after the Redemption Date and the only remaining right
of the Holders is to receive payment of the Redemption Price
plus accrued interest to the Redemption Date upon surrender
of the Notes to the Paying Agent;
(vi) that, if any Note is being redeemed in part, the
portion of the principal amount at maturity (equal to $1,000
in principal amount at maturity or any integral multiple
thereof) of such Note to be redeemed and that, on and after
the Redemption Date, upon surrender of such Note, a new Note
or Notes in principal amount at maturity equal to the
unredeemed portion thereof will be reissued; and
(vii) that, if any Note contains a CUSIP number as
provided in Section 2.13, no representation is being made as
to the correctness of the CUSIP number either as printed on
the Notes or as contained in the notice of redemption.
At the Company's request (which request may be revoked
by the Company at any time prior to the time at which the Trustee
shall have given such notice to the Holders), made in writing to
the Trustee at least 60 days (or such shorter period as shall be
satisfactory to the Trustee) before a Redemption Date, the
Trustee shall give the notice of redemption in the name and at
the expense of the Company. If, however, the Company gives such
notice to the Holders, the Company shall concurrently deliver to
the Trustee an Officers' Certificate stating that such notice has
been given.
SECTION 3.05. Effect of Notice of Redemption. Once
------------------------------
notice of redemption is mailed, Notes called for redemption
become due and payable on the Redemption Date and at the
Redemption Price. Upon surrender of any Notes to the Paying
Agent, such Notes shall be paid at the Redemption Price, plus
accrued interest, if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when
mailed, whether or not the Holder receives the notice. In any
event, failure to give such notice, or any defect therein, shall
not affect the validity of the proceedings for the redemption of
Notes held by Holders to whom such notice was properly given.
SECTION 3.06. Deposit of Redemption Price. On or
---------------------------
prior to any Redemption Date, the Company shall deposit with the
Paying Agent (or, if the Company is acting as its own Paying
Agent, shall segregate and hold in trust as provided in Section
2.05) money sufficient to pay the Redemption Price of and accrued
interest on all Notes to be redeemed on that date other than
Notes or portions thereof called for redemption on that date that
have been delivered by the Company to the Trustee for
cancellation.
SECTION 3.07. Payment of Notes Called for Redemption.
--------------------------------------
If notice of redemption has been given in the manner provided
above, the Notes or portion of Notes specified in such notice to
be redeemed shall become due and payable on the Redemption Date
at the Redemption Price stated therein, together with accrued
interest to such Redemption Date, and on and after such date
(unless the Company shall default in the payment of such Notes at
the Redemption Price and accrued interest to the Redemption Date,
in which case the principal, until paid, shall bear interest from
the Redemption Date at the rate prescribed in the Notes), such
Notes shall cease to accrue interest or accrete in value, as the
case may be. Upon surrender of any Note for redemption in
accordance with a notice of redemption, such Note shall be paid
and redeemed by the Company at the Redemption Price, together
with accrued interest, if any, to the Redemption Date; provided
--------
that installments of interest whose Stated Maturity is on or
prior to the Redemption Date shall be payable to the Holders
registered as such at the close of business on the relevant
Regular Record Date.
SECTION 3.08. Notes Redeemed in Part. Upon surrender
----------------------
of any Note that is redeemed in part, the Company shall execute
and the Trustee shall authenticate and deliver to the Holder a
new Note equal in principal amount at maturity to the unredeemed
portion of such surrendered Note.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes. The Company shall pay
----------------
the principal of, premium, if any, and interest on the Notes on
the dates and in the manner provided in the Notes and this
Indenture. An installment of principal, premium, if any, or
interest shall be considered paid on the date due if the Trustee
or Paying Agent (other than the Company, a Subsidiary of the
Company, or any Affiliate of any of them) holds on that date
money designated for and sufficient to pay the installment. If
the Company or any Subsidiary of the Company or any Affiliate of
any of them, acts as Paying Agent, an installment of principal,
premium, if any, or interest shall be considered paid on the due
date if the entity acting as Paying Agent complies with the last
sentence of Section 2.05. As provided in Section 6.09, upon any
bankruptcy or reorganization procedure relative to the Company,
the Trustee shall serve as the Paying Agent and conversion agent,
if any, for the Notes.
The Company shall pay interest on overdue principal,
premium, if any, and interest on overdue installments of
interest, to the extent lawful, at the rate per annum specified
in the Notes.
SECTION 4.02. Maintenance of Office or Agency. The
-------------------------------
Company will maintain in the Borough of Manhattan, the City of
New York, an office or agency where Notes may be surrendered for
registration of transfer or exchange or for presentation for
payment and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The
Company will give prompt written notice to the Trustee of the
location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the address of the
Trustee set forth in Section 10.02 hereof.
The Company may also from time to time designate one or
more other offices or agencies where the Notes may be presented
or surrendered for any or all such purposes and may from time to
time rescind such designations; provided that no such designation
--------
or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company
will give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of
any such other office or agency.
The Company hereby initially designates the Corporate
Trust Office of the Trustee, located in the Borough of Manhattan,
the City of New York, as such office of the Company in accordance
with Section 2.04.
SECTION 4.03. Limitation on Indebtedness. (a) The
--------------------------
Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and
Indebtedness existing on the Closing Date); provided that the
--------
Company may Incur Indebtedness if, after giving effect to the
Incurrence of such Indebtedness and the receipt and application
of the proceeds therefrom, the Consolidated Leverage Ratio would
be greater than zero and less than 6:1.
Notwithstanding the foregoing, the Company and any
Restricted Subsidiary (except as specified below) may Incur each
and all of the following:
(i) Indebtedness of the Company or its Restricted
Subsidiaries outstanding at any time in an aggregate
principal amount not to exceed (A) $200 million of
unsubordinated Indebtedness (including any Indebtedness
under one or more revolving credit or working capital
facilities) and (B) $200 million of subordinated
Indebtedness (and any Guarantees thereof by the Company or
its Restricted Subsidiaries), less any amount of such
Indebtedness permanently repaid as provided under Section
4.11 hereof;
(ii) the Incurrence by the Company of Indebtedness
represented by the Notes;
(iii) Indebtedness in existence on the Closing Date;
(iv) Indebtedness of the Company to a Restricted
Subsidiary and Indebtedness of a Restricted Subsidiary to
the Company or another Restricted Subsidiary; provided that
--------
such Indebtedness is made pursuant to an intercompany note
(which, in the case of Indebtedness owed to the Company,
shall be unsubordinated) and any event which results in any
such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness
(other than to the Company or another Restricted Subsidiary)
shall be deemed, in each case, to constitute an Incurrence
of such Indebtedness not permitted by this clause (iv);
(v) Indebtedness issued in exchange for, or the net
proceeds of which are used to refinance or refund, then
outstanding Indebtedness (other than Indebtedness Incurred
under clause (i), (iv), (vi) or (viii) of this paragraph)
and any refinancings thereof in an amount not to exceed the
amount so refinanced or refunded (plus premiums, accrued
interest, fees and expenses); provided that Indebtedness the
--------
proceeds of which are used to refinance or refund
Indebtedness that is subordinated in right of payment to the
Notes shall only be permitted under this clause (v) if (A)
such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly
made subordinate in right of payment to the Notes at least
to the extent that the Indebtedness to be refinanced is
subordinated to the Notes and (B) such new Indebtedness,
determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity
of the Indebtedness to be refinanced or refunded, and the
Average Life of such new Indebtedness is at least equal to
the remaining Average Life of the Indebtedness to be
refinanced or refunded; and provided further that in no
-------- -------
event may Indebtedness of the Company be refinanced by means
of any Indebtedness of any Restricted Subsidiary pursuant to
this clause (v);
(vi) Indebtedness (A) in respect of performance,
surety or appeal bonds provided in the ordinary course of
business, (B) under Currency Agreements and Interest Rate
Agreements; provided that such agreements (a) are designed
--------
solely to protect the Company or its Restricted Subsidiaries
against fluctuations in foreign currency exchange rates or
interest rates and (b) do not increase the Indebtedness of
the obligor outstanding at any time (except to the extent
Incurred under another clause hereof) other than as a result
of fluctuations in foreign currency exchange rates or
interest rates or by reason of fees, indemnities and
compensation payable thereunder; and (C) arising from
agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or
letters of credit, surety bonds or performance bonds
securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in each
case Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary (other than
Guarantees of Indebtedness Incurred by any Person acquiring
all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition),
in a principal amount not to exceed the gross proceeds
actually received by the Company or any Restricted
Subsidiary in connection with such disposition;
(vii) Indebtedness of the Company, to the extent the
net proceeds thereof are promptly (A) used to purchase Notes
tendered in an Offer to Purchase made as a result of a
Change in Control or (B) deposited to defease the Notes as
described below under Article Eight hereof;
(viii) Guarantees of the Notes and Guarantees of
Indebtedness of the Company by any Restricted Subsidiary
provided the Guarantee of such Indebtedness is permitted by
and made in accordance with Section 4.07 hereof and any
Guarantee by the Company of Indebtedness or other
obligations of any of its Restricted Subsidiaries so long as
the incurrence of such Indebtedness Incurred by such
Restricted Subsidiary is permitted under the terms of this
Section 4.03;
(ix) Indebtedness Incurred to finance the cost
(including, without limitation, the cost of design,
development, acquisition, construction, installation,
improvement, transportation or integration) to acquire
equipment, inventory, assets, services and related costs in
connection with the Internet Service Business or the
Telecommunications Business (including, without limitation,
acquisitions by way of acquisitions of real property,
leasehold improvements, licenses, rights-of-use, Capitalized
Leases, installment sales and acquisitions of the Capital
Stock of a Person that becomes a Restricted Subsidiary to
the extent of the fair market value of the equipment,
inventory or network assets so acquired) by the Company or a
Restricted Subsidiary after the Closing Date;
(x) Indebtedness of the Company not to exceed, at
any one time outstanding, the sum (without duplication) of
(A) two times the Net Cash Proceeds received by the Company
from the sale of ICG Common Stock contributed by ICG to the
Company after the Closing Date to a Person that is not a
Subsidiary of the Company (1.6 times the closing price, last
sale price or similar price of such ICG Common Stock at the
time received by the Company to the extent such ICG Common
Stock has not been sold) plus (B) two times cash or cash
equivalents contributed by ICG or its Subsidiaries (other
than the Company and its Subsidiaries) to the Company after
the Closing Date plus (C) 1.6 times the fair market value of
other assets (including, without limitation, Capital Stock)
acquired by the Company or its Restricted Subsidiaries to
the extent that the consideration therefor consists of ICG
Common Stock plus (D) 1.6 times the fair market value of
other assets contributed by ICG or its Subsidiaries (other
than the Company and its Subsidiaries) to the Company after
the Closing Date plus (E) two times the Net Cash Proceeds
received by the Company after the Closing Date from the
issuance and sale of its Capital Stock (other than
Disqualified Stock) to a Person that is not a Subsidiary of
the Company plus (F) 1.6 times the fair market value of
property (other than cash and cash equivalents) received by
the Company after the Closing Date from the sale of its
Capital Stock (other than Disqualified Stock) to a Person
that is not a Subsidiary of the Company, in each case, to
the extent such Net Cash Proceeds, ICG Common Stock, cash or
cash equivalents or such other assets or property have not
been used pursuant to clause (C)(2) of the first paragraph
or clause (iii) or (iv), as the case may be, of the second
paragraph of Section 4.04; provided that such Indebtedness
--------
does not mature prior to the Stated Maturity of the Notes
and has a then current Average Life at least as long as the
Notes;
(xi) Indebtedness Incurred by the Company or any of
its Restricted Subsidiaries constituting reimbursement
obligations with respect to letters of credit in the
ordinary course of business, including, without limitation,
letters of credit in respect of workers' compensation claims
or self insurance, or other Indebtedness with respect to
reimbursement type obligations regarding workers'
compensation claims; provided, however, that upon the
-------- -------
drawing of such letters of credit or the Incurrence of such
Indebtedness, such obligations are reimbursed within 30 days
following such drawing or Incurrence;
(xii) Acquired Indebtedness or Indebtedness of Persons
that are acquired by the Company or any of its Restricted
Subsidiaries or merged into a Restricted Subsidiary in
accordance with the terms of this Indenture; provided that
--------
such Indebtedness is not incurred in contemplation of such
acquisition or merger; and
(xiii) Strategic Subordinated Indebtedness.
(b) Notwithstanding any other provision of this
Section 4.03, the maximum amount of Indebtedness that the Company
or a Restricted Subsidiary may Incur pursuant to this Section
4.03 shall not be deemed to be exceeded, with respect to any
outstanding Indebtedness due solely to the result of fluctuations
in the exchange rates of currencies. Accretion on an instrument
issued at a discount will not be deemed to constitute an
Incurrence of Indebtedness.
(c) For purposes of determining any particular
amount of Indebtedness under this Section 4.03, (1) Guarantees,
Liens or obligations with respect to letters of credit supporting
Indebtedness otherwise included in the determination of such
particular amount shall not be included and (2) any Liens granted
pursuant to the equal and ratable provisions referred to in
Section 4.09 hereof shall not be treated as Indebtedness. For
purposes of determining compliance with this Section 4.03, in the
event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described in clauses (i)
through (xiii) of Section 4.03(a), the Company, in its sole
discretion, shall classify such item of Indebtedness and only be
required to include the amount and type of such Indebtedness in
one of such clauses.
SECTION 4.04. Limitation on Restricted Payments. The
---------------------------------
Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, (i) declare or pay any dividend or
make any distribution on or with respect to its Capital Stock
(other than (x) dividends or distributions payable solely in
shares of its Capital Stock (other than Disqualified Stock) or in
options, warrants or other rights to acquire shares of such
Capital Stock and (y) pro rata dividends or distributions on
Common Stock of Restricted Subsidiaries held by minority
stockholders) held by Persons other than the Company or any of
its Restricted Subsidiaries, (ii) purchase, redeem, retire or
otherwise acquire for value any shares of Capital Stock of (A)
the Company or an Unrestricted Subsidiary (including options,
warrants or other rights to acquire such shares of Capital Stock)
held by any Person or (B) a Restricted Subsidiary (including
options, warrants or other rights to acquire such shares of
Capital Stock) held by any Affiliate of the Company (other than a
Wholly Owned Restricted Subsidiary), (iii) make any voluntary or
optional principal payment, or voluntary or optional redemption,
repurchase, defeasance, or other acquisition or retirement for
value, of Indebtedness of the Company that is subordinated in
right of payment to the Notes (other than the purchase,
redemption, repurchase or other acquisition of such subordinated
Indebtedness purchased in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in each
case due within six months of the date of acquisition) or
(iv) make any Investment, other than a Permitted Investment, in
any Person (such payments or any other actions described in
clauses (i) through (iv) above being collectively "Restricted
----------
Payments") if, at the time of, and after giving effect to, the
--------
proposed Restricted Payment: (A) a Default or Event of Default
shall have occurred and be continuing, (B) except with respect to
making any Investments, the Company could not Incur at least
$1.00 of Indebtedness under the first paragraph of Section 4.03
or (C) the aggregate amount of all Restricted Payments (the
amount, if other than in cash, to be determined in good faith by
the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution) made after the Closing Date
shall exceed the sum of (1) 50% of the aggregate amount of the
Adjusted Consolidated Net Income (or, if the Adjusted
Consolidated Net Income is a loss, minus 100% of the amount of
such loss) (determined by excluding income resulting from
transfers of assets by the Company or a Restricted Subsidiary to
an Unrestricted Subsidiary) accrued on a cumulative basis during
the period (taken as one accounting period) beginning on the
first day of the fiscal quarter immediately following the Closing
Date and ending on the last day of the last fiscal quarter
preceding the Transaction Date for which reports have been filed
with the Commission or provided to the Trustee pursuant to
Section 4.18 hereof plus (2) 100% of (I) the aggregate Net Cash
Proceeds or fair market value of any Capital Stock and the amount
of cash from any capital contributions to the Company after the
Closing Date from Persons other than Subsidiaries of the Company
(including contributions of ICG Common Stock, cash and cash
equivalents and other assets to the Company by ICG) plus (II) the
aggregate Net Cash Proceeds received by the Company after the
Closing Date from an issuance and sale of its Capital Stock
(other than Disqualified Stock) to a Person who is not a
Subsidiary of the Company, including, without limitation, an
issuance or sale permitted by this Indenture for cash subsequent
to the Closing Date upon the conversion of such Indebtedness into
Capital Stock (other than Disqualified Stock) of the Company, or
from the issuance to a Person who is not a Subsidiary of the
Company of any options, warrants or other rights to acquire
Capital Stock of the Company (in each case, exclusive of any
Disqualified Stock or any options, warrants or other rights that
are redeemable at the option of the holder, or are required to be
redeemed, prior to the Stated Maturity of the Notes), to the
extent such Net Cash Proceeds, Capital Stock, marketable
securities or amount have not been previously applied pursuant to
clauses (iii) or (iv), as the case may be, of the second
paragraph of this Section 4.04 or used to support the Incurrence
of Indebtedness pursuant to clause (x) of the second paragraph
under Section 4.03 plus (3) amounts received from Investments
(other than Permitted Investments) in any Person resulting from
payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to
the Company or any Restricted Subsidiary or from the Net Cash
Proceeds from the sale of any such Investment (except, in each
case, to the extent any such payment or proceeds are included in
the calculation of Adjusted Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition
of "Investments"), not to exceed, in each case, the amount of
Investments previously made by the Company or any Restricted
Subsidiary in such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason
of:
(i) the payment of any dividend within 60 days after
the date of declaration thereof if, at said date of
declaration, such payment would comply with the foregoing
paragraph;
(ii) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the Notes including
premium, if any, and accrued and unpaid interest, with the
proceeds of, or in exchange for, Indebtedness Incurred under
clause (v) of the second paragraph of part (a) of Section
4.03;
(iii) the making of any principal payment or the
repurchase, redemption, retirement, defeasance or other
acquisition for value of Indebtedness of the Company which
is subordinated in right of payment to the Notes (A) with
cash or cash equivalents contributed by ICG to the Company
after the Closing Date or (B) with, or out of the Net Cash
Proceeds of, ICG Common Stock or other assets (other than
cash or cash equivalents) contributed by ICG to the Company
after the Closing Date, or (C) in exchange for, or out of,
the Net Cash Proceeds of a substantially concurrent offering
of shares of Capital Stock (other than Disqualified Stock)
of the Company (or options, warrants or other rights to
acquire such Capital Stock), to the extent such Net Cash
Proceeds, cash or cash equivalents, ICG Common Stock,
Capital Stock or such other assets have not been used
pursuant to clause (C)(2) of the first paragraph or clause
(iv) of the second paragraph, as the case may be, of this
Section 4.04 or used to support the Incurrence of
Indebtedness pursuant to clause (x) of the second paragraph
under Section 4.03;
(iv) the repurchase, redemption or other acquisition
of Capital Stock of the Company or an Unrestricted
Subsidiary (or options, warrants or other rights to acquire
such Capital Stock) in exchange for, or out of the proceeds
of a substantially concurrent offering of, shares of Capital
Stock (other than Disqualified Stock) of the Company (or
options, warrants or other rights to acquire such Capital
Stock); or
(v) other Restricted Payments in an aggregate amount
not to exceed $10 million;
provided that, except in the case of clauses (i), (ii), (iii) and
--------
(iv), no Default or Event of Default shall have occurred and be
continuing or occur as a consequence of the actions or payments
set forth therein.
Each Restricted Payment permitted pursuant to the
preceding paragraph (other than the Restricted Payment referred
to in clause (ii) thereof shall be included in calculating
whether the conditions of clause (C) of clause (iv) of the first
paragraph of this Section 4.04 have been met with respect to any
subsequent Restricted Payments.
Any Restricted Payments made other than in cash shall
be valued at fair market value. The amount of any Investment
"outstanding" at any time shall be deemed to be equal to the
amount of such Investment on the date made, less the return of
capital to the Company and its Restricted Subsidiaries with
respect to such Investment by distribution, sale or otherwise (up
to the amount of such Investment on the date made).
SECTION 4.05. Limitation on Dividend and Other Payment
----------------------------------------
Restrictions Affecting Restricted Subsidiaries. The Company will
----------------------------------------------
not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (i) pay dividends or make any
other distributions permitted by applicable law on any Capital
Stock of such Restricted Subsidiary owned by the Company or any
other Restricted Subsidiary, (ii) pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (iii) make loans
or advances to the Company or any other Restricted Subsidiary or
(iv) transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
The foregoing provisions shall not restrict any
encumbrances or restrictions:
(i) existing on the Closing Date this Indenture or
any other agreements in effect on the Closing Date, and any
extensions, refinancings, renewals or replacements of such
agreements; provided that the encumbrances and restrictions
--------
in any such extensions, refinancings, renewals or
replacements are no less favorable in any material respect
to the Holders than those encumbrances or restrictions that
are then in effect and that are being extended, refinanced,
renewed or replaced;
(ii) existing under or by reason of applicable law,
rule, regulation or order;
(iii) existing with respect to any Person or the
property or assets of such Person acquired by the Company or
any Restricted Subsidiary, existing at the time of such
acquisition and not incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any
Person or the property or assets of any Person other than
such Person or the property or assets of such Person so
acquired;
(iv) in the case of clause (iv) of the first
paragraph of this Section 4.05, (A) that restrict in a
customary manner the subletting, assignment or transfer of
any property or asset that is a lease, license, right-of-
use, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to
transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted
Subsidiary not otherwise prohibited by this Indenture, (C)
arising or agreed to in the ordinary course of business, not
relating to any Indebtedness, and that do not, individually
or in the aggregate, detract from the value of property or
assets of the Company or any Restricted Subsidiary in any
manner material to the Company or any Restricted Subsidiary
or (D) purchase money obligations (including, without
limitation, Capitalized Leases and installment sales) for
property acquired in the ordinary course of business that
impose restrictions of the nature discussed in clause (iv)
above on the property so acquired;
(v) with respect to a Restricted Subsidiary and
imposed pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of
the Capital Stock of, or property and assets of, such
Restricted Subsidiary;
(vi) contained in the terms of any Indebtedness or
any agreement pursuant to which such Indebtedness was issued
if (A) (1) the encumbrances or restrictions apply only in
the event of a payment default or a default with respect to
a financial covenant contained in such Indebtedness or
agreement or (2) the encumbrances or restrictions are
similar in nature and substance to clause (iv) of the first
paragraph of Section 4.04 hereof, as determined by the Board
of Directors in good faith, (B) the encumbrances or
restrictions are not materially more disadvantageous to the
Holders of the Notes than is customary in comparable
financings (as determined by the Company) and (C) the
Company determines that any such encumbrances or
restrictions will not materially affect the Company's
ability to make principal or interest payments on the Notes;
(vii) customary provisions in joint venture agreements
and other similar agreements entered into in the ordinary
course of business; and
(viii) any encumbrances or restrictions of the type
referred to in clauses (i) through (iv) of the first
paragraph of this Section 4.05 imposed by any amendments,
modifications, renewals, restatements, increases,
supplements, refundings, replacements or refinancings of the
contracts referred to in clauses (i) through (vii) above;
provided that such amendments, modifications, restatements,
--------
renewals, increases, supplements, refundings, replacements or
refinancings are, in the good faith judgment of the Company, not
materially more disadvantageous to the Holders than those
contained in the restriction prior to such amendment,
modification, restatement, renewal, increase, supplement,
refunding, replacement or refinancing. Nothing contained in this
Section 4.05 shall prevent the Company or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in Section 4.09 hereof or (2)
restricting the sale or other disposition of property or assets
of the Company or any of its Restricted Subsidiaries that secure
Indebtedness of the Company or any of its Restricted
Subsidiaries.
SECTION 4.06. Limitation on the Issuance and Sale of
--------------------------------------
Capital Stock of Restricted Subsidiaries. The Company will not
----------------------------------------
sell, and will not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other
rights to purchase shares of such Capital Stock) except (i) to
the Company or a Wholly Owned Restricted Subsidiary; (ii)
issuances of director's qualifying shares or sales to foreign
nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if,
immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted
Subsidiary and any Investment in such Person remaining after
giving effect to such issuance or sale would have been permitted
to be made under Section 4.04 hereof if made on the date of such
issuance or sale; or (iv) issuances or sales of common stock of a
Restricted Subsidiary, provided that the Company or any
--------
Restricted Subsidiary applies an amount equal to the Net Cash
Proceeds thereof in accordance with Section 4.11 hereof.
SECTION 4.07. Limitation on Issuances of Guarantees by
----------------------------------------
Restricted Subsidiaries. The Company will not permit any
-----------------------
Restricted Subsidiary, directly or indirectly, to Guarantee any
Indebtedness of the Company which is pari passu with or
subordinate in right of payment to the Notes ("Guaranteed
----------
Indebtedness"), unless (i) such Restricted Subsidiary
------------
simultaneously executes and delivers a supplemental indenture to
this Indenture providing for a Guarantee (a "Subsidiary
----------
Guarantee") of payment of the Notes by such Restricted Subsidiary
---------
and (ii) such Restricted Subsidiary waives and will not in any
manner whatsoever claim or take the benefit or advantage of, any
rights of reimbursement, indemnity or subrogation or any other
rights against the Company or any other Restricted Subsidiary as
a result of any payment by such Restricted Subsidiary under its
Subsidiary Guarantee; provided that this paragraph shall not be
--------
applicable to any Guarantee of any Restricted Subsidiary that
existed at the time such Person became a Restricted Subsidiary
and was not Incurred in connection with, or in contemplation of,
such Person becoming a Restricted Subsidiary. If the Guaranteed
Indebtedness is (A) pari passu in right of payment with the
Notes, then the Guarantee of such Guaranteed Indebtedness shall
be pari passu in right of payment with, or subordinated to, the
Subsidiary Guarantee or (B) subordinated in right of payment to
the Notes, then the Guarantee of such Guaranteed Indebtedness
shall be subordinated in right of payment to the Subsidiary
Guarantee at least to the extent that the Guaranteed Indebtedness
is subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee
by a Restricted Subsidiary may provide by its terms that it shall
be automatically and unconditionally released and discharged upon
(i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially
all the assets of, such Restricted Subsidiary (which sale,
exchange or transfer is not prohibited by this Indenture) or (ii)
the release or discharge of the Guarantee which resulted in the
creation of such Subsidiary Guarantee, except a discharge or
release by or as a result of payment under such Guarantee.
SECTION 4.08. Limitation on Transactions with
-------------------------------
Shareholders and Affiliates. The Company will not, and will not
---------------------------
permit any Restricted Subsidiary to, directly or indirectly,
enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or
assets, or the rendering of any service) with any Affiliate of
the Company or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to the Company or such
Restricted Subsidiary than could be obtained, at the time of such
transaction or, if such transaction is pursuant to a written
agreement, at the time of the execution of the agreement
providing therefor, in a comparable arm's-length transaction with
a Person that is not such an Affiliate.
The foregoing limitation does not limit, and shall not
apply to:
(i) transactions (A) approved by a majority of the
disinterested members of the Board of Directors or (B) for
which the Company or a Restricted Subsidiary delivers to the
Trustee a written opinion of a nationally recognized
investment banking firm or a nationally recognized firm
having expertise in the specific area which is the subject
of such determination stating that the transaction is fair
to the Company or such Restricted Subsidiary from a
financial point of view;
(ii) any transaction solely between the Company and
any of its Restricted Subsidiaries or solely between
Restricted Subsidiaries;
(iii) the payment of reasonable and customary regular
fees to, and indemnity provided on behalf of, officers,
directors, employees or consultants of the Company or its
Restricted Subsidiaries;
(iv) any payments or other transactions pursuant to
any tax-sharing agreement between the Company and any other
Person with which the Company files a consolidated tax
return or with which the Company is part of a consolidated
group for tax purposes; or
(v) any Permitted Investments and Restricted
Payments not prohibited by Section 4.04 hereof.
Notwithstanding the foregoing, any transaction or series of
related transactions covered by the first paragraph of this
Section 4.08 and not covered by clauses (ii) through (v) of this
paragraph the aggregate amount of which exceeds $2.0 million in
value, must be approved or determined to be fair in the manner
provided for in clause (i) (A) or (B) of this Section 4.08.
SECTION 4.09. Limitation on Liens. The Company will
-------------------
not, and will not permit any Restricted Subsidiary to, create,
incur, assume or suffer to exist any Lien on any of its assets or
properties of any character (including, without limitation,
licenses), or any shares of Capital Stock or Indebtedness of any
Restricted Subsidiary, without making effective provision for all
of the Notes and all other amounts due under this Indenture to be
directly secured equally and ratably with (or, if the obligation
or liability to be secured by such Lien is subordinated in right
of payment to the Notes, prior to) the obligation or liability
secured by such Lien.
The foregoing limitation does not apply to:
(i) Liens existing on the Closing Date or required
on the Closing Date to be provided in the future;
(ii) Liens granted after the Closing Date on any
assets or Capital Stock of the Company or its Restricted
Subsidiaries created in favor of the Holders;
(iii) Liens with respect to the assets of a Restricted
Subsidiary granted by such Restricted Subsidiary to the
Company or a Restricted Subsidiary to secure Indebtedness
owing to the Company or such other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to
refinance secured Indebtedness which is permitted to be
Incurred under clause (v) of the second paragraph of Section
4.03 hereof; provided that such Liens do not extend to or
--------
cover any property or assets of the Company or any
Restricted Subsidiary other than the property or assets
securing the Indebtedness being refinanced;
(v) Liens on any property or assets of Restricted
Subsidiaries securing Indebtedness of Restricted
Subsidiaries permitted under Section 4.03 hereof; or
(vi) Permitted Liens.
SECTION 4.10. Limitation on Sale-Leaseback
----------------------------
Transactions. The Company will not, and will not permit any
------------
Restricted Subsidiary to, enter into any sale-leaseback
transaction involving any of its assets or properties whether now
owned or hereafter acquired, whereby the Company or a Restricted
Subsidiary sells or transfers such assets or properties and then
or thereafter leases such assets or properties or any part
thereof or any other assets or properties which the Company or
such Restricted Subsidiary, as the case may be, intends to use
for substantially the same purpose or purposes as the assets or
properties sold or transferred.
The foregoing restriction does not apply to any sale-
leaseback transaction if:
(i) the lease is for a period, including renewal
rights, of not in excess of three years;
(ii) the lease secures or relates to industrial
revenue or pollution control bonds;
(iii) the transaction is solely between the Company
and any Wholly Owned Restricted Subsidiary or solely between
Wholly Owned Restricted Subsidiaries; or
(iv) the Company or such Restricted Subsidiary,
within 12 months after the sale or transfer of any assets or
properties is completed, applies an amount not less than the
net proceeds received from such sale in accordance with
clause (A) or (B) of the first paragraph of Section 4.11
hereof.
SECTION 4.11. Limitation on Asset Sales. The Company
-------------------------
will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received
by the Company or such Restricted Subsidiary is at least equal to
the fair market value of the assets sold or disposed of and (ii)
at least 75% of the consideration received consists of cash or
Temporary Cash Investments. For purposes of this Section 4.11,
the following are deemed to be cash: (x) the principal amount or
accreted value (whichever is larger) of Indebtedness of the
Company or any Restricted Subsidiary with respect to which the
Company or such Restricted Subsidiary has either (I) received a
written release or (II) been released by operation of law, in
either case, from all liability on such Indebtedness in
connection with such Asset Sale and (y) securities received by
the Company or any Restricted Subsidiary from the transferee that
are promptly converted by the Company or such Restricted
Subsidiary into cash. In the event and to the extent that the Net
Cash Proceeds received by the Company or any of its Restricted
Subsidiaries from one or more Asset Sales occurring on or after
the Closing Date in any period of 12 consecutive months exceed
10% of Adjusted Consolidated Net Tangible Assets (determined as
of the date closest to the commencement of such 12-month period
for which a consolidated balance sheet of the Company and its
Subsidiaries has been filed with the Commission or provided to
the Trustee pursuant to Section 4.18 hereof, then the Company
shall or shall cause the relevant Restricted Subsidiary to (i)
within 12 months after the date Net Cash Proceeds so received
exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply
an amount equal to such excess Net Cash Proceeds to permanently
repay unsubordinated Indebtedness of the Company, or any
Restricted Subsidiary providing a Subsidiary Guarantee pursuant
to Section 4.07 hereof or Indebtedness of any other Restricted
Subsidiary, in each case owing to a Person other than the Company
or any of its Restricted Subsidiaries or (B) invest an equal
amount, or the amount not so applied pursuant to clause (A) (or
enter into a definitive agreement committing to so invest within
12 months after the date of such agreement), (x) in property or
assets (other than current assets) of a nature or type or that
are used in a business (or in a Person (other than a natural
person) having property and assets of a nature or type, or
engaged in a business) similar or related to the nature or type
of the property and assets of, or the business of, the Company
and its Restricted Subsidiaries existing on the date of such
investment (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced
by a Board Resolution) or (y) in property or assets (other than
current assets) related to the Telecommunications Business,
including, without limitation, telecommunications switches and
related equipment, services, leases, licenses, capacity and
rights-of-use (or in a person (other than a natural person)
having property or assets related to the Telecommunications
Business, including, without limitation, telecommunications
switches and related equipment, services, leases, licenses,
capacity and rights-of-use) and (ii) apply (no later than the end
of the 12-month period referred to in clause (i)) such excess Net
Cash Proceeds (to the extent not applied pursuant to clause (i))
as provided in the following paragraph of this Section 4.11. The
amount of such excess Net Cash Proceeds required to be applied
(or to be committed to be applied) during such 12-month period as
set forth in clause (i) of the preceding sentence and not applied
as so required by the end of such period shall constitute "Excess
Proceeds".
If, as of the first day of any calendar month, the
aggregate amount of Excess Proceeds not theretofore subject to an
Offer to Purchase pursuant to this Section 4.11 totals at least
$20.0 million, the Company must commence, not later than the
fifteenth Business Day of such month, and consummate an Offer to
Purchase from the Holders on a pro rata basis, and an offer to
purchase any outstanding Indebtedness with similar provisions
requiring the Company to make an offer to purchase such
Indebtedness, in an aggregate principal amount at maturity of
Notes (or, if prior to February 15, 2003, the Accreted Value of
the Notes) and such pari passu Indebtedness equal to (A) with
respect to the Notes, the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the
outstanding principal amount at maturity of the Notes (or, if
prior to February 15, 2003, the Accreted Value of the Notes) and
the denominator of which is the sum of the outstanding principal
amount at maturity of the Notes (or, if prior to February 15,
2003, the Accreted Value of the Notes) and such pari passu
Indebtedness (the product hereinafter referred to as the "Note
Amount"), and (B) with respect to the pari passu Indebtedness,
the excess of the Excess Proceeds over the Note Amount, at a
purchase price equal to 100% of the Accreted Value of the Notes
or such pari passu Indebtedness, as the case may be, on the
relevant Payment Date or such other date set forth in the
documentation governing the pari passu Indebtedness, plus, in
each case, accrued interest (if any) to the Payment Date or such
other date set forth in the documentation governing the pari
passu Indebtedness. If the aggregate purchase price of the Notes
tendered pursuant to the Offer to Purchase is less than the
Excess Proceeds, the remaining will be available for use by the
Company for general corporate purposes. Upon the consummation of
any Offer to Purchase in accordance with the terms of this
Indenture, the amount of Net Cash Proceeds from Asset Sales
subject to any future Offer to Purchase shall be deemed to be
zero.
SECTION 4.12. Repurchase of Notes upon a Change of
------------------------------------
Control. The Company must commence, within 30 days of the
-------
occurrence of a Change of Control, and consummate an Offer to
Purchase for all Notes then outstanding, at a purchase price
equal to 101% of the Accreted Value thereof on the relevant
Payment Date, plus accrued interest (if any) to the Payment Date.
SECTION 4.13. Existence. Subject to Articles Four and
---------
Five of this Indenture, the Company will do or cause to be done
all things necessary to preserve and keep in full force and
effect its existence and the existence of each of its Restricted
Subsidiaries in accordance with the respective organizational
documents of the Company and each such Subsidiary and the rights
(whether pursuant to charter, partnership certificate, agreement,
statute or otherwise), material licenses and franchises of the
Company and each such Subsidiary; provided that the Company shall
--------
not be required to preserve any such right, license or franchise,
or the existence of any Restricted Subsidiary, if the maintenance
or preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries taken
as a whole.
SECTION 4.14. Payment of Taxes and Other Claims. The
---------------------------------
Company will pay or discharge and shall cause each of its
Subsidiaries to pay or discharge, or cause to be paid or
discharged, before the same shall become delinquent (i) all
material taxes, assessments and governmental charges levied or
imposed upon (a) the Company or any such Subsidiary, (b) the
income or profits of any such Subsidiary which is a corporation
or (c) the property of the Company or any such Subsidiary and
(ii) all material lawful claims for labor, materials and supplies
that, if unpaid, might by law become a Lien upon the property of
the Company or any such Subsidiary; provided that the Company
--------
shall not be required to pay or discharge, or cause to be paid or
discharged, any such tax, assessment, charge or claim the amount,
applicability or validity of which is being contested in good
faith by appropriate proceedings, for which adequate reserves
have been established, and where the failure to effect such
payment is not adverse in any material respect to the Holders.
SECTION 4.15. Maintenance of Properties and Insurance.
---------------------------------------
The Company will cause all properties used or useful in the
conduct of its business or the business of any of its Restricted
Subsidiaries, to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and
will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the
judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and
advantageously conducted at all times; provided that nothing in
--------
this Section 4.15 shall prevent the Company or any such
Subsidiary from discontinuing the use, operation or maintenance
of any of such properties or disposing of any of them, if such
discontinuance or disposal is, in the judgment of the Company,
desirable in the conduct of the business of the Company or such
Subsidiary.
The Company will provide or cause to be provided, for
itself and its Restricted Subsidiaries, insurance (including
appropriate self-insurance) against loss or damage of the kinds
customarily insured against by corporations similarly situated
and owning like properties, including, but not limited to,
products liability insurance and public liability insurance, with
reputable insurers or with the government of the United States of
America, or an agency or instrumentality thereof, in such
amounts, with such deductibles and by such methods as shall be
customary for corporations similarly situated in the industry in
which the Company or such Restricted Subsidiary, as the case may
be, is then conducting business.
SECTION 4.16. Notice of Defaults. In the event that
------------------
the Company becomes aware of any Default or Event of Default, the
Company, promptly after it becomes aware thereof, will give
written notice thereof to the Trustee.
SECTION 4.17. Compliance Certificates. (a) The
-----------------------
Company shall deliver to the Trustee, within 90 days after the
end of the Company's fiscal year, an Officers' Certificate
stating whether or not the signers know of any Default or Event
of Default that occurred during such fiscal year. Such
certificates shall contain a certification from the principal
executive officer, principal financial officer or principal
accounting officer of the Company that a review has been
conducted of the activities of the Company and the Restricted
Subsidiaries and the Company's and the Restricted Subsidiaries'
performance under this Indenture and that the Company has
complied with all conditions and covenants under this Indenture.
For purposes of this Section 4.17, such compliance shall be
determined without regard to any period of grace or requirement
of notice provided under this Indenture. If they do know of such
a Default or Event of Default, the certificate shall describe any
such Default or Event of Default and its status.
(b) The Company shall deliver to the Trustee, within
90 days after the end of its fiscal year, a certificate signed by
the Company's independent certified public accountants stating
(i) that their audit examination has included a review of the
terms of this Indenture and the Notes as they relate to
accounting matters, (ii) that they have read the most recent
Officers' Certificate delivered to the Trustee pursuant to
paragraph (a) of this Section 4.17 and (iii) whether, in
connection with their audit examination, anything came to their
attention that caused them to believe that the Company was not in
compliance with any of the terms, covenants, provisions or
conditions of Article Four and Section 5.01 of this Indenture as
they pertain to accounting matters and, if any Default or Event
of Default has come to their attention, specifying the nature and
period of existence thereof; provided that such independent
--------
certified public accountants shall not be liable in respect of
such statement by reason of any failure to obtain knowledge of
any such Default or Event of Default that would not be disclosed
in the course of an audit examination conducted in accordance
with generally accepted auditing standards in effect at the date
of such examination.
(c) Within 90 days of the end of each of the
Company's fiscal years, the Company shall deliver to the Trustee
a list of all Significant Subsidiaries. The Trustee shall have
no duty with respect to any such list except to keep it on file
and available for inspection by the Holders.
SECTION 4.18. Commission Reports and Reports to
---------------------------------
Holders. At all times from and after the earlier of (i) the date
-------
of the commencement of an Exchange Offer or the effectiveness of
a Shelf Registration Statement (the "Registration") and (ii) the
------------
date that is six months after the Closing Date, in either case,
whether or not the Company is then required to file reports with
the Commission, the Company shall deliver for filing with the
Commission all such reports and other information as it would be
required to file with the Commission by Section 13(a) or 15(d)
under the Securities Exchange Act of 1934 if it were subject
thereto. All references herein to reports "filed" with the
Commission shall be deemed to refer to the reports then most
recently delivered for filing, whether or not accepted by the
Commission. The Company shall supply the Trustee and each Holder
or shall supply to the Trustee for forwarding to each such
Holder, without cost to such Holder, copies of such reports and
other information. In addition, at all times prior to the
earlier of the date of the Registration and the date that is six
months after the Closing Date, the Company shall, at its cost,
deliver to each Holder of the Notes quarterly and annual reports
substantially equivalent to those which would be required by the
Exchange Act (or, in lieu thereof, the Registration Statement on
Form S-1, S-3 or S-4 filed or to be filed with the Commission in
connection with the Exchange Offer or the Shelf Registration
Statement, if such Form and any amendments thereof contains
comparable information). In addition, at all times prior to the
Registration, upon the request of any Holder or any prospective
purchaser of the Notes designated by a Holder, the Company shall
supply to such Holder or such prospective purchaser the
information required under Rule 144A under the Securities Act.
SECTION 4.19. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any
stay or extension law or any usury law or other law that would
prohibit or forgive the Company from paying all or any portion of
the principal of, premium, if any, or interest on the Notes as
contemplated herein, wherever enacted, now or at any time
hereafter in force, or that may affect the covenants or the
performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit
or advantage of any such law and covenants that it will not
hinder, delay or impede the execution of any power herein granted
to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc. The
----------------------------
Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or
substantially an entirety in one transaction or a series of
related transactions) to, any Person or permit any Person to
merge with or into the Company unless:
(i) the Company shall be the continuing Person, or
the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or that
acquired or leased such property and assets of the Company
shall be a corporation organized and validly existing under
the laws of the United States of America or any jurisdiction
thereof and shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, all of the
obligations of the Company on all of the Notes and under
this Indenture;
(ii) immediately after giving effect to such
transaction, no Default or Event of Default shall have
occurred and be continuing;
(iii) immediately after giving effect to such
transaction on a pro forma basis, (A) the Company or any
Person becoming the successor obligor of the Notes, as the
case may be, shall have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the Company
immediately prior to such transaction; or (B) the Company or
any Person becoming the successor obligor of the Notes, as
the case may be, shall have a Consolidated Leverage Ratio no
more than the greater of (I) 6:1 and (II) the Consolidated
Leverage Ratio of the Company immediately prior to such
transaction; provided that this clause (iii) shall not apply
--------
to a consolidation or merger with or into a Wholly Owned
Restricted Subsidiary with a positive net worth; provided
--------
that, in connection with any such merger or consolidation,
no consideration (other than Capital Stock (other than
Disqualified Stock) in the surviving Person or the Company)
shall be issued or distributed to the stockholders of the
Company; and
(iv) the Company delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to
demonstrate compliance with clause (iii) above) and Opinion
of Counsel, in each case stating that such consolidation,
merger or transfer and such supplemental indenture complies
with this provision and that all conditions precedent
provided for herein relating to such transaction have been
complied with;
provided, however, that clause (iii) of this Section 5.01 does
-------- -------
not apply if, in the good faith determination of the Board of
Directors of the Company, whose determination shall be evidenced
by a Board Resolution, the principal purpose of such transaction
is to change the state of incorporation of the Company; and that
any such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
SECTION 5.02. Successor Substituted. Upon any
---------------------
consolidation or merger, or any sale, conveyance, transfer or
other disposition of all or substantially all of the property and
assets of the Company in accordance with Section 5.01 of this
Indenture, the successor Person formed by such consolidation or
into which the Company is merged or to which such sale,
conveyance, transfer or other disposition is made shall succeed
to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture with the same effect
as if such successor Person had been named as the Company herein.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default. An "Event of
----------------- --------
Default" shall occur with respect to the Notes if:
-------
(a) the Company defaults in the payment of principal
of (or premium, if any, on) any Note when the same becomes
due and payable at maturity, upon acceleration, redemption
or otherwise;
(b) the Company defaults in the payment of interest
on any Note when the same becomes due and payable, and such
default continues for a period of 30 days;
(c) the Company defaults in the performance of or
breaches any other covenant or agreement of the Company in
this Indenture or under the Notes (other than a default
specified in clause (a) or (b) of this Section 6.01 and such
default or breach continues for a period of 30 consecutive
days after written notice by the Trustee to the Company or
to the Company and the Trustee by the Holders of 25% or more
in aggregate principal amount of the Notes;
(d) the Company fails to make or consummate an Offer
to Purchase in accordance with Section 4.11 hereof;
(e) the Company fails to make or consummate an Offer
to Purchase in accordance with the provisions of Section
4.12 hereof;
(f) there occurs with respect to any issue or issues
of Indebtedness of the Company or any Significant Subsidiary
having an outstanding principal amount at maturity of $10
million or more in the aggregate for all such issues of all
such Persons, whether such Indebtedness now exists or shall
hereafter be created, (I) an event of default that has
caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30
days of such acceleration and/or (II) the failure to make a
principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been
made, waived or extended within 30 days of such payment
default;
(g) any final judgment or order (not covered by
insurance) for the payment of money in excess of $10 million
in the aggregate (treating any deductibles, self-insurance
or retention as not so covered) shall be rendered against
the Company or any Significant Subsidiary and shall not be
paid or discharged, and there shall be any period of 30
consecutive days following entry of the final judgment or
order that causes the aggregate amount for all such final
judgments or orders outstanding and not paid or discharged
against the Company or any of its Significant Subsidiaries
to exceed $10 million during which a stay of enforcement of
such final judgment or order, by reason of a pending appeal
or otherwise, shall not be in effect;
(h) a court having jurisdiction in the premises
enters a decree or order for (A) relief in respect of the
Company or any Significant Subsidiary in an involuntary case
under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (B) appointment of a
receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of
the property and assets of the Company or any Significant
Subsidiary or (C) the winding up or liquidation of the
affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in
effect for a period of 30 consecutive days; or
(i) the Company or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect,
or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Company or any Significant
Subsidiary or for all or substantially all of the property
and assets of the Company or any Significant Subsidiary or
(C) effects any general assignment for the benefit of
creditors.
SECTION 6.02. Acceleration. If an Event of Default
------------
(other than an Event of Default specified in clause (h) or (i) of
Section 6.01 that occurs with respect to the Company) occurs and
is continuing under this Indenture, the Trustee or the Holders of
at least 25% in aggregate principal amount of the Notes then
outstanding, by written notice to the Company (and to the Trustee
if such notice is given by the Holders), may, and the Trustee at
the request of such Holders shall, declare the Accreted Value of,
premium, if any, and accrued interest on the Notes to be
immediately due and payable. Upon a declaration of acceleration,
such Accreted Value of, premium, if any, and accrued interest
shall be immediately due and payable. In the event of a
declaration of acceleration because an Event of Default set forth
in clause (f) of Section 6.01 has occurred and is continuing,
such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of
Default pursuant to clause (f) shall be remedied or cured by the
Company or the relevant Significant Subsidiary or waived by the
holders of the relevant Indebtedness within 60 days after the
declaration of acceleration with respect thereto. If an Event of
Default specified in clause (h) or (i) of Section 6.01 occurs
with respect to the Company, the Accreted Value of, premium, if
any, and accrued interest on the Notes then outstanding shall
ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any
Holder.
At any time after such a declaration of acceleration,
but before a judgment or decree for the payment of the money due
has been obtained by the Trustee, the Holders of at least a
majority in principal amount at maturity of the outstanding Notes
by written notice to the Company and to the Trustee may waive all
past Defaults and rescind and annul such declaration of
acceleration and its consequences if (a) the Company has paid or
deposited with the Trustee a sum sufficient to pay (i) all sums
paid or advanced by the Trustee hereunder and the reasonable
compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, (ii) all overdue interest on all
Notes, (iii) the principal of and premium, if any, on any Notes
that have become due otherwise than by such declaration or
occurrence of acceleration and interest thereon at the rate
prescribed therefor by such Notes, and (iv) to the extent that
payment of such interest is lawful, interest upon overdue
interest at the rate prescribed therefor by such Notes, (b) all
existing Events of Default, other than the non-payment of the
Accreted Value of, premium, if any, and accrued interest on the
Notes that have become due solely by such declaration of
acceleration, have been cured or waived and (c) the rescission
would not conflict with any judgment or decree of a court of
competent jurisdiction.
SECTION 6.03. Other Remedies. If an Event of Default
--------------
occurs and is continuing, the Trustee may pursue any available
remedy by proceeding at law or in equity to collect the payment
of principal of, premium, if any, or interest on the Notes or to
enforce the performance of any provision of the Notes or this
Indenture.
The Trustee may maintain a proceeding even if it does
not possess any of the Notes or does not produce any of them in
the proceeding.
SECTION 6.04. Waiver of Past Defaults. Subject to
-----------------------
Sections 6.02, 6.07 and 9.02, the Holders of at least a majority
in principal amount at maturity of the outstanding Notes, by
notice to the Trustee, may waive an existing Default or Event of
Default and its consequences, except a Default in the payment of
the Accreted Value of, premium, if any, or accrued interest on
any Note as specified in clause (a) or (b) of Section 6.01 or in
respect of a covenant or provision of this Indenture which cannot
be modified or amended without the consent of the holder of each
outstanding Note affected. Upon any such waiver, such Default
shall cease to exist, and any Event of Default arising therefrom
shall be deemed to have been cured, for every purpose of this
Indenture; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent
thereto.
SECTION 6.05. Control by Majority. The Holders of at
-------------------
least a majority in aggregate principal amount at maturity of the
outstanding Notes may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in
good faith may be unduly prejudicial to the rights of Holders of
Notes not joining in the giving of such direction and may take
any other action it deems proper that is not inconsistent with
any such direction received from Holders of Notes.
SECTION 6.06. Limitation on Suits. A Holder may not
-------------------
institute any proceeding, judicial or otherwise, with respect to
this Indenture or the Notes, or for the appointment of a receiver
or trustee, or for any other remedy hereunder unless:
(i) such Holder has previously given to the Trustee
written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate
principal amount at maturity of outstanding Notes shall have
made written request to the Trustee to pursue the remedy;
(iii) such Holder or Holders have offered to the
Trustee indemnity satisfactory to the Trustee against any
costs, liabilities or expenses to be incurred in compliance
with such request;
(iv) the Trustee has failed to comply with the
request within 60 days after receipt of the request and the
offer of indemnity; and
(v) during such 60-day period, the Holders of a
majority in aggregate principal amount at maturity of the
outstanding Notes have not given the Trustee a direction
that is inconsistent with such request.
For purposes of Section 6.05 of this Indenture and this
Section 6.06, the Trustee shall comply with TIA Section 316(a) in
making any determination of whether the Holders of the required
aggregate principal amount at maturity of outstanding Notes have
concurred in any request or direction of the Trustee to pursue
any remedy available to the Trustee or the Holders with respect
to this Indenture or the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the
rights of another Holder or to obtain a preference or priority
over such other Holder.
SECTION 6.07. Rights of Holders to Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right
of any Holder of a Note to receive payment of principal of,
premium, if any, or interest on such Holder's Note on or after
the respective due dates expressed on such Note, or to bring suit
for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the
consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event
--------------------------
of Default in payment of principal, premium or interest specified
in clause (a) or (b) of Section 6.01 occurs and is continuing,
the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company or any other obligor of
the Notes for the whole amount of principal, premium, if any, and
accrued interest remaining unpaid, together with interest on
overdue principal, premium, if any, and, to the extent that
payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate specified in
the Notes, and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim. The
--------------------------------
Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07) and the Holders allowed in any
judicial proceedings relative to the Company (or any other
obligor of the Notes), its creditors or its property and shall be
entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon
conversion or exchange of the Notes or upon any such claims and
to distribute the same, and any custodian, receiver, assignee,
trustee, liquidator, sequestrator or other similar official in
any such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to
the Holders, to pay to the Trustee any amount due to it for the
reasonable compensation, expenses, disbursements and advances of
the Trustee, its agent and counsel, and any other amounts due the
Trustee under Section 7.07. Nothing herein contained shall be
deemed to empower the Trustee to authorize or consent to, or
accept or adopt on behalf of any Holder, any plan of
reorganization, arrangement, adjustment or composition affecting
the Notes or the rights of any Holder thereof, or to authorize
the Trustee to vote in respect of the claim of any Holder in any
such proceeding.
SECTION 6.10. Priorities. If the Trustee collects any
----------
money pursuant to this Article Six, it shall pay out the money in
the following order:
First: to the Trustee for all amounts due under
Section 7.07;
Second: to Holders for amounts then due and unpaid
for principal of, premium, if any, and interest on the Notes
in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority
of any kind, according to the amounts due and payable on
such Notes for principal, premium, if any, and interest,
respectively; and
Third: to the Company or any other obligors of the
Notes, as their interests may appear, or as a court of
competent jurisdiction may direct.
The Trustee, upon prior written notice to the Company,
may fix a record date and payment date for any payment to Holders
pursuant to this Section 6.10.
SECTION 6.11. Undertaking for Costs. In any suit for
---------------------
the enforcement of any right or remedy under this Indenture or in
any suit against the Trustee for any action taken or omitted by
it as Trustee, a court may require any party litigant in such
suit to file an undertaking to pay the costs of the suit, and the
court may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit having
due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section 6.11 does not apply to
a suit by the Trustee, a suit by a Holder pursuant to Section
6.07 of this Indenture, or a suit by Holders of more than 10% in
principal amount at maturity of the outstanding Notes.
SECTION 6.12. Restoration of Rights and Remedies. If
----------------------------------
the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such
proceeding has been discontinued or abandoned for any reason, or
has been determined adversely to the Trustee or to such Holder,
then, and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Company,
the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
SECTION 6.13. Rights and Remedies Cumulative. Except
------------------------------
as otherwise provided with respect to the replacement or payment
of mutilated, destroyed, lost or wrongfully taken Notes in
Section 2.09, no right or remedy herein conferred upon or
reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver. No delay
----------------------------
or omission of the Trustee or of any Holder to exercise any right
or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given
by this Article Six or by law to the Trustee or to the Holders
may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General. The duties and
-------
responsibilities of the Trustee shall be as provided by the TIA
and as set forth herein. Notwithstanding the foregoing, no
provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability
in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not
reasonably assured to it. Whether or not therein expressly so
provided, every provision of this Indenture relating to the
conduct or affecting the liability of or affording protection to
the Trustee shall be subject to the provisions of this Article
Seven.
SECTION 7.02. Certain Rights of Trustee. Subject to
-------------------------
TIA Sections 315(a) through (d):
(i) the Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or
presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document and
may in good faith conclusively rely as to the truth of the
statements and the correctness of the opinions therein;
(ii) before the Trustee acts or refrains from acting,
it may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Section 10.04. The Trustee
shall not be liable for any action it takes or omits to take
in good faith in reliance on such certificate, opinion
and/or an accountants' certificate if required under the
TIA;
(iii) the Trustee may act through its attorneys and
agents and shall not be responsible for the misconduct or
negligence of any agent appointed with due care;
(iv) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Indenture at the request or direction of any of the Holders,
unless such Holders shall have offered to the Trustee
security or indemnity reasonably satisfactory to it against
the costs, expenses and liabilities that might be incurred
by it in compliance with such request or direction;
(v) the Trustee shall not be liable for any action it
takes or omits to take in good faith that it believes to be
authorized or within its rights or powers or for any action
it takes or omits to take in accordance with the direction
of the Holders of a majority in principal amount at maturity
of the Outstanding Notes relating to the time, method and
place of conducting any proceeding for any remedy available
to the Trustee, or exercising any trust or power conferred
upon the Trustee, under this Indenture; provided that the
--------
Trustee's conduct does not constitute gross negligence or
bad faith;
(vi) whenever in the administration of this Indenture
the Trustee shall deem it desirable that a making be proved
or established prior to taking, suffering or omitting any
action hereunder, the Trustee (unless other evidence be
herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officer's Certificate; and
(vii) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other
paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises
of the Company personally or by agent or attorney.
SECTION 7.03. Individual Rights of Trustee. The
----------------------------
Trustee, in its individual or any other capacity, may become the
owner or pledgee of Notes and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were
not the Trustee. Any Agent may do the same with like rights.
However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.04. Trustee's Disclaimer. The Trustee
--------------------
(i) makes no representation as to the validity or adequacy of
this Indenture or the Notes, (ii) shall not be accountable for
the Company's use or application of the proceeds from the Notes
and (iii) shall not be responsible for any statement in the Notes
other than its certificate of authentication.
SECTION 7.05. Notice of Default. If any Default or
-----------------
any Event of Default occurs and is continuing and if such Default
or Event of Default is known to a Responsible Officer of the
Trustee, the Trustee shall mail to each Holder in the manner and
to the extent provided in TIA Section 313(c) notice of the
Default or Event of Default within 90 days after it occurs,
unless such Default or Event of Default has been cured; provided,
--------
however, that, except in the case of a default in the payment of
-------
the principal of, premium, if any, or interest on any Note, the
Trustee shall be protected in withholding such notice if and so
long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the
Trustee in good faith determine that the withholding of such
notice is in the interest of the Holders.
SECTION 7.06. Reports by Trustee to Holders. Within
-----------------------------
60 days after each May 15, beginning with May 15, 1998, the
Trustee shall mail to each Holder as provided in TIA Section
313(c) a brief report that complies with TIA Section 313(a) dated
as of such May 15, if required by TIA Section 313(a).
SECTION 7.07. Compensation and Indemnity. The Company
--------------------------
shall pay to the Trustee such compensation as shall be agreed
upon in writing for its services. The compensation of the
Trustee shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the
Trustee upon request for all reasonable out-of-pocket expenses
and advances incurred or made by the Trustee. Such expenses
shall include the reasonable compensation and expenses of the
Trustee's agents and counsel.
The Company shall indemnify the Trustee for, and hold
it harmless against, any loss or liability or expense incurred by
it without negligence or bad faith on its part in connection with
the acceptance or administration of this Indenture and its duties
under this Indenture and the Notes, including the costs and
expenses of defending itself against any claim or liability and
of complying with any process served upon it or any of its
officers in connection with the exercise or performance of any of
its powers or duties under this Indenture and the Notes.
To secure the Company's payment obligations in this
Section 7.07, the Trustee shall have a lien prior to the Notes on
all money or property held or collected by the Trustee, in its
capacity as Trustee, except money or property held in trust to
pay principal of, premium, if any, and interest on particular
Notes.
If the Trustee incurs expenses or renders services
after the occurrence of an Event of Default specified in clause
(h) or (i) of Section 6.01, the expenses and the compensation for
the services will be intended to constitute expenses of
administration under Title 11 of the United States Bankruptcy
Code or any applicable federal or state law for the relief of
debtors.
SECTION 7.08. Replacement of Trustee. A resignation
----------------------
or removal of the Trustee and appointment of a successor Trustee
shall become effective only upon the successor Trustee's
acceptance of appointment as provided in this Section 7.08.
The Trustee may resign at any time by so notifying the
Company in writing at least 30 days prior to the date of the
proposed resignation. The Holders of a majority in principal
amount at maturity of the outstanding Notes may remove the
Trustee by so notifying the Trustee in writing and may appoint a
successor Trustee with the consent of the Company. The Company
may at any time remove the Trustee, by Company Order given at
least 30 days prior to the date of the proposed removal.
If the Trustee resigns or is removed, or if a vacancy
exists in the office of Trustee for any reason, the Company shall
promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in
principal amount at maturity of the outstanding Notes may appoint
a successor Trustee to replace the successor Trustee appointed by
the Company. If the successor Trustee does not deliver its
written acceptance required by the next succeeding paragraph of
this Section 7.08 within 30 days after the retiring Trustee
resigns or is removed, the retiring Trustee, the Company or the
Holders of a majority in principal amount at maturity of the
outstanding Notes may petition any court of competent
jurisdiction for the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance
of its appointment to the retiring Trustee and to the Company.
Immediately after the delivery of such written acceptance,
subject to the lien provided in Section 7.07, (i) the retiring
Trustee shall transfer all property held by it as Trustee to the
successor Trustee, (ii) the resignation or removal of the
retiring Trustee shall become effective and (iii) the successor
Trustee shall have all the rights, powers and duties of the
Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Holder.
If the Trustee is no longer eligible under Section
7.10, any Holder who satisfies the requirements of TIA Section
310(b) may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor
Trustee.
The Company shall give notice of any resignation and
any removal of the Trustee and each appointment of a successor
Trustee to all Holders. Each notice shall include the name of
the successor Trustee and the address of its Corporate Trust
Office.
Notwithstanding replacement of the Trustee pursuant to
this Section 7.08, the Company's obligation under Section 7.07
shall continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc. If
---------------------------------
the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust
business to, another corporation or national banking association,
the resulting, surviving or transferee corporation or national
banking association without any further act shall be the
successor Trustee with the same effect as if the successor
Trustee had been named as the Trustee herein.
SECTION 7.10. Eligibility. This Indenture shall
-----------
always have a Trustee who satisfies the requirements of TIA
Sections 310(a)(1) and 310(a)(5). The Trustee shall have a
combined capital and surplus of at least $25,000,000 as set forth
in its most recent published annual report of condition.
SECTION 7.11. Money Held in Trust. The Trustee shall
-------------------
not be liable for interest on any money received by it except as
the Trustee may agree with the Company. Money held in trust by
the Trustee need not be segregated from other funds except to the
extent required by law and except for money held in trust under
Article Eight of this Indenture.
SECTION 7.12. Withholding Taxes. The Trustee, as
-----------------
agent for the Company, shall exclude and withhold from each
payment of principal and interest and other amounts due hereunder
or under the Notes any and all withholding taxes applicable
thereto as required by law. The Trustee agrees to act as such
withholding agent and, in connection therewith, whenever any
present or future taxes or similar charges are required to be
withheld with respect to any amounts payable in respect of the
Notes, to withhold such amounts and timely pay the same to the
appropriate authority in the name of and on behalf of the Holders
of the Notes, that it will file any necessary withholding tax
returns or statements when due, and that, as promptly as possible
after the payment thereof, it will deliver to each Holder of a
Note appropriate documentation showing the payment thereof,
together with such additional documentary evidence as such
Holders may reasonably request from time to time.
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of the Company's
----------------------------
Obligations. Except as otherwise provided in this Section 8.01,
-----------
the Company may terminate its obligations under the Notes and
this Indenture if:
(i) all Notes previously authenticated and delivered
(other than destroyed, lost or stolen Notes that have been
replaced or Notes that are paid pursuant to Section 4.01 or
Notes for whose payment money or securities have theretofore
been held in trust and thereafter repaid to the Company, as
provided in Section 8.05) have been delivered to the Trustee
for cancellation and the Company has paid all sums payable
by it hereunder; or
(ii) (A) all the Notes mature within one year or all of
them are to be called for redemption within one year under
arrangements satisfactory to the Trustee for giving the
notice of redemption, (B) the Company deposits in trust with
the Trustee during such one-year period, under the terms of
an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds solely for the
benefit of the Holders for that purpose, money or U.S.
Government Obligations sufficient (in the opinion of a
nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to
the Trustee), without consideration of any reinvestment of
any interest thereon, to pay principal, premium, if, any,
and interest on the Notes to maturity or redemption, as the
case may be, and to pay all other sums payable by it
hereunder, (C) no Default or Event of Default with respect
to the Notes shall have occurred and be continuing on the
date of such deposit, (D) such deposit will not result in a
breach or violation of, or constitute a default under, this
Indenture or any other agreement or instrument to which the
Company is a party or by which it is bound and (E) the
Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating
that all conditions precedent provided for herein relating
to the satisfaction and discharge of this Indenture have
been complied with.
With respect to the foregoing clause (i), the Company's
obligations under Section 7.07 shall survive. With respect to
the foregoing clause (ii), the Company's obligations in Sections
2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 2.14, 4.01, 4.02,
7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the Notes are
no longer outstanding. Thereafter, only the Company's
obligations in Sections 7.07, 8.05 and 8.06 shall survive. After
any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's
obligations, as the case may be, under the Notes and this
Indenture except for those surviving obligations specified above.
SECTION 8.02. Defeasance and Discharge of Indenture.
-------------------------------------
The Company will be deemed to have paid and will be discharged
from any and all obligations in respect of the Notes on the 123rd
day after the deposit referred to below, and the provisions of
this Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to
register the transfer or exchange of the Notes, to replace
stolen, lost or mutilated Notes, to maintain paying agencies and
to hold monies for payment in trust) if, among other things,
(A) the Company has deposited with the Trustee, in
trust, money and/or U.S. Government Obligations that through
the payment of interest and principal in respect thereof in
accordance with their terms will provide money in an amount
sufficient to pay the principal of, premium, if any, and
accrued interest on the Notes on the Stated Maturity of such
payments in accordance with the terms of this Indenture and
the Notes;
(B) the Company has delivered to the Trustee (i)
either (x) an Opinion of Counsel to the effect that Holders
will not recognize income, gain or loss for federal income
tax purposes as a result of the Company's exercise of its
option under this Section 8.02 and will be subject to
federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such
deposit, defeasance and discharge had not occurred, which
Opinion of Counsel must be based upon (and accompanied by a
copy of) a ruling of the Internal Revenue Service to the
same effect unless there has been a change in applicable
federal income tax law after the Closing Date such that a
ruling is no longer required or (y) a ruling directed to the
Trustee received from the Internal Revenue Service to the
same effect as the aforementioned Opinion of Counsel and
(ii) an Opinion of Counsel to the effect that the creation
of the defeasance trust does not violate the Investment
Company Act of 1940 and after the passage of 123 days
following the deposit, the trust fund will not be subject to
the effect of Section 547 of the United States Bankruptcy
Code or Section 15 of the New York Debtor and Creditor Law;
(C) immediately after giving effect to such deposit on
a pro forma basis, no Event of Default, or event that after
the giving of notice or lapse of time or both would become
an Event of Default, shall have occurred and be continuing
on the date of such deposit or during the period ending on
the 123rd day after the date of such deposit, and such
deposit shall not result in a breach or violation of, or
constitute a default under, any other agreement or
instrument to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its
Subsidiaries is bound;
(D) if at such time the Notes are listed on a national
securities exchange, the Company has delivered to the
Trustee an Opinion of Counsel to the effect that the Notes
will not be delisted as a result of such deposit, defeasance
and discharge, provided that if simultaneously with the
--------
deposit of the money and/or U.S. Government Obligations
referred to in (A) above, the Company has caused an
irrevocable, transferrable, standby letter of credit to be
issued by a bank with capital and surplus exceeding the
principal amount of the Notes then outstanding, expiring not
earlier than 180 days from its issuance, in favor of the
Trustee which permits the Trustee to draw an amount equal to
the principal, premium, if any, and accrued interest on the
Notes through the expiry date of the letter of credit, then
the Company will be deemed to have paid and discharged any
and all obligations in respect of the Notes on the date of
the deposit and issuance of the letter of credit; and
(E) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, in each
case stating that all conditions precedent provided for
herein relating to the defeasance contemplated by this
Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the
123-day period referred to in clause (B)(ii) of this Section
8.02, none of the Company's obligations under this Indenture
shall be discharged. Subsequent to the end of such 123-day
period with respect to this Section 8.02, the Company's
obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.05 and 8.06 shall survive
until the Notes are no longer outstanding. Thereafter, only the
Company's obligations in Sections 7.07, 8.05 and 8.06 shall
survive. If and when a ruling from the Internal Revenue Service
or an Opinion of Counsel referred to in clause (B)(i) of this
Section 8.02 may be provided specifically without regard to, and
not in reliance upon, the continuance of the Company's
obligations under Section 4.01, then the Company's obligations
under such Section 4.01 shall cease upon delivery to the Trustee
of such ruling or Opinion of Counsel and compliance with the
other conditions precedent provided for herein relating to the
defeasance contemplated by this Section 8.02.
After any such irrevocable deposit, the Trustee upon
request shall acknowledge in writing the discharge of the
Company's obligations under the Notes and this Indenture except
for those surviving obligations in the immediately preceding
paragraph.
SECTION 8.03. Defeasance of Certain Obligations. The
---------------------------------
Company may omit to comply with any term, provision or condition
set forth in clause (iii) of Section 5.01 and Sections 4.03
through 4.18, and clause (c) of Section 6.01 with respect to
clause (iii) of Section 5.01 and Sections 4.03 through 4.18, and
clauses (c), (d), (e), (f) and (g) of Section 6.01 shall be
deemed not to be Events of Default upon:
(a) the deposit with the Trustee, in trust, of money
and/or U.S. Government Obligations that through the payment
of interest and principal in respect thereof in accordance
with their terms will provide money in an amount sufficient
to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such
payments in accordance with the terms of this Indenture and
the Notes;
(b) the satisfaction of the provisions described in
clauses (B)(ii), (C) and (D) of Section 8.02 hereof;
(c) the delivery by the Company to the Trustee of an
Opinion of Counsel to the effect that the Holders will not
recognize income, gain or loss for federal income tax
purposes as a result of such deposit and defeasance and will
be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred; and
(d) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, in each
case stating that all conditions precedent provided for
herein relating to the defeasance contemplated by this
Section 8.03 have been complied with.
SECTION 8.04. Application of Trust Money. Subject to
--------------------------
Section 8.06, the Trustee or Paying Agent shall hold in trust
money or U.S. Government Obligations deposited with it pursuant
to Section 8.01, 8.02 or 8.03, as the case may be, and shall
apply the deposited money and the money from U.S. Government
Obligations in accordance with the Notes and this Indenture to
the payment of principal of, premium, if any, and interest on the
Notes; but such money need not be segregated from other funds
except to the extent required by law.
SECTION 8.05. Repayment to Company. Subject to
--------------------
Sections 7.07, 8.01, 8.02 and 8.03, the Trustee and the Paying
Agent shall promptly pay to the Company upon request set forth in
an Officers' Certificate any excess money held by them at any
time and thereupon shall be relieved from all liability with
respect to such money. The Trustee and the Paying Agent shall
pay to the Company upon request any money held by them for the
payment of principal, premium, if any, or interest that remains
unclaimed for two years; provided that the Trustee or such Paying
--------
Agent before being required to make any payment may cause to be
published at the expense of the Company once in a newspaper of
general circulation in the City of New York or mail to each
Holder entitled to such money at such Holder's address (as set
forth in the Note Register) notice that such money remains
unclaimed and that after a date specified therein (which shall be
at least 30 days from the date of such publication or mailing)
any unclaimed balance of such money then remaining will be repaid
to the Company. After payment to the Company, Holders entitled
to such money must look to the Company for payment as general
creditors unless an applicable law designates another Person, and
all liability of the Trustee and such Paying Agent with respect
to such money shall cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying
-------------
Agent is unable to apply any money or U.S. Government Obligations
in accordance with Section 8.01, 8.02 or 8.03, as the case may
be, by reason of any legal proceeding or by reason of any order
or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Notes shall be
revived and reinstated as though no deposit had occurred pursuant
to Section 8.01, 8.02 or 8.03, as the case may be, until such
time as the Trustee or Paying Agent is permitted to apply all
such money or U.S. Government Obligations in accordance with
Section 8.01, 8.02 or 8.03, as the case may be; provided that, if
--------
the Company has made any payment of principal of, premium, if
any, or interest on any Notes because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the
Holders of such Notes to receive such payment from the money or
U.S. Government Obligations held by the Trustee or Paying Agent.
SECTION 8.07. Defeasance and Certain Other Events of
--------------------------------------
Default. In the event the Company exercises its option to omit
-------
compliance with certain covenants and provisions of this
Indenture with respect to the Notes pursuant to Section 8.03 and
such Notes are declared due and payable because of the occurrence
of an Event of Default that remains applicable, the amount of
money and/or U.S. Government Obligations on deposit with the
Trustee will be sufficient to pay amounts due on such Notes at
the time of their Stated Maturity. If, in the event the Company
exercises its option to omit compliance with certain covenants
and provisions of this Indenture with respect to the Notes
pursuant to Section 8.03 and such Notes are declared due and
payable because of the occurrence of an Event of Default that
remains applicable, the amount of money and/or U.S. Government
Obligations on deposit with the Trustee is insufficient to pay
amounts due on the Notes at the time of the acceleration
resulting from such Events of Default pursuant to Section 6.02,
the Company will remain liable for such payments.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders. The
--------------------------
Company, when authorized by resolutions of its Board of
Directors, and the Trustee may amend or supplement this Indenture
or the Notes without notice to, or the consent of, any Holder:
(i) to cure any ambiguity, defect or inconsistency in
this Indenture; provided that such amendments or supplements
--------
shall not adversely affect the interests of the Holders in
any material respect;
(ii) to comply with Article Five;
(iii) to comply with any requirements of the
Commission in connection with the qualification of this
Indenture under the TIA;
(iv) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee; or
(v) to make any change that, in the opinion of the
Board of Directors of the Company evidenced by a Board
Resolution, does not materially and adversely affect the
rights of any Holder.
SECTION 9.02. With Consent of Holders. Subject to
-----------------------
Sections 6.04 and 6.07 and without prior notice to the Holders,
the Company, when authorized by its Board of Directors (as
evidenced by a Board Resolution), and the Trustee may amend this
Indenture and the Notes with the written consent of the Holders
of a majority in aggregate principal amount at maturity of the
Notes then outstanding, and the Holders of a majority in
principal amount at maturity of the Notes then outstanding by
written notice to the Trustee may waive future compliance by the
Company with any provision of this Indenture or the Notes.
Notwithstanding the provisions of this Section 9.02,
without the consent of each Holder affected thereby, an amendment
or waiver, including a waiver pursuant to Section 6.04, may not:
(i) change the Stated Maturity of the principal of, or
any installment of interest on, any Note;
(ii) reduce the Accreted Value or principal amount of,
or premium, if any, or interest on, any Note;
(iii) change the place or currency of payment of
principal of, or premium, if any, or interest on, any Note;
(iv) impair the right to institute suit for the
enforcement of any payment on or after the Stated Maturity
(or, in the case of a redemption, on or after the Redemption
Date) of any Note;
(v) reduce the above-stated percentage in principal
amount at maturity of outstanding Notes the consent of whose
Holders is necessary to modify or amend this Indenture;
(vi) waive a Default in the payment of principal of,
premium, if any, or interest on, any Note; or
(vii) reduce the percentage or aggregate principal
amount at maturity of outstanding Notes the consent of whose
Holders is necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain
defaults.
It shall not be necessary for the consent of the
Holders under this Section 9.02 to approve the particular form of
any proposed amendment, supplement or waiver, but it shall be
sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this
Section 9.02 becomes effective, the Company shall mail to the
Holders affected thereby a notice briefly describing the
amendment, supplement or waiver. The Company will mail
supplemental indentures to Holders upon request. Any failure of
the Company to mail such notice, or any defect therein, shall
not, however, in any way impair or affect the validity of any
such supplemental indenture or waiver.
SECTION 9.03. Revocation and Effect of Consent. Until
--------------------------------
an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent
Holder of a Note or portion of a Note that evidences the same
debt as the Note of the consenting Holder, even if notation of
the consent is not made on any Note. However, any such Holder or
subsequent Holder may revoke the consent as to its Note or
portion of its Note. Such revocation shall be effective only if
the Trustee receives the notice of revocation before the date the
amendment, supplement or waiver becomes effective. An amendment,
supplement or waiver shall become effective on receipt by the
Trustee of written consents from the Holders of the requisite
percentage in principal amount at maturity of the outstanding
Notes.
The Company may, but shall not be obligated to, fix a
record date for the purpose of determining the Holders entitled
to consent to any amendment, supplement or waiver. If a record
date is fixed, then, notwithstanding the last two sentences of
the immediately preceding paragraph, those Persons who were
Holders at such record date (or their duly designated proxies)
and only those Persons shall be entitled to consent to such
amendment, supplement or waiver or to revoke any consent
previously given, whether or not such Persons continue to be
Holders after such record date. No such consent shall be valid
or effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes
effective, it shall bind every Holder unless it is of the type
described in any of clauses (i) through (iv) of Section 9.02. In
case of an amendment or waiver of the type described in clauses
(i) through (iv) of Section 9.02, the amendment or waiver shall
bind each Holder who has consented to it and every subsequent
Holder of a Note that evidences the same indebtedness as the Note
of the consenting Holder.
SECTION 9.04. Notation on or Exchange of Notes. If an
--------------------------------
amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Note about the
changed terms and return it to the Holder and the Trustee may
place an appropriate notation on any Note thereafter
authenticated. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Note shall issue and
the Trustee shall authenticate a new Note that reflects the
changed terms.
SECTION 9.05. Trustee to Sign Amendments, Etc. The
--------------------------------
Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the
execution of any amendment, supplement or waiver authorized
pursuant to this Article Nine is authorized or permitted by this
Indenture. Subject to the preceding sentence, the Trustee shall
sign such amendment, supplement or waiver if the same does not
adversely affect the rights of the Trustee. The Trustee may, but
shall not be obligated to, execute any such amendment, supplement
or waiver that affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.06. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to this Article
Nine shall conform to the requirements of the TIA as then in
effect.
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. Trust Indenture Act of 1939. Prior to
---------------------------
the effectiveness of the Registration Statement, this Indenture
shall incorporate and be governed by the provisions of the TIA
that are required to be part of and to govern indentures
qualified under the TIA. After the effectiveness of the
Registration Statement, this Indenture shall be subject to the
provisions of the TIA that are required to be a part of this
Indenture and shall, to the extent applicable, be governed by
such provisions.
SECTION 10.02. Notices. Any notice or communication
-------
shall be sufficiently given if in writing and delivered in person
or mailed by first class mail, commercial courier service or
telecopier communication, addressed as follows:
if to the Company:
-----------------
ICG Services, Inc.
9605 East Maroon Circle
P.O. Box 6742
Englewood, Colorado 80155-6742
Attention: Chief Financial Officer
if to the Trustee:
-----------------
Norwest Bank Colorado, N.A.
1740 Broadway
Denver, Colorado 80274-8693
Attention: Corporate Trust and Escrow Services
The Company or the Trustee, by notice to the other may
designate additional or different addresses for subsequent
notices or communications.
Any notice or communication mailed to a Holder shall be
mailed to him at his address as it appears on the Note Register
by first class mail and shall be sufficiently given to him if so
mailed within the time prescribed. Copies of any such
communication or notice to a Holder shall also be mailed to the
Trustee and each Agent at the same time.
Failure to mail a notice or communication to a Holder
or any defect in it shall not affect its sufficiency with respect
to other Holders. Except for a notice to the Trustee, which is
deemed given only when received, and except as otherwise provided
in this Indenture, if a notice or communication is mailed in the
manner provided in this Section 10.02, it is duly given, whether
or not the addressee receives it.
Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice
by Holders shall be filed with the Trustee, but such filing shall
not be a condition precedent to the validity of any action taken
in reliance upon such waiver.
In case by reason of the suspension of regular mail
service or by reason of any other cause it shall be impracticable
to give such notice by mail, then such notification as shall be
made with the approval of the Trustee shall constitute a
sufficient notification for every purpose hereunder.
SECTION 10.03. Certificate and Opinion As to
-----------------------------
Conditions Precedent. Upon any request or application by the
--------------------
Company to the Trustee to take any action under this Indenture,
the Company shall furnish to the Trustee:
(i) an Officers' Certificate stating that, in the
opinion of the signers, all conditions precedent, if any,
provided for in this Indenture relating to the proposed
action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion
of such Counsel, all such conditions precedent have been
complied with.
SECTION 10.04. Statements Required in Certificate or
-------------------------------------
Opinion. Each certificate or opinion with respect to compliance
-------
with a condition or covenant provided for in this Indenture shall
include:
(i) a statement that each person signing such
certificate or opinion has read such covenant or condition
and the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of
the examination or investigation upon which the statement or
opinion contained in such certificate or opinion is based;
(iii) a statement that, in the opinion of each such
person, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to
whether or not such covenant or condition has been complied
with; and
(iv) a statement as to whether or not, in the opinion
of each such person, such condition or covenant has been
complied with; provided, however, that, with respect to
-------- -------
matters of fact, an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
SECTION 10.05. Rules by Trustee, Paying Agent or
---------------------------------
Registrar. The Trustee may make reasonable rules for action by
---------
or at a meeting of Holders. The Paying Agent or Registrar may
make reasonable rules for its functions.
SECTION 10.06. Payment Date Other Than a Business Day.
--------------------------------------
If an Interest Payment Date, Redemption Date, Payment Date,
Stated Maturity or date of maturity of any Note shall not be a
Business Day, then payment of principal of, premium, if any, or
interest on such Note, as the case may be, need not be made on
such date, but may be made on the next succeeding Business Day
with the same force and effect as if made on the Interest Payment
Date, Payment Date, or Redemption Date, or at the Stated Maturity
or date of maturity of such Note; provided that no interest shall
--------
accrue for the period from and after such Interest Payment Date,
Payment Date, Redemption Date, Stated Maturity or date of
maturity, as the case may be.
SECTION 10.07. Governing Law; Submission to
----------------------------
Jurisdiction. This Indenture and the Notes shall be governed by
------------
the laws of the State of New York. The Company agrees to submit
to the jurisdiction of any federal or state court located in the
City of New York in any suit, action or proceeding with respect
to this Indenture or the Notes and for actions brought under the
U.S. federal or state securities laws brought in any such court.
SECTION 10.08. No Adverse Interpretation of Other
----------------------------------
Agreements. This Indenture may not be used to interpret another
----------
indenture, loan or debt agreement of the Company or any
Subsidiary of the Company. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 10.09. No Recourse Against Others. No
--------------------------
recourse for the payment of the principal of, premium, if any, or
interest on any of the Notes, or for any claim based thereon or
otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company contained in
this Indenture, or in any of the Notes, or because of the
creation of any Indebtedness represented thereby, shall be had
against any incorporator or against any past, present or future
partner, shareholder, other equityholder, officer, director,
employee or controlling person, as such, of the Company or of any
successor Person, either directly or through the Company or any
successor Person, whether by virtue of any constitution, statute
or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly understood that all such
liability is hereby expressly waived and released as a condition
of, and as a consideration for, the execution of this Indenture
and the issue of the Notes.
SECTION 10.10. Successors. All agreements of the
----------
Company in this Indenture and the Notes shall bind its
successors. All agreements of the Trustee in this Indenture
shall bind its successors.
SECTION 10.11. Duplicate Originals. The parties may
-------------------
sign any number of copies of this Indenture. Each signed copy
shall be an original, but all of them together represent the same
agreement.
SECTION 10.12. Separability. In case any provision in
------------
this Indenture or in the Notes shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 10.13. Table of Contents, Headings, Etc. The
---------------------------------
Table of Contents, Cross-Reference Table and headings of the
Articles and Sections of this Indenture have been inserted for
convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms
and provisions hereof.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the date first written
above.
ICG SERVICES, INC.
By: /s/ Don Teague
-------------------------
Name: H. Don Teague
Title: Executive Vice President,
General Counsel and
Secretary
NORWEST BANK COLORADO, N.A.
as Trustee
By:/s/ A. Lenore Martinez
-------------------------
Name: A. Lenore Martinez
Title: Sr. Vice President
<PAGE>
EXHIBIT A
---------
[FACE OF NOTE]
ICG SERVICES INC.
10% Senior Discount Note Due 2008
[CUSIP] [CINS]
----------
No. $
---------
The following information is supplied for purposes of
Sections 1273 and 1275 of the Internal Revenue Code:
Issue Date: February 12, 1998
Yield to maturity for period from Issue Date to February 15,
2008: 10.00% , compounded semiannually on February 15 and August
15 commencing February 15, 1998 (computed without giving effect
to the additional payments of interest in the event the issuer
fails to commence the exchange offer and fails to cause the shelf
registration statement to be declared effective, each as referred
to on the reverse hereof)
Original issue discount under Section 1273 of the Internal
Revenue Code (for each $1,000 principal amount at maturity):
$886.59
Issue Price (for each $1,000 principal amount at maturity):
$613.41
ICG SERVICES, INC., a Delaware corporation (the
"Company", which term includes any successor under the Indenture
hereinafter referred to), for value received, promises to pay to
[ ], or its registered assigns, the principal sum of
------------
[ ] ($[ ]) on [ ], 2008.
----- ----- ----------
Interest Payment Dates: February 15 and August 15,
commencing August 15, 2003.
Regular Record Dates: February 1 and August 1.
<PAGE>
Reference is hereby made to the further provisions of
this Note set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set
forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to
be signed manually or by facsimile by its duly authorized
officers.
Date: February 12, 1998 ICG SERVICES, INC.
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
(Form of Trustee's Certificate of Authentication)
This is one of the 10% Senior Discount Notes due 2008 described
in the within-mentioned Indenture.
NORWEST BANK COLORADO,
NATIONAL ASSOCIATION, as Trustee
By:
-------------------------------
Authorized Signatory
<PAGE>
[REVERSE SIDE OF NOTE]
ICG SERVICES, INC.
10% Senior Discount Note due 2008
1. Principal and Interest.
----------------------
The Company will pay the principal of this 10% Senior
Discount Note due 2008 (the "Note") on February 15, 2008.
The Company promises to pay interest on the principal
amount of this Note on each Interest Payment Date, as set forth
below, at the rate per annum shown above.
Interest will be payable semiannually (to the holders
of record of the Notes at the close of business on the February 1
or August 1 immediately preceding the Interest Payment Date) on
each Interest Payment Date, commencing August 15, 2003; provided
--------
that no interest shall accrue on the principal amount of this
Note prior to February 15, 2003 and no interest shall be paid on
this Note prior to August 15, 2003, except as provided in the
next paragraph.
If an exchange offer registered under the Securities
Act is not consummated, and a shelf registration statement under
the Securities Act with respect to resales of the Notes is not
declared effective by the Commission, on or before August 12,
1998 in accordance with the terms of the Registration Rights
Agreement dated February 12, 1998 between the Company and Morgan
Stanley & Co. Incorporated, interest (in addition to the accrual
of original discount during the period ending February 15, 2003
and in addition to the interest otherwise due on the Notes after
such date) will accrue from August 12, 1998, at an annual rate of
.5% of the Accreted Value on the preceding Semi-Annual Accrual
Date, payable in cash semiannually, in arrears, on February 15
and August 15 of each year, commencing February 15, 1999, until
the exchange offer is consummated or the shelf registration
statement is declared effective. The Holder of this Note is
entitled to the benefits of such Registration Rights Agreement.
From and after February 15, 2003, interest on the Notes
will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from February 15, 2003;
provided that, if there is no existing default in the payment of
--------
interest and this Note is authenticated between a Regular Record
Date referred to on the face hereof and the next succeeding
Interest Payment Date, interest shall accrue from such Interest
Payment Date. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and
premium, if any, and interest on overdue installments of
interest, to the extent lawful, at a rate per annum that is 2% in
excess of the rate otherwise payable.
2. Method of Payment.
-----------------
The Company will pay principal as provided above and
interest (except defaulted interest) on the principal amount of
the Notes as provided above on each February 15 and August 15 to
the Persons who are Holders (as reflected in the Note Register at
the close of business on such February 1 and August 1 immediately
preceding the Interest Payment Date), in each case, even if the
Note is cancelled on registration of transfer or registration of
exchange after such record date; provided that, with respect to
--------
the payment of principal, the Company will not make payment to
the Holder unless this Note is surrendered to a Paying Agent.
The Company will pay principal, premium, if any, and as
provided above, interest in money of the United States that at
the time of payment is legal tender for payment of public and
private debts. However, the Company may pay principal, premium,
if any, and interest by its check payable in such money. It may
mail an interest check to a Holder's registered address (as
reflected in the Note Register). If a payment date is a date
other than a Business Day at a place of payment, payment may be
made at that place on the next succeeding day that is a Business
Day and no interest shall accrue for the intervening period.
3. Paying Agent and Registrar.
--------------------------
Initially, the Trustee will act as authenticating
agent, Paying Agent and Registrar. The Company may change any
authenticating agent, Paying Agent or Registrar without notice.
The Company, any Subsidiary or any Affiliate of any of them may
act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Issuance of Additional Notes.
---------------------------------------
The Company issued the Notes under an Indenture dated
as of February 12, 1998 (the "Indenture"), between the Company
and Norwest Bank Colorado, N.A., as trustee (the "Trustee").
Capitalized terms herein are used as defined in the Indenture
unless otherwise indicated. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to
all such terms, and Holders are referred to the Indenture and the
Trust Indenture Act for a statement of all such terms. To the
extent permitted by applicable law, in the event of any
inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
The Notes are general unsecured obligations of the
Company. The Company may, subject to Article Four of the
Indenture, issue additional Notes under the Indenture.
5. Redemption.
----------
The Notes will be redeemable, at the Company's option,
in whole or in part, at any time or from time to time, on or
after February 15, 2003 and prior to maturity, upon not less than
30 nor more than 60 days' prior notice mailed by first class mail
to each Holder's last address as it appears in the Note Register,
at the following Redemption Prices (expressed in percentages of
their principal amount at maturity), plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of
Holders of record on the relevant Regular Record Date that is on
or prior to the Redemption Date to receive interest due on an
Interest Payment Date), if redeemed during the 12-month period
commencing February 15, of the years set forth below:
Year Redemption Price
---- ----------------
2003 . . . . . . . . . 105.0000%
2004 . . . . . . . . . 103.3333
2005 . . . . . . . . . 101.6667
2006 and thereafter . . 100.0000
In addition, at any time or from time to time, on or
prior to February 15, 2001, the Company may, at its option,
redeem Notes having an aggregate principal amount at maturity of
up to 35% of the aggregate principal amount at maturity of the
Notes with the proceeds of one or more public or private Equity
Offerings, at a Redemption Price equal to 110.0% of the
Accreted Value thereof on the Redemption Date; provided that at
least 65% of the aggregate principal amount of Notes initially
issued remains outstanding after each such redemption.
6. Notice of Redemption.
--------------------
Notice of any optional redemption will be mailed at
least 30 days but not more than 60 days before the Redemption
Date to each Holder of Notes to be redeemed at his last address
as it appears in the Note Register. Notes in original
denominations larger than $1,000 of principal amount at maturity
may be redeemed in part. On and after the Redemption Date,
interest ceases to accrue on Notes or portions of Notes called
for redemption, unless the Company defaults in the payment of the
Redemption Price.
7. Repurchase upon Change in Control.
---------------------------------
Upon the occurrence of any Change of Control, each
Holder shall have the right to require the repurchase of its
Notes by the Company in cash pursuant to the offer described in
the Indenture at a purchase price equal to 101% of the Accreted
Value thereof plus accrued and unpaid interest, if any, to the
date of purchase (the "Change of Control Payment").
A notice of such Change of Control will be mailed
within 30 days after any Change of Control occurs to each Holder
at his last address as it appears in the Note Register. Notes in
original denominations larger than $1,000 of principal amount at
maturity may be sold to the Company in part. On and after the
date of the Change of Control Payment, interest ceases to accrue
on Notes or portions of Notes surrendered for purchase by the
Company, unless the Company defaults in the payment of the Change
of Control Payment.
8. Denominations; Transfer; Exchange.
---------------------------------
The Notes are in registered form without coupons in
denominations of $1,000 of principal amount at maturity and
multiples of $1,000 in excess thereof. A Holder may register the
transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to
pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer or
exchange of any Notes selected for redemption. Also, it need not
register the transfer or exchange of any Notes for a period of 15
days before a selection of Notes to be redeemed is made.
9. Persons Deemed Owners.
---------------------
A Holder shall be treated as the owner of a Note for
all purposes.
10. Unclaimed Money.
---------------
If money for the payment of principal, premium, if any,
or interest remains unclaimed for two years, the Trustee and the
Paying Agent will pay the money back to the Company at its
request. After that, Holders entitled to the money must look to
the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and
such Paying Agent with respect to such money shall cease.
11. Discharge Prior to Redemption or Maturity.
-----------------------------------------
If the Company deposits with the Trustee money and/or
U.S. Government Obligations sufficient to pay the then
outstanding principal of, premium, if any, and accrued interest
on the Notes (a) to redemption or maturity, the Company will be
discharged from the Indenture and the Notes, except in certain
circumstances for certain sections thereof, and (b) or to Stated
Maturity, the Company will be discharged from certain covenants
set forth in the Indenture.
12. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture or the
Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount at maturity of
the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of
the Holders of at least a majority in principal amount at
maturity of the Notes then outstanding. Without notice to or the
consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things,
cure any ambiguity, defect or inconsistency and make any change
that does not materially and adversely affect the rights of any
Holder.
13. Restrictive Covenants.
---------------------
The Indenture imposes certain limitations on the
ability of the Company and its Restricted Subsidiaries, among
other things, to Incur Indebtedness, make Restricted Payments,
use the proceeds from Asset Sales, engage in transactions with
Affiliates or, with respect to the Company, merge, consolidate or
transfer substantially all of its assets. Within 90 days after
the end of the last fiscal quarter of each year, the Company must
report to the Trustee on compliance with the terms of the
Indenture.
14. Successor Persons.
-----------------
When a successor Person or other entity assumes all the
obligations of its predecessor under the Notes and the Indenture,
the predecessor Person will be released from those obligations.
15. Defaults and Remedies.
---------------------
The following events constitute "Events of Default"
under the Indenture: (a) default in the payment of principal of
(or premium, if any, on) any Note when the same becomes due and
payable at maturity, upon acceleration, redemption or otherwise;
(b) default in the payment of interest on any Note when the same
becomes due and payable, and such default continues for a period
of 30 days; (c) the Company defaults in the performance of or
breaches any other covenant or agreement of the Company in the
Indenture or under the Notes (other than a default specified in
clause (a) or (b) above) and such default or breach continues for
a period of 30 consecutive days after written notice by the
Trustee or the Holders of 25% or more in aggregate principal
amount of the Notes; (d) the Company fails to make or consummate
an Offer to Purchase in accordance with Section 4.11 of the
Indenture; (e) the Company fails to make or consummate an Offer
to Purchase in accordance with Section 4.12 of the Indenture; (f)
there occurs with respect to any issue or issues of Indebtedness
of the Company or any Significant Subsidiary having an
outstanding principal amount of $10 million or more in the
aggregate for all such issues of all such Persons, whether such
Indebtedness now exists or shall hereafter be created, (I) an
event of default that has caused the holder thereof to declare
such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 30
days of such acceleration and/or (II) the failure to make a
principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made,
waived or extended within 30 days of such payment default; (g)
any final judgment or order (not covered by insurance) for the
payment of money in excess of $10 million in the aggregate
(treating any deductibles, self-insurance or retention as not so
covered) shall be rendered against the Company or any Significant
Subsidiary and shall not be paid or discharged, and there shall
be any period of 30 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such
final judgments or orders outstanding and not paid or discharged
against the Company or any of its Significant Subsidiaries to
exceed $10 million during which a stay of enforcement of such
final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; (h) a court having
jurisdiction in the premises enters a decree or order for (A)
relief in respect of the Company or any Significant Subsidiary in
an involuntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, (B) appointment
of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the
property and assets of the Company or any Significant Subsidiary
or (C) the winding up or liquidation of the affairs of the
Company or any Significant Subsidiary and, in each case, such
decree or order shall remain unstayed and in effect for a period
of 30 consecutive days; or (i) the Company or any Significant
Subsidiary (A) commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Subsidiary or for all or
substantially all of the property and assets of the Company or
any Significant Subsidiary or (C) effects any general assignment
for the benefit of creditors.
If an Event of Default (other than an Event of Default
specified in clause (h) or (i) above that occurs with respect to
the Company) occurs and is continuing under the Indenture, the
Trustee or the Holders of at least 25% in aggregate principal
amount at maturity of the Notes, then outstanding, by written
notice to the Company (and to the Trustee if such notice is given
by the Holders), may, and the Trustee at the request of such
Holders shall, declare the Accreted Value of, premium, if any,
and accrued interest, if any, on the Notes to be immediately due
and payable.
If an Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in aggregate principal
amount at maturity of the Notes then outstanding may declare all
the Notes to be due and payable. If a bankruptcy or insolvency
default with respect to the Company or any Restricted Subsidiary
occurs and is continuing, the Notes automatically become due and
payable. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or
the Notes. Subject to certain limitations, Holders of at least a
majority in principal amount at maturity of the Notes then
outstanding may direct the Trustee in its exercise of any trust
or power.
16. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or
any other capacity, may make loans to, accept deposits from and
perform services for the Company or its Affiliates and may
otherwise deal with the Company or its Affiliates as if it were
not the Trustee.
17. No Recourse Against Others.
--------------------------
No incorporator or any past, present or future partner,
stockholder, other equity holder, officer, director, employee or
controlling person as such, of the Company or of any successor
Person shall have any liability for any obligations of the
Company under the Notes or the Indenture or for any claim based
on, in respect of or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases
all such liability. The waiver and release are part of the
consideration for the issuance of the Notes.
18. Authentication.
--------------
This Note shall not be valid until the Trustee or
authenticating agent signs the certificate of authentication on
the other side of this Note.
19. Abbreviations.
-------------
Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants
with right of survivorship and not as tenants in common), CUST
(= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act).
THIS NOTE SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK.
The Company will furnish to any Holder upon written
request and without charge a copy of the Indenture. Requests may
be made to ICG Services, Inc., 9605 East Maroon Circle, P.O. Box
6742, Englewood, Colorado, 80155-6742, Attention: Chief
Financial Officer.
<PAGE>
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder
hereby sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
---------------------------------
-----------------------------------------------------------------
Please print or typewrite name and address including zip code of
assignee
--------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably
constituting and appointing
-------------------------------------
attorney to transfer said Note on the books of the Company with
full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES,
UNLEGENDED OFFSHORE GLOBAL NOTES AND
UNLEGENDED OFFSHORE CERTIFICATED NOTES]
In connection with any transfer of this Note occurring prior
to the date which is the earlier of (i) the date of an effective
Registration or (ii) the end of the period referred to in Rule
144(k) under the Securities Act, the undersigned confirms that
without utilizing any general solicitation or general advertising
that:
[Check One]
---------
[ ] (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of
1933, as amended, provided by Rule 144A thereunder.
or
--
[ ] (b) this Note is being transferred other than in accordance
with (a) above and documents are being furnished which
comply with the conditions of transfer set forth in
this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee or other
Registrar shall not be obligated to register this Note in the
name of any Person other than the Holder hereof unless and until
the conditions to any such transfer of registration set forth
herein and in Section 2.08 of the Indenture shall have been
satisfied.
Date:
----------------- ----------------------------------------
NOTICE: The signature to this
assignment must correspond with the name
as written upon the face of the within-
mentioned instrument in every
particular, without alteration or any
change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is
purchasing this Note for its own account or an account with
respect to which it exercises sole investment discretion and that
it and any such account is a "qualified institutional buyer"
within the meaning of Rule 144A under the Securities Act of 1933,
as amended, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as the undersigned has
requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated:
--------------------- -----------------------------------
NOTICE: To be executed by an
executive officer
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company
pursuant to Section 4.11 or Section 4.12 of the Indenture, check
the Box: [ ]
If you wish to have a portion of this Note purchased by
the Company pursuant to Section 4.11 or Section 4.12 of the
Indenture, state the amount (in principal amount at maturity):
$ .
-------------------
Date:
---------------
Your Signature:
-------------------------------------------------
(Sign exactly as your name appears on
the other side of this Note)
Signature Guarantee:
----------------------------------
<PAGE>
Exhibit B
---------
Form of Certificate
-------------------
Norwest Bank Colorado, N.A. , 19
1740 Broadway ----------- -- --
Denver, Colorado 80274-8693
Attention: Corporate Trust and Escrow Services
Re: ICG Services, Inc. (the "Company")
10% Senior Discount Notes due 2008 (the "Notes")
------------------------------------------------
Ladies and Gentlemen:
This letter relates to U.S. $ principal
---------------
amount at maturity of Notes represented by a Note (the "Legended
Note") which bears a legend outlining restrictions upon transfer
of such Legended Note. Pursuant to Section 2.02 of the Indenture
(the "Indenture") dated as of February 12, 1998 relating to the
Notes, we hereby certify that we are (or we will hold such Notes
on behalf of) a person outside the United States to whom the
Notes could be transferred in accordance with Rule 904 of
Regulation S promulgated under the U.S. Securities Act of 1933,
as amended. Accordingly, you are hereby requested to exchange
the legended certificate for an unlegended certificate
representing an identical principal amount at maturity of Notes,
all in the manner provided for in the Indenture.
You and the Company are entitled to rely upon this
letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or
legal proceedings or official inquiry with respect to the matters
covered hereby. Terms used in this certificate have the meanings
set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
---------------------------
Authorized Signature
<PAGE>
Exhibit C
---------
Form of Certificate to Be Delivered
in Connection with Transfers
Pursuant to Regulation S
-----------------------------------
Norwest Bank Colorado, N.A. , 19
1740 Broadway ---------- -- --
Denver, Colorado 80274-8693
Attention: Corporate Trust and Escrow Services
Re: ICG Services, Inc. (the "Company")
10% Senior Discount Notes due 2008 (the "Notes")
------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed sale of U.S.$
----------
aggregate principal amount at maturity of the Notes, we confirm
that such sale has been effected pursuant to and in accordance
with Regulation S under the Securities Act of 1933, as amended,
and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in
the United States;
(2) at the time the buy order was originated, the
transferee was outside the United States or we and any
person acting on our behalf reasonably believed that the
transferee was outside the United States;
(3) no directed selling efforts have been made by us
in the United States in contravention of the requirements of
Rule 903(b) or Rule 904(b) of Regulation S, as applicable;
and
(4) the transaction is not part of a plan or scheme to
evade the registration requirements of the U.S. Securities
Act of 1933.
You and the Company are entitled to rely upon this
letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or
legal proceedings or official inquiry with respect to the matters
covered hereby. Terms used in this certificate have the meanings
set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
-------------------------------------
Authorized Signature
<PAGE>
Exhibit D
---------
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
-----------------------------------------
Norwest Bank Colorado, N.A. , 19
1740 Broadway ------------ --
Denver, Colorado 80274-8693
Attention: Corporate Trust and Escrow Services
Re: ICG Services, Inc. (the "Company")
10% Senior Discount Notes due 2008 (the "Notes")
------------------------------------------------
Dear Sirs:
In connection with our proposed purchase of
$ aggregate principal amount of the Notes, we confirm
-----------
that:
1. We understand that any subsequent transfer of the
Notes is subject to certain restrictions and conditions set
forth in the Indenture dated as of February 12, 1998
relating to the Notes (the "Indenture") and the undersigned
agrees to be bound by, and not to resell, pledge or
otherwise transfer the Notes except in compliance with, such
restrictions and conditions and the Securities Act of 1933,
as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes
have not been registered under the Securities Act, and that
the Notes may not be offered or sold except as permitted in
the following sentence. We agree, on our own behalf and on
behalf of any accounts for which we are acting as
hereinafter stated, that if we should sell any Notes, we
will do so only (A) to the Company or any subsidiary
thereof, (B) in accordance with Rule 144A under the
Securities Act to a "qualified institutional buyer" (as
defined therein), (C) to an institutional "accredited
investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a U.S. broker-
dealer) to you and to the Company a signed letter
substantially in the form of this letter, (D) outside the
United States in accordance with Rule 904 of Regulation S
under the Securities Act, (E) pursuant to the provisions of
Rule 144 under the Securities Act, or (F) pursuant to an
effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing any
of the Notes from us a notice advising such purchaser that
resales of the Notes are restricted as stated herein.
3. We understand that, on any proposed resale of any
Notes, we will be required to furnish to you and the Company
such certifications, legal opinions and other information as
you and the Company may reasonably require to confirm that
the proposed sale complies with the foregoing restrictions.
We further understand that the Notes purchased by us will
bear a legend to the foregoing effect.
4. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act) and have such knowledge and
experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment
in the Notes, and we and any accounts for which we are
acting are each able to bear the economic risk of our or its
investment.
5. We are acquiring the Notes purchased by us for our
own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we
exercise sole investment discretion.
You and the Company are entitled to rely upon this
letter and are irrevocably authorized to produce this letter or a
copy hereof to any interested party in any administrative or
legal proceedings or official inquiry with respect to the matters
covered hereby.
Very truly yours,
[Name of Transferee]
By:
---------------------------
Authorized Signature
-----------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated February 12, 1998
between
ICG SERVICES, INC.
and
MORGAN STANLEY & CO. INCORPORATED
-----------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is
made and entered into February 12, 1998, between ICG SERVICES,
INC., a Delaware corporation (the "Company"), and MORGAN STANLEY
& CO. INCORPORATED (the "Placement Agent").
This Agreement is made pursuant to the Placement
Agreement dated February 9, 1998, among the Company, NETCOM On-
Line Communication Services, Inc. and the Placement Agent (the
"Placement Agreement"), which provides for the sale by the
Company to the Placement Agent of an aggregate of $490,000,000
principal amount at maturity of the Company's 10% Senior Discount
Notes due 2008 (the "Securities"). In order to induce the
Placement Agent to enter into the Placement Agreement, the
Company has agreed to provide to the Placement Agent and its
direct and indirect transferees the registration rights set forth
in this Agreement. The execution of this Agreement is a
condition to the closing under the Placement Agreement.
In consideration of the foregoing, the parties hereto
agree as follows:
1. Definitions.
-----------
As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as
--------
amended from time to time.
"1934 Act" shall mean the Securities Exchange Act of
--------
1934, as amended from time to time.
"Accreted Value" shall have the meaning set forth in
--------------
the Indenture.
"Closing Date" shall mean the Closing Date as defined
------------
in the Placement Agreement.
"Company" shall have the meaning set forth in the
-------
preamble to this Agreement and shall also include the
Company's successors.
"Exchange Offer" shall mean the exchange offer by the
--------------
Company of Exchange Securities for Registrable Securities
pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration
---------------------------
under the 1933 Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an
-------------------------------------
exchange offer registration statement on Form S-4 (or, if
applicable, on another appropriate form) and all amendments
and supplements to such registration statement, in each case
including the Prospectus contained therein, all exhibits
thereto and all material incorporated by reference therein.
"Exchange Securities" shall mean securities issued by
-------------------
the Company under the Indenture containing terms identical
to the Securities (except that (i) interest thereon shall
accrue from the last date on which interest was paid on the
Securities or, if no such interest has been paid, from
February 15, 2003 and (ii) the Exchange Securities will not
provide for an increase in the rate of interest and will not
contain terms with respect to transfer restrictions) and to
be offered to Holders of Securities in exchange for
Securities pursuant to the Exchange Offer.
"Holder" shall mean the Placement Agent, for so long as
------
it owns any Registrable Securities, and each of its
successors, assigns and direct and indirect transferees who
become registered owners of Registrable Securities under the
Indenture; provided that, for purposes of Sections 4 and 5
--------
of this Agreement, the term "Holder" shall include
Participating Broker-Dealers (as defined in Section 4(a)).
"Indenture" shall mean the Indenture relating to the
---------
Securities to be dated as of the Closing Date between the
Company and Norwest Bank Colorado, National Association,
trustee, and as the same may be amended from time to time in
accordance with the terms thereof.
"Majority Holders" shall mean the Holders of a majority
----------------
of the aggregate principal amount of outstanding Registrable
Securities; provided that, whenever the consent or approval
of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities
held by the Company or any of its affiliates (as such term
is defined in Rule 405 under the 1933 Act) (other than the
Placement Agent or subsequent holders of Registrable
Securities if such subsequent holders are deemed to be such
affiliates solely by reason of their holding of such
Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of
such required percentage or amount.
"Person" shall mean an individual, partnership,
------
corporation, trust or unincorporated organization, or a
government or agency or political subdivision thereof.
"Placement Agent" shall have the meaning set forth in
---------------
the preamble to this Agreement.
"Placement Agreement" shall have the meaning set forth
-------------------
in the preamble.
"Prospectus" shall mean the prospectus included in a
----------
Registration Statement, including any preliminary
prospectus, and any such prospectus as amended or
supplemented by any prospectus supplement, including a
prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities
covered by a Shelf Registration Statement, and by all other
amendments and supplements to such prospectus, and in each
case including all material incorporated by reference
therein.
"Registrable Securities" shall mean the Securities;
----------------------
provided, however, that the Securities shall cease to be
-------- -------
Registrable Securities (i) when a Registration Statement
with respect to such Securities shall have been declared
effective under the 1933 Act and such Securities shall have
been disposed of pursuant to such Registration Statement,
(ii) when such Securities have been sold to the public
pursuant to Rule 144(k) (or any similar provision then in
force, but not Rule 144A) under the 1933 Act or (iii) when
such Securities shall have ceased to be outstanding.
"Registration Expenses" shall mean any and all expenses
---------------------
incident to performance of or compliance by the Company with
this Agreement, including without limitation: (i) all SEC,
stock exchange or National Association of Securities
Dealers, Inc. registration and filing fees, (ii) all fees
and expenses incurred in connection with compliance with
state securities or blue sky laws (including reasonable fees
and disbursements of counsel for any underwriters or Holders
in connection with blue sky qualification of any of the
Exchange Securities or Registrable Securities), (iii) all
expenses of any Persons in preparing or assisting in
preparing, word processing, printing and distributing any
Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities
sales agreements and other documents relating to the
performance of and compliance with this Agreement, (iv) all
rating agency fees, (v) all fees and disbursements relating
to the qualification of the Indenture under applicable
securities laws, (vi) the fees and disbursements of the
Trustee and its counsel, (vii) the fees and disbursements of
counsel for the Company and, in the case of a Shelf
Registration Statement, the fees and disbursements of one
counsel for the Holders (which counsel shall be selected by
the Majority Holders and which counsel may also be counsel
for the Placement Agent) and (viii) the fees and
disbursements of the independent public accountants of the
Company, including the expenses of any special audits or
"cold comfort" letters required by or incident to such
performance and compliance, but excluding fees and expenses
of counsel to the underwriters (other than fees and expenses
set forth in clause (ii) above) or the Holders and
underwriting discounts and commissions and transfer taxes,
if any, relating to the sale or disposition of Registrable
Securities by a Holder.
"Registration Statement" shall mean any registration
----------------------
statement of the Company that covers any of the Exchange
Securities or Registrable Securities pursuant to the
provisions of this Agreement 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.
"SEC" shall mean the Securities and Exchange
---
Commission.
"Shelf Registration" shall mean a registration effected
------------------
pursuant to Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf"
----------------------------
registration statement of the Company pursuant to the
provisions of Section 2(b) of this Agreement which covers
all of the Registrable Securities (but no other securities
unless approved by the Holders whose Registrable Securities
are covered by such Shelf Registration Statement) on an
appropriate form under Rule 415 under the 1933 Act, or any
similar rule that may be adopted by the SEC, and all
amendments and supplements to 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.
"Trustee" shall mean the trustee with respect to the
-------
Securities under the Indenture.
"Underwritten Registration" or "Underwritten Offering"
------------------------- ---------------------
shall mean a registration in which Registrable Securities
are sold to an Underwriter (as hereinafter defined) for
reoffering to the public.
2. Registration Under the 1933 Act.
-------------------------------
(a) To the extent not prohibited by any applicable law
or applicable interpretation of the Staff of the SEC, the Company
shall use its best efforts to cause to be filed an Exchange Offer
Registration Statement covering the offer by the Company to the
Holders to exchange all of the Registrable Securities for
Exchange Securities and to have such Registration Statement
declared effective by the SEC and remain effective until the
closing of the Exchange Offer. The Company shall commence the
Exchange Offer promptly after the Exchange Offer Registration
Statement has been declared effective by the SEC and use its best
efforts to have the Exchange Offer consummated on or prior to
August 12, 1998. The Company shall commence the Exchange Offer
by mailing the related exchange offer Prospectus and accompanying
documents to each Holder stating, in addition to such other
disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to
this Agreement and that all Registrable Securities validly
tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall
be a period of at least 20 business days from the date such
notice is mailed) (the "Exchange Dates");
(iii) that any Registrable Security not tendered
will remain outstanding and continue to accrete in value
(until February 15, 2003 and thereafter will accrue
interest) but will not retain any rights under this
Agreement;
(iv) that Holders electing to have a Registrable
Security exchanged pursuant to the Exchange Offer will be
required to surrender such Registrable Security, together
with the enclosed letters of transmittal, to the institution
and at the address (located in the Borough of Manhattan, The
City of New York) specified in the notice prior to the close
of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their
election, not later than the close of business on the last
Exchange Date, by sending to the institution and at the
address (located in the Borough of Manhattan, The City of
New York) specified in the notice a telegram, telex,
facsimile transmission or letter setting forth the name of
such Holder, the principal amount of Registrable Securities
delivered for exchange and a statement that such Holder is
withdrawing his election to have such Securities exchanged.
As soon as practicable after the last Exchange Date,
the Company shall:
(i) accept for exchange Registrable Securities or
portions thereof tendered and not validly withdrawn pursuant
to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee
for cancellation all Registrable Securities or portions
thereof so accepted for exchange by the Company and issue,
and cause the Trustee to promptly authenticate and mail to
each Holder, an Exchange Security equal in principal amount
to the principal amount of the Registrable Securities
surrendered by such Holder.
The Company shall use its best efforts to complete the Exchange
Offer as provided above and shall comply with the applicable
requirements of the 1933 Act, the 1934 Act and other applicable
laws and regulations in connection with the Exchange Offer. The
Exchange Offer shall not be subject to any conditions, other than
that the Exchange Offer does not violate applicable law or any
applicable interpretation of the Staff of the SEC. The Company
shall inform the Placement Agent of the names and addresses of
the Holders to whom the Exchange Offer is made, and the Placement
Agent shall have the right, subject to applicable law, to contact
such Holders and otherwise facilitate the tender of Registrable
Securities in the Exchange Offer.
(b) In the event that (i) the Company determines that
the Exchange Offer Registration provided for in Section 2(a)
above is not available or may not be consummated as soon as
practicable after the last Exchange Date because it would violate
applicable law or the applicable interpretations of the Staff of
the SEC, (ii) the Exchange Offer is not for any other reason
consummated by August 12, 1998 or (iii) in the opinion of counsel
for the Placement Agent a Registration Statement must be filed
and a Prospectus must be delivered by the Placement Agent in
connection with any offering or sale of Registrable Securities,
the Company shall use its best efforts to cause to be filed as
soon as practicable after such determination, date or notice of
such opinion of counsel is given to the Company, as the case may
be, a Shelf Registration Statement providing for the sale by the
Holders of all of the Registrable Securities and to have such
Shelf Registration Statement declared effective by the SEC. In
the event the Company is required to file a Shelf Registration
Statement solely as a result of the matters referred to in clause
(iii) of the preceding sentence, the Company shall use its best
efforts to file and have declared effective by the SEC both an
Exchange Offer Registration Statement pursuant to Section 2(a)
with respect to all Registrable Securities and a Shelf
Registration Statement (which may be a combined Registration
Statement with the Exchange Offer Registration Statement) with
respect to offers and sales of Registrable Securities held by the
Placement Agent after completion of the Exchange Offer. The
Company agrees to use its best efforts to keep the Shelf
Registration Statement continuously effective until the period
referred to in Rule 144(k) or until all of the Registrable
Securities covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement. The Company
further agrees to supplement or amend the Shelf Registration
Statement if required by the rules, regulations or instructions
applicable to the registration form used by the Company for such
Shelf Registration Statement or by the 1933 Act or by any other
rules and regulations thereunder for shelf registration or if
reasonably requested by a Holder with respect to information
relating to such Holder, and to use its best efforts to cause any
such amendment to become effective and such Shelf Registration
Statement to become usable as soon as thereafter practicable.
The Company agrees to furnish to the Holders of Registrable
Securities copies of any such supplement or amendment promptly
after its being used or filed with the SEC.
(c) The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) or
Section 2(b). Each Holder shall pay all underwriting discounts
and commissions and transfer taxes, if any, relating to the sale
or disposition of such Holder's Registrable Securities pursuant
to the Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant
to Section 2(a) hereof or a Shelf Registration Statement pursuant
to Section 2(b) hereof will not be deemed to have become
effective unless it has been declared effective by the SEC;
provided, however, that, if, after it has been declared
-------- -------
effective, the offering of Registrable Securities pursuant to a
Shelf Registration Statement is interfered with by any stop
order, injunction or other order or requirement of the SEC or any
other governmental agency or court, such Registration Statement
will be deemed not to have become effective during the period of
such interference until the offering of Registrable Securities
pursuant to such Registration Statement may legally resume. As
provided for in the Indenture, in the event the Exchange Offer is
not consummated and the Shelf Registration Statement is not
declared effective on or prior to August 12, 1998, interest (in
addition to the accrual of original issue discount during the
period ending February 15, 2003 and in addition to the interest
otherwise due on the Securities after such date) will accrue, at
an annual rate of .5% of Accreted Value on the preceding
semiannual payment date, on the Securities from August 12, 1998,
payable in cash semiannually in arrears on each February 15 and
August 15, commencing February 15, 1999, until the Exchange Offer
is consummated or the Shelf Registration Statement is declared
effective; provided that, if a Shelf Registration Statement is
--------
required solely by the matters referred to in clause (iii) of the
first sentence of Section 2(b), such increase in interest rate
shall be payable only to the Placement Agent, with respect to
Securities held by it, and only with respect to any period (from
August 12, 1998) during which such Shelf Registration Statement
is not effective.
(e) Without limiting the remedies available to the
Placement Agent and the Holders, the Company acknowledges that
any failure by the Company to comply with its obligations under
Section 2(a) and Section 2(b) hereof may result in material
irreparable injury to the Placement Agent or the Holders for
which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that,
in the event of any such failure, the Placement Agent or any
Holder may obtain such relief as may be required to specifically
enforce the Company's obligations under Section 2(a) and
Section 2(b) hereof.
3. Registration Procedures.
-----------------------
In connection with the obligations of the Company with
respect to the Registration Statements pursuant to Section 2(a)
and Section 2(b) hereof, the Company shall as expeditiously as
possible:
(a) prepare and file with the SEC a Registration
Statement on the appropriate form under the 1933 Act, which
form (x) shall be selected by the Company and (y) shall, in
the case of a Shelf Registration, be available for the sale
of the Registrable Securities by the selling Holders thereof
and (z) shall comply as to form in all material respects
with the requirements of the applicable form and include all
financial statements required by the SEC to be filed
therewith, and use its best efforts to cause such
Registration Statement to become effective and remain
effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as
may be necessary to keep such Registration Statement
effective for the applicable period and cause each
Prospectus to be supplemented by any required prospectus
supplement and, as so supplemented, to be filed pursuant to
Rule 424 under the 1933 Act; to keep each Prospectus current
during the period described under Section 4(3) and Rule 174
under the 1933 Act that is applicable to transactions by
brokers or dealers with respect to the Registrable
Securities or Exchange Securities;
(c) in the case of a Shelf Registration, furnish to
each Holder of Registrable Securities, to counsel for the
Placement Agent, to counsel for the Holders and to each
Underwriter of an Underwritten Offering of Registrable
Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any
amendment or supplement thereto and such other documents as
such Holder or Underwriter may reasonably request, in order
to facilitate the public sale or other disposition of the
Registrable Securities; and the Company consents to the use
of such Prospectus and any amendment or supplement thereto
in accordance with applicable law by each of the selling
Holders of Registrable Securities and any such Underwriters
in connection with the offering and sale of the Registrable
Securities covered by and in the manner described in such
Prospectus or any amendment or supplement thereto in
accordance with applicable law;
(d) use its best efforts to register or qualify, by
the time the applicable Registration Statement is declared
effective by the SEC, the Registrable Securities under all
applicable state securities or "blue sky" laws of such
jurisdictions as any Holder of Registrable Securities
covered by a Registration Statement shall reasonably request
in writing, to cooperate with such Holders in connection
with any filings required to be made with the National
Association of Securities Dealers, Inc. and do any and all
other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the
disposition in each such jurisdiction of such Registrable
Securities owned by such Holder; provided, however, that the
-------- -------
Company shall not be required to (i) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction
where it would not otherwise be required to qualify but for
this Section 3(d), (ii) file any general consent to service
of process or (iii) subject itself to taxation in any such
jurisdiction if it is not otherwise so subject;
(e) in the case of a Shelf Registration, notify each
Holder of Registrable Securities, counsel for the Holders
and counsel for the Placement Agent promptly and, if
requested by any such Holder or counsel, confirm such advice
in writing (i) when a Registration Statement has become
effective and when any post-effective amendment thereto has
been filed and becomes effective, (ii) of any request by the
SEC or any state securities authority for amendments and
supplements to a Registration Statement and Prospectus or
for additional information after the Registration Statement
has become effective, (iii) of the issuance by the SEC or
any state securities authority of any stop order suspending
the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (iv) if,
between the effective date of a Registration Statement and
the closing of any sale of Registrable Securities covered
thereby, the representations and warranties of the Company
contained in any underwriting agreement, securities sales
agreement or other similar agreement, if any, relating to
the offering cease to be true and correct in all material
respects or if the Company receives any notification with
respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the
initiation of any proceeding for such purpose, (v) of the
happening of any event during the period a Shelf
Registration Statement is effective which makes any
statement made in such Registration Statement or the related
Prospectus untrue in any material respect or which requires
the making of any changes in such Registration Statement or
Prospectus in order to make the statements therein not
misleading and (vi) of any determination by the Company that
a post-effective amendment to a Registration Statement would
be appropriate;
(f) make every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of a
Registration Statement at the earliest possible moment and
provide immediate notice to each Holder of the withdrawal of
any such order;
(g) in the case of a Shelf Registration, furnish to
each Holder of Registrable Securities, without charge, at
least one conformed copy of each Registration Statement and
any post-effective amendment thereto (without documents
incorporated therein by reference or exhibits thereto,
unless requested);
(h) in the case of a Shelf Registration, cooperate
with the selling Holders of Registrable Securities to
facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold
and not bearing any restrictive legends and enable such
Registrable Securities to be in such denominations
(consistent with the provisions of the Indenture) and
registered in such names as the selling Holders may
reasonably request at least two business days prior to the
closing of any sale of Registrable Securities;
(i) in the case of a Shelf Registration, upon the
occurrence of any event contemplated by Section 3(e)(v)
hereof, use its best efforts to prepare and file with the
SEC a supplement or post-effective amendment to a
Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, such Prospectus
will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the
statements therein, in light of the circumstances under
which they were made, not misleading. The Company agrees to
notify the Holders to suspend use of the Prospectus as
promptly as practicable after the occurrence of such an
event, and the Holders hereby agree to suspend use of the
Prospectus until the Company has amended or supplemented the
Prospectus to correct such misstatement or omission;
(j) within a reasonable time prior to the filing of
any Registration Statement, any Prospectus, any amendment to
a Registration Statement or amendment or supplement to a
Prospectus or any document which is to be incorporated by
reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide
copies of such document to the Placement Agent and its
counsel (and, in the case of a Shelf Registration Statement,
the Holders and their counsel) and make such of the
representatives of the Company as shall be reasonably
requested by the Placement Agent or its counsel (and, in the
case of a Shelf Registration Statement, the Holders or their
counsel) available for discussion of such document, and
shall not at any time file or make any amendment to the
Registration Statement, any Prospectus or any amendment of
or supplement to a Registration Statement or a Prospectus or
any document which is to be incorporated by reference into a
Registration Statement or a Prospectus, of which the
Placement Agent and its counsel (and, in the case of a Shelf
Registration Statement, the Holders and their counsel) shall
not have previously been advised and furnished a copy or to
which the Placement Agent or its counsel (and, in the case
of a Shelf Registration Statement, the Holders or their
counsel) shall object, except for any amendment or
supplement or document (a copy of which has been previously
furnished to the Placement Agent and its counsel (and, in
the case of a Shelf Registration Statement, the Holders and
their counsel)) which counsel to the Company shall advise
the Company, in the form of a written legal opinion, is
required in order to comply with applicable law; the
Placement Agent agrees that, if it receives timely notice
and drafts under this clause (j), it will not take actions
or make objections pursuant to this clause (j) such that the
Company is unable to comply with its obligations under
Section 2(a);
(k) obtain a CUSIP number and, if applicable, a CINS
number, for all Exchange Securities or Registrable
Securities, as the case may be, not later than the effective
date of a Registration Statement;
(l) cause the Indenture to be qualified under the
Trust Indenture Act of 1939, as amended (the "TIA"), in
connection with the registration of the Exchange Securities
or Registrable Securities, as the case may be, cooperate
with the Trustee and the Holders to effect such changes to
the Indenture as may be required for the Indenture to be so
qualified in accordance with the terms of the TIA and
execute, and use its best efforts to cause the Trustee to
execute, all documents as may be required to effect such
changes and all other forms and documents required to be
filed with the SEC to enable the Indenture to be so
qualified in a timely manner;
(m) in the case of a Shelf Registration, make
available for inspection by a representative of the Holders
of the Registrable Securities, any Underwriter participating
in any disposition pursuant to such Shelf Registration
Statement, and attorneys and accountants designated by the
Holders, at reasonable times and in a reasonable manner, all
financial and other records, pertinent documents and
properties of the Company, and cause the respective
officers, directors and employees of the Company to supply
all information reasonably requested by any such
representative, Underwriter, attorney or accountant in
connection with a Shelf Registration Statement;
(n) in the case of a Shelf Registration, use its best
efforts to cause all Registrable Securities to be listed on
any securities exchange or any automated quotation system on
which similar securities issued by the Company are then
listed if requested by the Majority Holders, to the extent
such Registrable Securities satisfy applicable listing
requirements;
(o) use its best efforts to cause the Exchange
Securities or Registrable Securities, as the case may be, to
be rated by two nationally recognized statistical rating
organizations (as such term is defined in Rule 436(g)(2)
under the 1933 Act);
(p) if reasonably requested by any Holder of
Registrable Securities covered by a Registration Statement,
(i) promptly incorporate in a Prospectus supplement or post-
effective amendment such information with respect to such
Holder as such Holder reasonably requests to be included
therein and (ii) make all required filings of such
Prospectus supplement or such post-effective amendment as
soon as the Company has received notification of the matters
to be incorporated in such filing; and
(q) in the case of a Shelf Registration, enter into
such customary agreements and take all such other actions in
connection therewith (including those requested by the
Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of
such Registrable Securities including, but not limited to,
an Underwritten Offering and in such connection, (i) to the
extent possible, make such representations and warranties to
the Holders and any Underwriters of such Registrable
Securities with respect to the business of the Company and
its subsidiaries, the Registration Statement, Prospectus and
documents incorporated by reference or deemed incorporated
by reference, if any, in each case, in form, substance and
scope as are customarily made by issuers to underwriters in
underwritten offerings and confirm the same if and when
requested, (ii) obtain opinions of counsel to the Company
(which counsel and opinions, in form, scope and substance,
shall be reasonably satisfactory to the Holders and such
Underwriters and their respective counsel) addressed to each
selling Holder and Underwriter of Registrable Securities,
covering the matters customarily covered in opinions
requested in underwritten offerings, (iii) obtain "cold
comfort" letters from the independent certified public
accountants of the Company (and, if applicable, any other
certified public accountant of any subsidiary of the
Company, or of any business acquired by the Company for
which financial statements and financial data are or are
required to be included in the Registration Statement)
addressed to each selling Holder and Underwriter of
Registrable Securities, such letters to be in customary form
and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten
offerings, and (iv) deliver such documents and certificates
as may be reasonably requested by the Holders of a majority
in principal amount of the Registrable Securities being sold
or the Underwriters, and which are customarily delivered in
underwritten offerings, to evidence the continued validity
of the representations and warranties of the Company made
pursuant to clause (i) above and to evidence compliance with
any customary conditions contained in an underwriting
agreement.
In the case of a Shelf Registration Statement, the
Company may require each Holder of Registrable Securities to
furnish to the Company such information regarding the Holder and
the proposed distribution by such Holder of such Registrable
Securities as the Company may from time to time reasonably
request in writing.
In the case of a Shelf Registration Statement, each
Holder agrees that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Section
3(e)(v) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to a Registration
Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i)
hereof, and, if so directed by the Company, such Holder will
deliver to the Company (at its expense) all copies in its
possession, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. If the
Company shall give any such notice to suspend the disposition of
Registrable Securities pursuant to a Registration Statement, the
Company shall extend the period during which the Registration
Statement shall be maintained effective pursuant to this
Agreement by the number of days during the period from and
including the date of the giving of such notice to and including
the date when the Holders shall have received copies of the
supplemented or amended Prospectus necessary to resume such
dispositions.
The Holders of Registrable Securities covered by a
Shelf Registration Statement who desire to do so may sell such
Registrable Securities in an Underwritten Offering. In any such
Underwritten Offering, the investment banker or investment
bankers and manager or managers (the "Underwriters") that will
administer the offering will be selected by the Majority Holders
of the Registrable Securities included in such offering.
4. Participation of Broker-Dealers in Exchange Offer.
-------------------------------------------------
(a) The Staff of the SEC has taken the position that
any broker-dealer that receives Exchange Securities for its own
account in the Exchange Offer in exchange for Securities that
were acquired by such broker-dealer as a result of market-making
or other trading activities (a "Participating Broker-Dealer"),
may be deemed to be an "underwriter" within the meaning of the
1933 Act and must deliver a prospectus meeting the requirements
of the 1933 Act in connection with any resale of such Exchange
Securities.
The Company understands that it is the Staff's position
that if the Prospectus contained in the Exchange Offer
Registration Statement includes a plan of distribution containing
a statement to the above effect and the means by which
Participating Broker-Dealers may resell the Exchange Securities,
without naming the Participating Broker-Dealers or specifying the
amount of Exchange Securities owned by them, such Prospectus may
be delivered by Participating Broker-Dealers to satisfy their
prospectus delivery obligation under the 1933 Act in connection
with resales of Exchange Securities for their own accounts, so
long as the Prospectus otherwise meets the requirements of the
1933 Act.
(b) In light of the above, notwithstanding the other
provisions of this Agreement, the Company agrees that the
provisions of this Agreement as they relate to a Shelf
Registration shall also apply to an Exchange Offer Registration
to the extent, and with such reasonable modifications thereto as
may be, reasonably requested by the Placement Agent or by one or
more Participating Broker-Dealers, in each case as provided in
clause (ii) below, in order to expedite or facilitate the
disposition of any Exchange Securities by Participating Broker-
Dealers consistent with the positions of the Staff recited in
Section 4(a) above; provided that:
--------
(i) the Company shall not be required to amend or
supplement the Prospectus contained in the Exchange Offer
Registration Statement, as would otherwise be contemplated
by Section 3(i) of this Agreement, for a period exceeding 60
days after the last Exchange Date (as such period may be
extended pursuant to the penultimate paragraph of Section 3
of this Agreement) and Participating Broker-Dealers shall
not be authorized by the Company to deliver and shall not
deliver such Prospectus after such period in connection with
the resales contemplated by this Section 4; and
(ii) the application of the Shelf Registration
procedures set forth in Section 3 of this Agreement to an
Exchange Offer Registration, to the extent not required by
the positions of the Staff of the SEC or the 1933 Act and
the rules and regulations thereunder, will be in conformity
with the reasonable request to the Company by the Placement
Agent or with the reasonable request in writing to the
Company by one or more broker-dealers who certify to the
Placement Agent and the Company in writing that they
anticipate that they will be Participating Broker-Dealers;
and provided further that, in connection with such
-------- -------
application of the Shelf Registration procedures set forth
in Section 3 to an Exchange Offer Registration, the Company
shall be obligated (x) to deal only with one entity
representing the Participating Broker-Dealers, which shall
be the Placement Agent unless it elects not to act as such
representative, (y) to pay the fees and expenses of only one
counsel representing the Participating Broker-Dealers, which
shall be counsel to the Placement Agent unless such counsel
elects not to so act and (z) to cause to be delivered only
one, if any, "cold comfort" letter with respect to the
Prospectus in the form existing on the last Exchange Date
and with respect to each subsequent amendment or supplement,
if any, effected during the period specified in clause (i)
above.
(c) The Placement Agent shall have no liability to the
Company or any Holder with respect to any request that it may
make pursuant to Section 4(b) above.
5. Indemnification and Contribution.
--------------------------------
(a) The Company agrees to indemnify and hold harmless
the Placement Agent, each Holder and each Person, if any, who
controls the Placement Agent or any Holder within the meaning of
either Section 15 of the 1933 Act or Section 20 of the 1934 Act,
or is under common control with, or is controlled by, the
Placement Agent or any Holder, from and against all losses,
claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred by the Placement
Agent, any Holder or any such controlling or affiliated Person in
connection with defending or investigating any such action or
claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement (or
any amendment thereto) pursuant to which Exchange Securities or
Registrable Securities were registered under the 1933 Act,
including all documents incorporated therein by reference, 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, or caused by any untrue
statement or alleged untrue statement of a material fact
contained in any Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state
therein a material fact necessary to make the statements therein
in light of the circumstances under which they were made not
misleading, except insofar as such losses, claims, damages or
liabilities are caused by any such untrue statement or omission
or alleged untrue statement or omission based upon information
relating to the Placement Agent or any Holder furnished to the
Company in writing by the Placement Agent or any selling Holder
expressly for use therein. In connection with any Underwritten
Offering permitted by Section 3 of this Agreement, the Company
will also indemnify the Underwriters, if any, selling brokers,
dealers and similar securities industry professionals
participating in the distribution, their officers and directors
and each Person who controls such Persons (within the meaning of
the 1933 Act and the 1934 Act) to the same extent as provided
above with respect to the indemnification of the Holders, if
requested in connection with any Registration Statement.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Placement Agent and
the other selling Holders, and each of their respective
directors, officers who sign the Registration Statement and each
Person, if any, who controls the Company, the Placement Agent and
any other selling Holder within the meaning of either Section 15
of the 1933 Act or Section 20 of the 1934 Act to the same extent
as the foregoing indemnity from the Company to the Placement
Agent and the Holders, but only with reference to information
relating to such Holder furnished to the Company in writing by
such Holder expressly for use in any Registration Statement (or
any amendment thereto) or any Prospectus (or any amendment or
supplement thereto).
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person in
respect of which indemnity may be sought pursuant to either
paragraph (a) or paragraph (b) above, 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 request of the
indemnified party, shall retain counsel reasonably satisfactory
to the indemnified party to represent the 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 indemnifying
party and the indemnified party and 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 (a) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Placement Agent
and all Persons, if any, who control the Placement Agent within
the meaning of either Section 15 of the 1933 Act or Section 20 of
the 1934 Act, (b) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Company, its
directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company within the meaning
of either such Section and (c) the fees and expenses of more than
one separate firm (in addition to any local counsel) for all
Holders and all Persons, if any, who control any Holders within
the meaning of either such Section, and that all such fees and
expenses shall be reimbursed as they are incurred. In such case
involving the Placement Agent and Persons who control the
Placement Agent, such firm shall be designated in writing by the
Placement Agent. In such case involving the Holders and such
Persons who control Holders, such firm shall be designated in
writing by the Majority Holders. In all other cases, such firm
shall be designated by the Company. The indemnifying party shall
not be liable for any settlement of any proceeding effected
without its written consent but, if settled with such consent or
if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel
as contemplated by the second and third sentences of this
paragraph, the indemnifying party agrees that it shall be liable
for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days
after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the
indemnified party for such fees and expenses of counsel in
accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement
of any pending or threatened proceeding in respect of which such
indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the
subject matter of such proceeding.
(d) If the indemnification provided for in paragraph
(a) or paragraph (b) of this Section 4 is unavailable to an
indemnified party or insufficient in respect of any losses,
claims, damages or liabilities, then each indemnifying party
under such paragraph, in lieu of indemnifying such indemnified
party thereunder, shall 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 the indemnifying party or parties
on the one hand and of the indemnified party or parties on the
other hand 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 and the Holders 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 the Company or by the Holders and the parties' relative
intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this Section
5(d) are several in proportion to the respective principal amount
of Registrable Securities of such Holder that were registered
pursuant to a Registration Statement.
(e) The Company and each Holder agree that it would
not be just or equitable if contribution pursuant to this Section
5 were determined by pro rata allocation or by any other method
--- ----
of allocation that does not take account of the equitable
considerations referred to in paragraph (d) above. The amount
paid or payable by an indemnified party as a result of the
losses, claims, damages and liabilities referred to in paragraph
(d) above 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 Section 5, no Holder shall be required to
indemnify or contribute any amount in excess of the amount by
which the total price at which Registrable Securities were sold
by such Holder exceeds the amount of any damages that such 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 1933 Act) shall be entitled to
contribution from any Person who was not guilty of such
fraudulent misrepresentation. The remedies provided for in this
Section 5 are not exclusive and shall not limit any rights or
remedies which may otherwise be available to any indemnified
party at law or in equity.
The indemnity and contribution provisions contained in
this Section 5 shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii)
any investigation made by or on behalf of the Placement Agent,
any Holder or any Person controlling the Placement Agent or any
Holder, or by or on behalf of the Company, its officers or
directors or any Person controlling the Company, (iii) acceptance
of any of the Exchange Securities and (iv) any sale of
Registrable Securities pursuant to a Shelf Registration
Statement.
6. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company has not
--------------------------
entered into, and on or after the date of this Agreement will not
enter into, any agreement which is inconsistent with the rights
granted to the Holders of Registrable Securities in this
Agreement or otherwise conflicts with the provisions hereof. The
rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to
the holders of the Company's other issued and outstanding
securities under any such agreements.
(b) Amendments and Waivers. The provisions of this
----------------------
Agreement, including the provisions of this sentence, may not be
amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given unless the
Company has obtained the written consent of Holders of at least a
majority in aggregate principal amount of the outstanding
Registrable Securities affected by such amendment, modification,
supplement, waiver or consent; provided, however, that no
-------- -------
amendment, modification, supplement, waiver or consents to any
departure from the provisions of Section 5 hereof shall be
effective as against any Holder of Registrable Securities unless
consented to in writing by such Holder.
(c) Notices. All notices and other communications
-------
provided for or permitted hereunder shall be made in writing by
hand-delivery, registered first-class mail, telex, telecopier, or
any courier guaranteeing overnight delivery (i) if to a Holder,
at the most current address given by such Holder to the Company
by means of a notice given in accordance with the provisions of
this Section 6(c), which address initially is, with respect to
the Placement Agent, the address set forth in the Indenture, and
(ii) if to the Company, initially at the Company's address set
forth in the Indenture and thereafter at such other address,
notice of which is given in accordance with the provisions of
this Section 6(c).
All such notices and communications shall be deemed to
have been duly given: at the time delivered by hand, if
personally delivered; five business days after being deposited in
the mail, postage prepaid, if mailed; when answered back, if
telexed; when receipt is acknowledged, if telecopied; and on the
next business day if timely delivered to an air courier
guaranteeing overnight delivery.
Copies of all such notices, demands, or other
communications shall be concurrently delivered by the person
giving the same to the Trustee, at the address specified in the
Indenture.
(d) Successors and Assigns. This Agreement shall
----------------------
inure to the benefit of and be binding upon the successors,
assigns and transferees of each of the parties, including,
without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein
--------
shall be deemed to permit any assignment, transfer or other
disposition of Registrable Securities in violation of the terms
of the Placement Agreement. If any transferee of any Holder
shall acquire Registrable Securities, in any manner, whether by
operation of law or otherwise, such Registrable Securities shall
be held subject to all of the terms of this Agreement, and by
taking and holding such Registrable Securities such person shall
be conclusively deemed to have agreed to be bound by and to
perform all of the terms and provisions of this Agreement and
such person shall be entitled to receive the benefits hereof.
The Placement Agent (in its capacity as Placement Agent) shall
have no liability or obligation to the Company with respect to
any failure by a Holder to comply with, or any breach by any
Holder of, any of the obligations of such Holder under this
Agreement.
(e) Purchases and Sales of Securities. The Company
---------------------------------
shall not, and shall use its best efforts to cause its affiliates
(as defined in Rule 405 under the 1933 Act) not to, purchase and
then resell or otherwise transfer any Notes.
(f) Third Party Beneficiary. The Holders shall be
-----------------------
third party beneficiaries to the agreements made hereunder
between the Company, on the one hand, and the Placement Agent, on
the other hand, and each Holder shall have the right to enforce
such agreements directly to the extent it deems such enforcement
necessary or advisable to protect its rights or the rights of
Holders hereunder.
(g) Counterparts. This Agreement may be executed
------------
manually or by facsimile in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
(i) Governing Law; Submission to Jurisdiction. This
-----------------------------------------
Agreement shall be governed by and construed in accordance with
the laws of the State of New York. The Company agrees to submit
to the jurisdiction of any federal or state court located in the
City of New York in any suit, action or proceeding with respect
to this Agreement and for actions brought under the U.S. federal
or state securities laws brought in any such court.
(j) Severability. In the event that any one or more
------------
of the provisions contained herein, or the application thereof in
any circumstance, is held invalid, illegal or unenforceable, the
validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first written above.
ICG SERVICES, INC.
By: /s/ Dan Teague
--------------------------
Name: H. Dan Teague
Title: Executive Vice
President, General
Counsel and Secretary
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
By: /s/ James B. Avery
---------------------------------
Name: James B. Avery
Title: Principal
EXHIBIT 5.1
(212) 603-2000
New York, New York
April 22, 1998
ICG Services, Inc.
161 Inverness Drive West
Englewood, CO 80112
Re: ICG SERVICES, INC.;
REGISTRATION STATEMENT ON FORM S-4
----------------------------------
Ladies and Gentlemen:
As counsel for ICG Services, Inc., a Delaware
corporation (the "Company"), we have been requested to
furnish our opinion as to matters hereinafter set forth in
connection with the proposed issuance by the Company of
$490,000,000 in aggregate principal amount of its 10%
Senior Exchange Discount Notes due 2008 (the "Exchange
Notes"), under an Indenture dated February 12, 1998,
between the Company and Norwest Bank Colorado, National
Association (the "Trustee"), in exchange for its
outstanding 10% Senior Discount Notes due 2008 (the
"Exchange Offer"). The issuance of the Exchange Notes
pursuant to the Exchange Offer will be registered under the
Securities Act of 1933, as amended (the "Act"), pursuant to
a registration statement on Form S-4, as amended (the
"Registration Statement"), which Registration Statement
sets forth the terms and conditions of the Exchange Offer.
In connection herewith, we have examined the Certificate of
Incorporation and By-Laws of the Company and the minutes of
the Board of Directors of the Company with respect to the
registration of the Exchange Notes and the issuance of the
Exchange Notes. We have also examined such other
documents, records, certificates of public officials and
such matters of law as we have deemed necessary or
appropriate for the purpose of rendering this opinion.
We are members of the bar of the State of New
York and are not licensed or admitted to practice law in
any other jurisdiction. Accordingly, we have not reviewed
and we express no opinion with respect to the laws of any
jurisdiction other than the State of New York.
Based upon the foregoing, we are of the opinion
that when the Exchange Notes are duly executed by the
Company and authenticated by the Trustee in accordance with
the terms of the Indenture and issued in accordance with
the terms of the Exchange Offer, the Exchange Notes will be
duly authorized and constitute valid and binding
obligations of the Company.
We hereby consent to the filing of this opinion
as an exhibit to the Registration Statement and to the
reference to this firm appearing in the Prospectus under
the heading "Legal Matters." In giving the foregoing
consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section
7 of the Act or the rules and regulations of the Securities
and Exchange Commission thereunder.
Very truly yours,
/s/ Reid & Priest LLP
REID & PRIEST LLP
EXHIBIT 8.1
New York, New York
April 24, 1998
ICG Services, Inc.
161 Inverness Drive West
Englewood, Colorado 80112
Ladies and Gentlemen:
Reference is made to the prospectus, (the
"Prospectus"), which constitutes part of the registration
statement on Form S-4 ("Registration Statement"), to be filed by
ICG Services, Inc. with the Securities and Exchange Commission on
or about the date hereof pursuant to the Securities Act of 1933,
as amended, for the exchange of 10% Senior Exchange Discount
Notes due 2008 for an equal principal amount of newly-issued 10%
Senior Exchange Discount Notes due 2008 (the "New Notes").
We are of the opinion that the statements set forth
under the caption "Certain United States Federal Income Tax
Considerations" in the Prospectus constitute an accurate
description, in general terms, of certain United States federal
income tax considerations that may be relevant to the prospective
holders of the New Notes.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the references to us
in the Prospectus under the caption "Certain United States
Federal Income Tax Considerations."
Very truly yours,
/s/ Reid & Priest LLP
REID & PRIEST LLP
21.1: Subsidiaries of Registrant.
Name of State of Doing
Subsidiary Incorporation Business as
---------- ------------- -----------
ICG Equipment, Inc. Colorado --
NETCOM On-Line
Communication
Services, Inc. Delaware --
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption
"Experts" and to the use of our report dated February 13, 1998
with respect to the consolidated financial statements of NETCOM
On-Line Communications Services, Inc., in the Registration
Statement (Form S-4) and related Prospectus of ICG Services, Inc.
for the registration of 10% Senior Exchange Discount Notes due
2008.
ERNST & YOUNG LLP
San Jose, California
April 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of ICG Services, Inc. and subsidiaries for
the fiscal year ended December 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 63,368
<SECURITIES> 0
<RECEIVABLES> 4,025
<ALLOWANCES> 1,628
<INVENTORY> 341
<CURRENT-ASSETS> 69,660
<PP&E> 122,923
<DEPRECIATION> 49,978
<TOTAL-ASSETS> 146,847
<CURRENT-LIABILITIES> 30,962
<BONDS> 3,550
0
0
<COMMON> 102
<OTHER-SE> 112,233
<TOTAL-LIABILITY-AND-EQUITY> 146,847
<SALES> 0
<TOTAL-REVENUES> 160,660
<CGS> 0
<TOTAL-COSTS> 95,498
<OTHER-EXPENSES> 97,482
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 734
<INCOME-PRETAX> (33,054)
<INCOME-TAX> (38)
<INCOME-CONTINUING> (33,092)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,092)
<EPS-PRIMARY> (3.27)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of ICG Services, Inc. and subsidiaries for
the fiscal year ended December 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 73,408
<SECURITIES> 849
<RECEIVABLES> 2,180
<ALLOWANCES> 896
<INVENTORY> 464
<CURRENT-ASSETS> 78,489
<PP&E> 107,476
<DEPRECIATION> 23,103
<TOTAL-ASSETS> 169,634
<CURRENT-LIABILITIES> 24,843
<BONDS> 0
0
0
<COMMON> 101
<OTHER-SE> 144,690
<TOTAL-LIABILITY-AND-EQUITY> 169,634
<SALES> 0
<TOTAL-REVENUES> 120,540
<CGS> 0
<TOTAL-COSTS> 73,545
<OTHER-EXPENSES> 91,237
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (44,242)
<INCOME-TAX> (23)
<INCOME-CONTINUING> (44,265)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (44,265)
<EPS-PRIMARY> (4.46)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of ICG Services, Inc. and subsidiaries for
the fiscal year ended December 31, 1995 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 146,001
<SECURITIES> 0
<RECEIVABLES> 1,678
<ALLOWANCES> 225
<INVENTORY> 206
<CURRENT-ASSETS> 149,131
<PP&E> 54,118
<DEPRECIATION> (7,394)
<TOTAL-ASSETS> 202,680
<CURRENT-LIABILITIES> 17,214
<BONDS> 0
0
0
<COMMON> 111
<OTHER-SE> 185,355
<TOTAL-LIABILITY-AND-EQUITY> 202,680
<SALES> 0
<TOTAL-REVENUES> 52,422
<CGS> 0
<TOTAL-COSTS> 29,550
<OTHER-EXPENSES> 36,921
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (14,049)
<INCOME-TAX> (15)
<INCOME-CONTINUING> (14,064)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,064)
<EPS-PRIMARY> (1.95)
<EPS-DILUTED> 0
</TABLE>
