<PAGE>
Rule 424(b)3
File Nos. 333-04569
333-04569-01
OFFER TO EXCHANGE
ALL OUTSTANDING
12 1/2% SENIOR DISCOUNT NOTES DUE 2006
FOR
12 1/2% SENIOR EXCHANGE DISCOUNT NOTES DUE 2006
OF
INTELCOM GROUP (U.S.A.), INC.
GUARANTEED BY
INTELCOM GROUP INC.
AND
OFFER TO EXCHANGE
ALL OUTSTANDING
EXCHANGEABLE PREFERRED STOCK
MANDATORILY REDEEMABLE 2007
(EXCHANGEABLE AT THE OPTION OF ICG)
FOR
NEW EXCHANGEABLE PREFERRED STOCK
MANDATORILY REDEEMABLE 2007
(EXCHANGEABLE AT THE OPTION OF ICG)
OF
INTELCOM GROUP (U.S.A.), INC.
---------------------------------
THE EXCHANGE OFFERS
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON AUGUST 7, 1996 UNLESS EXTENDED
-------------------------------
IntelCom Group (U.S.A.), Inc., a Colorado corporation ("ICG"), hereby
offers upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), (i) to exchange (the "Note Exchange Offer") its outstanding 12
1/2% Senior Discount Notes due 2006 (the "Old Notes"), of which an aggregate
of $550,300,000 in principal amount is outstanding as of the date hereof for
an equal principal amount of newly issued 12 1/2% Senior Exchange Discount
Notes due 2006 (the "New Notes") and (ii) to exchange (the "Preferred Stock
Exchange Offer") its outstanding Exchangeable Preferred Stock (the "Old
Preferred Stock") for an equal amount of newly issued New Exchangeable
Preferred Stock (the "New Preferred Stock"). The form and terms of the New
Notes will be the same as the form and terms of the Old Notes except that the
New Notes will be registered under the Securities Act of 1933, as amended (the
"Securities Act"), and will not bear legends restricting the transfer thereof.
The form and terms of the New Preferred Stock will be the same as the form and
terms of the Old Preferred Stock except that the New Preferred Stock will be
registered under the Securities Act and will not bear legends restricting the
transfer thereof. The New Preferred Stock will be entitled to the benefits of
the First Amended and Restated Articles of Incorporation of ICG, filed with
the Secretary of State of the State of Colorado on April 29, 1996, governing
the Preferred Stock (the "Amended Articles"). The New Notes will be entitled
to the benefits of the indenture, dated as of April 30, 1996, governing the
Notes (the "Indenture"). The New Notes and the Old Notes are sometimes
referred to herein collectively as the "Notes" or the "Senior Notes." The Old
Notes and the Old Preferred Stock are sometimes referred to herein
collectively as the Old Securities, and the New Notes and the New Preferred
Stock are sometimes referred to herein collectively as the New Securities.
The New Preferred
(Continued on next page)
SEE "RISK FACTORS" AT PAGE 20 FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD
BE CONSIDERED BY ELIGIBLE HOLDERS IN EVALUATING THE EXCHANGE OFFERS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
Stock and the Old Preferred Stock are sometimes referred to herein as the
"Preferred Stock." The Note Exchange Offer and the Preferred Stock Exchange
Offer are sometimes collectively referred to herein as the "Exchange Offers."
There will not be any payment of interest on the New Notes prior to
November 1, 2001. Interest on the New Notes will be paid in cash at the rate
of 12 1/2% per annum on each May 1 and November 1, commencing November 1,
2001, to holders of record on the immediately preceding April 15 and October
15, respectively. Payment of the New Notes is fully and unconditionally
guaranteed by IntelCom. Prior to these Exchange Offers there has been no
public market for any securities of ICG and there can be no assurance that
such a market will develop. See "Description of New Notes." ICG is a
subsidiary of IntelCom Group Inc., a Canadian federal corporation ("IntelCom";
and together with ICG, the "Company").
On or after May 1, 2001, the New Notes are redeemable, at the option of
the Company, in whole or in part, at the redemption prices set forth herein
plus accrued interest to the date of redemption. Upon a Change of Control (as
herein defined), the Company is required to repurchase all of the outstanding
Notes at 101% of the accreted value thereof plus accrued interest to the date
of repurchase. At March 31, 1996, ICG and IntelCom had, on an unconsolidated
basis, approximately $327.0 million of senior indebtedness, including capital
lease obligations, and $68.5 million of subordinated indebtedness outstanding
(which amounts do not include the New Notes and the Note Guarantee).
Dividends on the New Preferred Stock at a rate of 14 1/4% per annum
will be cumulative from the date of issuance and are payable quarterly in cash
or, on or prior to May 1, 2001, at the option of ICG, in additional shares of
Preferred Stock, on each February 1, May 1, August 1 and November 1,
commencing August 1, 1996. If additional shares of Preferred Stock are issued
in lieu of cash dividends, such shares will be registered under the Securities
Act. If additional shares of Preferred Stock are issued in lieu of cash
dividends, such dividends will be registered under the Securities Act. ICG is
required to redeem the New Preferred Stock at the liquidation preference of
$1,000 per share, plus accrued and unpaid dividends on May 1, 2007. The New
Preferred Stock will be redeemable, in whole or in part, at the option of ICG,
at any time on or after May 1, 2001. The New Preferred Stock will be
exchangeable, in whole but not in part, at the option of ICG, into 14 1/4%
Senior Subordinated Exchange Debentures due 2007 of ICG (the "Exchange
Debentures"). If issued, the Exchange Debentures will be redeemable, in whole
or in part, at the option of ICG, at any time on or after May 1, 2001.
The Company will accept for exchange any and all Old Securities which
are properly tendered in the Exchange Offers prior to 5:00 p.m., New York City
time, on August 7, 1996 (if and as extended, the "Expiration
Date"). Tenders of Old Securities may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date. The Exchange Offers are not
conditioned upon any minimum principal amount of Old Notes or number of shares
of Old Preferred Stock being tendered for exchange. Old Notes may be tendered
only in integral multiples of $1,000.
Based on a previous interpretation by the staff of the Securities and
Exchange Commission (the "Commission") set forth in no-action letters to third
parties, the Company believes that the New Securities issued pursuant to the
Exchange Offers may be offered for resale, resold and otherwise transferred by
a holder thereof (other than (i) a broker-dealer who purchases such New
Securities directly from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act or (ii) a person that is an
affiliate of the Company (within the meaning of Rule 405 under the Securities
Act)) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the holder or any other such
person is acquiring the New Securities in its ordinary course of business and
is not participating, and has no arrangement or understanding with any person
to participate, in the distribution of the New Securities. Holders of Old
Securities wishing to accept the Exchange Offers must represent to the Company
that such conditions have been met.
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offers must acknowledge that it will deliver a
Prospectus in connection with any resale of such New Securities. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus,
a broker-dealer will not be deemed to admit that it is an "underwriter,"
within the meaning of the Securities Act, in connection with resales of New
Securities received in exchange for Old Securities where such Old Securities
were acquired by such broker-dealer as a result of market-making activities or
other trading activities. The Company has agreed that, for a period of 90
days after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company believes that none of the registered holders of the Old
Securities is an affiliate (as such term is defined in Rule 405 under the
Securities Act) of the Company. Prior to this Exchange Offer, there has been
no public market for the Old Securities. The Company does not intend to list
the New Securities on any securities exchange or to seek approval for
quotation through any automated quotation system. There can be no assurance
that an active market for the New Securities will develop. To the extent that
a market for the New Securities does develop, the market value of the New
Securities will depend on market conditions (including yields on alternative
investments), general economic conditions, the Company's financial condition
and other conditions. Such conditions might cause the New Notes, to the
extent that they are actively traded, to trade at a significant discount from
face value. The Company has not entered into any arrangement or understanding
with any person to distribute the New Securities to be received in the
Exchange Offers.
The Company will not receive any proceeds from the Exchange Offers.
The Company has agreed to bear the expenses of the Exchange Offers. No
underwriter is being used in connection with the Exchange Offers.
The date of this Prospectus is July 8, 1996.
-2-
<PAGE>
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE
UPON REQUEST ADDRESSED TO INTELCOM GROUP INC., C/O INTELCOM GROUP
(U.S.A.), INC., 9605 E. MAROON CIRCLE, P.O. BOX 6742 ENGLEWOOD, COLORADO
80112, ATTN: INVESTOR RELATIONS (TELEPHONE NUMBER (303) 572-5960). IN
ORDER TO INSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE
MADE BY JULY 26, 1996.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-4 under the Securities Act with respect to the New Securities
offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus omits certain information, exhibits and
undertakings contained in the Registration Statement. For further
information with respect to the Company and the New Securities offered
hereby, reference is made to the Registration Statement, including the
exhibits thereto and the financial statements, notes and schedules filed
as a part thereof. IntelCom is and has been subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Summary financial information with respect to ICG is
contained in the Exchange Act reports of IntelCom. The Registration
Statement (and the exhibits and schedules thereto), as well as the
periodic reports and other information filed by IntelCom with the
Commission, may be inspected and copied at the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C.20549 and at the regional offices of the Commission
located at 7 World Trade Center, New York, New York 10007 and Suite 1400,
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661-2511. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and its public reference
facilities in New York, New York and Chicago, Illinois at the prescribed
rates. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each
instance reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
No person is authorized in connection with any offering made hereby to
give any information or to make any representation other than as
contained in this Prospectus or the accompanying Letter of Transmittal,
and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company. Neither this
Prospectus nor the accompanying Letter of Transmittal or both together
constitute an offer to sell or a solicitation of an offer to buy any
security other than the New Securities offered hereby, nor does it
constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby to any person in any jurisdiction in which it
is unlawful to make such offer or solicitation to such person. Neither
the delivery of this Prospectus or the accompanying Letter of Transmittal
or both together, nor any sale made hereunder shall under any
circumstances imply that the information contained herein is correct as
of any date subsequent to the date hereof.
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed by IntelCom with the Commission
and are hereby incorporated by reference and made a part of this
Prospectus:
1. Annual Report on Form 10-K for the year ended September 30, 1995
(File No. 1-11052).
2. Annual Report on Form 10-K/A for the fiscal year ended September
30, 1995 (File No. 1-11052).
3. Quarterly Report on Form 10-Q/A for the fiscal quarter ended
December 31, 1995 (File No. 1-11052).
4. Quarterly Report on Form 10-Q/A for the fiscal quarter ended March
31, 1996 (File No. 1-11052).
5. Current Report on Form 8-K dated April 29, 1996 (File No. 1-
11052).
6. Current Report on Form 8-K dated April 11, 1996 (File No. 1-
11052).
-3-
<PAGE>
All documents subsequently filed by the Company or IntelCom with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act, after the date of this Prospectus and prior to the termination of
this offering, shall be deemed to be incorporated by reference into the
Registration Statement of which this Prospectus is a part and to be a
part hereof from the date of such filing. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be
incorporated by reference in this Prospectus modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person
to whom this Prospectus is delivered, upon oral or written request of
such person, a copy of any and all information that has been incorporated
by reference into this Prospectus (not including exhibits to the
information unless such exhibits are specifically incorporated by
reference into such information). Requests for information should be
addressed to: IntelCom Group Inc., c/o IntelCom Group (U.S.A.), Inc.,
9605 E. Maroon Circle, P.O. Box 6742, Englewood, Colorado 80112, Attn:
Investor Relations (telephone number (303) 572-5960).
------------------
Until October 26, 1996 (90 days after the date of the Exchange
Offers), all dealers offering transactions in the New Securities, whether
or not participating in the Exchange Offers, may be required to deliver a
Prospectus.
-4-
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus as well as the information
appearing in the documents incorporated by reference herein. Unless the
context otherwise requires, the term "Company" means the combined business
operations of ICG and its subsidiaries and ICG's parent, IntelCom; the terms
"fiscal" and "fiscal year" refer to IntelCom's fiscal year ending September
30; and all dollar amounts are in U.S. dollars. Industry figures were
obtained from reports published by the Federal Communications Commission
("FCC"), the U.S. Department of Commerce, Connecticut Research (an industry
research organization) and other industry sources, which the Company has not
independently verified. Certain information contained in this Summary and
elsewhere in this Prospectus and information with respect to the Company's
plans and strategy for its business and related financing are forward-looking
statements. For a discussion of important factors that could cause actual
results to differ materially from forward-looking statements, see "Risk
Factors." Investors should carefully consider the information set forth under
the caption "Risk Factors" including the risks relating to historical and
anticipated operating losses and negative cash flow.
THE COMPANY
The Company is one of the largest providers of competitive local access
services in the United States, based on estimates of the industry's 1995
revenue. Competitive local exchange companies ("CLECs"), formerly known as
CAPs (competitive access providers), seek to provide an alternative to the
local exchange telephone company ("LEC") for a full range of
telecommunications services in the newly opened federal regulatory
environment. The Company operates networks in 37 cities with populations in
excess of 100,000, has recently acquired fiber optic facilities in 22 more
cities and has networks under construction in four additional cities. As a
result, the Company now serves more Tier II and Tier III markets with
populations of between 250,000 and 2,000,000 than any other CLEC in the United
States, with a significant presence in regional clusters covering major
metropolitan areas in California, Colorado and the Ohio Valley. The Company
also provides a wide range of network systems integration services and
maritime and international satellite transmission services. As a leading
participant in a rapidly growing industry, the Company has experienced
significant growth, with total revenues increasing from $7.6 million for
fiscal 1992 to $111.6 million for fiscal 1995 and $132.4 million for the 12-
month period ended March 31, 1996.
The Federal Telecommunications Act of 1996 (the "Telecommunications Act")
and several state regulatory initiatives have substantially changed the
telecommunications regulatory environment in the United States. Due to these
regulatory changes, the Company is now permitted to offer all interstate and
intrastate switched services, including local dial tone (which the Company
intends to begin offering in the second half of 1996). In order to take
advantage of the switched services market, the Company has installed 13 high
capacity digital switches that enable the Company to offer these services in
all of its markets.
In response to these regulatory changes, the Company is accelerating the
development of its telecom services business and, in order to facilitate rapid
and cost-effective expansion, is investing significant resources to expand its
network footprint and service offerings and is entering into agreements with
utility companies and other local strategic partners. The Company has entered
into long-term agreements with three utilities, Southern California Edison
Company ("SCE"), City Public Service of San Antonio ("CPS") and a subsidiary
of The Southern Company ("Southern"). Under these agreements, the Company is
licensing fiber optic facilities in Southern California (1,258 miles), San
Antonio (300 miles, 60 of which currently exist) and Birmingham (144 miles, 22
of which currently exist). The Company also has invested in ICG Telecom of
San Diego, L.P., a California limited partnership (formerly known as Linkatel
California, L.P., a California limited partnership) ("ICG Telecom of San
Diego"), which operates a fiber optic network (50 miles) in metropolitan San
Diego. The Company is actively pursuing licensing arrangements with other
utility companies and other strategic partners.
The Company also has entered into a national contract with AT&T Corp.
("AT&T") under which the Company will provide special and switched access
services to AT&T on the Company's networks.
-5-
<PAGE>
TELECOM SERVICES
The Company operates networks in the following markets within its three
regional clusters: California (Sacramento, San Diego and 17 cities in the Los
Angeles and San Francisco metropolitan areas); Colorado (Denver, Colorado
Springs and Boulder); and the Ohio Valley (Akron, Cleveland, Columbus, Dayton
and Louisville). The Company also operates networks in Birmingham, Charlotte,
Phoenix, Melbourne (Florida) and Nashville. The Company has recently acquired
fiber optic facilities in 22 additional cities in the Los Angeles metropolitan
area through its agreement with SCE and is developing networks in Cincinnati,
Greensboro/Winston-Salem and San Antonio. The Company is in the process of
selling its networks in Melbourne and Phoenix. The Company's operating
networks have grown from approximately 12,000 customer voice grade equivalent
circuits ("VGEs") at the end of fiscal 1992 to approximately 430,000 VGEs at
the end of fiscal 1995 and 511,000 VGEs as of March 31, 1996. This has driven
telecom services revenue from $1.1 million for fiscal 1992 to $32.3 million
for fiscal 1995 and $50.6 million for the 12-month period ended March 31,
1996.
STRATEGY
The Company's goal is to become the dominant alternative to the LEC in the
markets it serves. In furtherance of this goal, the Company has developed a
strategy to capitalize on its established customer base of long distance
carriers and to develop its markets within regional clusters. Key elements of
this strategy are:
Market Services Primarily to Long Distance Carriers. The Company believes
there are several advantages to acting as a "carrier's carrier" and marketing
its services primarily to long distance carriers and resellers. Long distance
carriers generally determine who will carry the local segment of a long
distance telephone call, thereby enabling the Company to reduce its marketing
costs by focusing on a few high-volume customers. Also, the continuing
deregulation of local telephone service creates new opportunities for the
Company to work with its long distance carrier customers to develop and
deliver local dial tone and new enhanced products and services. The major
long distance carriers served by the Company operate in all U.S. markets and
provide the Company with information about business opportunities and the
carriers' anticipated needs in markets the Company may enter. The carriers
and resellers served by the Company accounted for approximately 82% of the
Company's telecom services revenue for fiscal 1995. The Company believes that
its "carrier's carrier" strategy reduces the risks associated with significant
network investments because the Company works with long distance carrier
customers, such as AT&T, MCI Communications Corp. ("MCI"), Sprint Corporation
("Sprint") and WorldCom, Inc. ("WorldCom"), to develop new products and
services.
Concentrate Markets in Regional Clusters. The Company's "first to market"
advantage in certain cities has allowed it to concentrate its networks in
regional clusters serving major metropolitan areas in California, Colorado and
the Ohio Valley. The Company believes that by focusing on regional clusters
it will be able to more effectively service its customers' needs and
efficiently develop, operate and control its networks. The Company also is
evaluating the expansion of its existing clusters and the addition of new
regional clusters in which it may seek to acquire, build or license fiber
optic facilities.
Expand Alliances with Utilities. The Company has established, and is
actively pursuing, strategic alliances with utility companies to take
advantage of their existing fiber optic infrastructures. This approach
affords the Company the opportunity to license or lease fiber optic facilities
on a long-term basis throughout a utility's service area in a more timely,
cost-effective manner than constructing facilities. In addition, utilities
possess conduit and rights of way that facilitate the installation of fiber to
extend the existing network in a given market.
Aggressively Pursue Local Dial Tone and Switched Services. With the passage
of the Telecommunications Act, LECs will be allowed to offer long distance
services in competition with the Company's current long distance carrier
customers. As a result, the Company's long distance carrier customers are
seeking to rapidly reduce their reliance on LEC networks. By offering an
array of telecommunications products, including local dial tone and enhanced
services, the Company will be providing a high quality, lower cost alternative
to the LEC. As a result, the Company expects switched services to become a
primary business of the Company as it introduces local dial tone in the second
half of 1996. The Company has established a network of 13 switches in its
markets to offer these
-6-
<PAGE>
services. The Company's switched minutes of use have increased from 10
million minutes in the first quarter of fiscal 1995 to 362 million minutes
in the second quarter of fiscal 1996.
NETWORK SERVICES
Through the Company's wholly owned subsidiary, Fiber Optic Technologies,
Inc. ("FOTI"), the Company supplies information technology services, focusing
on client/server technologies, network design, installation, maintenance and
support for a variety of end users, including large businesses and
telecommunications companies. The Company specializes in the installation and
support of network systems for clients that include Amoco Corporation
("Amoco"), MCI, Intel Corporation ("Intel") and other leading Fortune 1000
firms. Revenue for Network Services has grown from $13.3 million for the 12-
month period ended September 30, 1992 (including revenue prior to the
Company's acquisition of FOTI) to $58.8 million for fiscal 1995 and $59.7
million for the 12-month period ended March 31, 1996.
SATELLITE SERVICES
The Company's Satellite Services operations provide satellite-based voice
and data connectivity to domestic and international customers. The Company
operates a maritime telecommunications business providing satellite telephone
services to major cruise ship lines and the U.S. Navy, a VSAT (very small
aperture terminal) data transmission business and a teleport providing
international voice and data services. The Company also recently acquired 90%
of the outstanding shares of Maritime Cellular Tele-Network, Inc. ("MCN"), a
Florida-based maritime telecommunications operator, which provides satellite
telephone services to smaller vessels and will complement the Company's
existing cruise ship telephone services business. The Company recently sold
four teleports (Atlanta, Denver, Los Angeles and New Jersey) to Vyvx, Inc., a
subsidiary of The Williams Companies ("Vyvx"), for a cash purchase price of
approximately $21.5 million. The Company continues to own and operate one
teleport and has the right to lease capacity on the teleports it sold.
Revenue for the Satellite Services operations (adjusted to reflect the sale of
the teleports) was $11.4 million for fiscal 1995 and $14.9 million for the
12-month period ended March 31, 1996.
RECENT DEVELOPMENTS
NETWORK EXPANSION
In March 1996, the Company and SCE jointly filed an agreement with the
California Public Utilities Commission ("CPUC") under which the Company will
license 1,258 miles of fiber optic cable in Southern California. This
network, which will be operated and maintained by the Company, stretches from
suburban Los Angeles to San Diego. In addition, the agreement allows the
Company to utilize SCE's facilities to install up to 500 additional miles of
fiber optic cable. The Company has identified over 1,300 buildings which,
based upon estimates of building size and telecommunications traffic volumes,
will be targeted by the Company for connection to the network. The Company
believes this agreement is strategically important to enhancing its market
position in California and providing it with a fiber optic infrastructure in a
timely, cost-effective manner.
In March 1996, the Company entered into a national contract with AT&T under
which the Company will provide special and switched access services to AT&T.
The Company and AT&T have initially identified 12 MSAs (metropolitan
statistical areas) in which the Company will provide services and are in
discussions with respect to seven additional MSAs in which the Company may
provide services. The Company believes that this agreement is indicative of a
trend by long distance carriers to shift origination and termination of long
distance traffic away from LEC networks to the facilities of CLECs. Under the
agreement, the Company will work with AT&T to provide special and switched
access services in the Company's other markets and new markets which the
Company may enter.
The Company recently invested $10.0 million to acquire a 60% interest in,
and became the general partner of, ICG Telecom of San Diego, whose other
partners are Linkatel Communications, Inc. and The Copley Press, Inc., the
publisher of The San Diego Union Tribune ("Copley Press"). ICG Telecom of
San Diego operates a 50-mile fiber optic network and is constructing an
additional 110 miles of fiber in metropolitan San Diego. As a result of
-7-
<PAGE>
the ICG Telecom of San Diego acquisition, combined with the Company's
existing California networks and the facilities under agreement with SCE, the
Company now has a network presence in all major metropolitan areas of
California.
In November 1995, the Company entered into a long-term agreement with CPS to
license half of the capacity on a 300-mile fiber optic network (60 of which
currently exist) in greater San Antonio. CPS will construct the remaining
240-mile network in conjunction with the Company. Upon completion, the
network is expected to be able to service 120 buildings. During construction,
the Company will be able to provide services to completed segments of the
network.
In March 1996, the Company entered into a long-term license agreement with a
subsidiary of Southern and Alabama Power Company ("Alabama Power"), for the
right to use 22 miles of fiber and 122 miles of additional Alabama Power
facilities to reach the three major business centers in Birmingham.
In February 1996, the Company entered into a long-term agreement with
WorldCom under which the Company will pay approximately $8.8 million for the
right to use fiber along a 330-mile fiber optic network in Ohio. The network,
which is being constructed by WorldCom in conjunction with the Company, will
provide a direct fiber link between the Company's existing networks in Akron,
Cleveland, Columbus and Dayton and its new network under development in
Cincinnati.
MANAGEMENT
The Company named James D. Grenfell as Executive Vice President, Chief
Financial Officer and Treasurer in November 1995. Mr. Grenfell has been a
financial executive in the telecommunications industry for over 15 years, most
recently with BellSouth Corp.
ACCOUNTING CHANGES
Effective January 1, 1996, the Company changed its method of accounting for
long-term telecom services contracts to recognize revenue as services are
provided. The Company also has shortened the estimated depreciable lives of
substantially all of its fixed assets. The Company believes this revised
accounting method and the changes in estimated depreciable lives are
preferable because they are more consistent with accounting practices within
the telecommunications industry.
UNITED STATES INCORPORATION
The Board of Directors of IntelCom has adopted a plan under which IntelCom
will become a subsidiary of a new publicly traded United States
corporation.
FINANCING
In April 1996, ICG completed a private offering (the "Private Offering") of
(i) the Old Notes which are guaranteed on a senior unsecured basis by IntelCom
(the "Note Guarantee"), and (ii) the Old Preferred Stock, for aggregate gross
proceeds of approximately $450.0 million. The Company believes that its
liquidity will be improved because the Notes and the Preferred Stock do not
require the payment of cash interest and of cash dividends, respectively,
prior to 2001.
The Preferred Stock accrues dividends quarterly at an annual rate of 14
1/4% per annum. Dividends are payable quarterly in cash or, on or prior to
May 1, 2001, at the sole option of ICG, in additional shares of Preferred
Stock.
Management believes that the net proceeds from the Private Offering, amounts
expected to be available through vendor financing arrangements and the funds
remaining from the Unit Offering will permit the Company to expand its telecom
services business as currently planned and to fund its operating deficits for
approximately 21 months. Additional sources of cash, including from the
issuance of equity securities, will be required in the near term.
-8-
<PAGE>
THE EXCHANGE OFFERS
The Note Exchange Offer............... The Company is offering to exchange
$1,000 principal amount of New Notes
for each $1,000 principal amount of
Old Notes that are properly tendered
and accepted. The Company will issue
the New Notes on or promptly after
the Expiration Date. The New Notes
will be fully and unconditionally
guaranteed by IntelCom. There are
$550,300,000 aggregate principal
amount of Old Notes outstanding. See
"The Exchange Offers."
The Preferred Stock Exchange
Offer.............................. The Company is offering to exchange
one share of New Preferred Stock for
each share of Old Preferred Stock
that is properly tendered and
accepted. The Company will issue the
New Preferred Stock on or promptly
after the Expiration Date. There are
150,000 shares of Old Preferred Stock
outstanding. See "The Exchange
Offers."
Resale of New Securities.............. Based on an interpretation by the
staff of the Commission set forth in
no-action letters issued to third
parties, including "Exxon Capital
Holdings Corporation" (available May
13, 1988), "Morgan Stanley & Co.
Incorporated" (available June 5,
1991), "Mary Kay Cosmetics, Inc."
(available June 5, 1991) , "Warnaco,
Inc." (available October 11, 1991)
and "K-III Communications Corp."
(available May 14, 1993), the Company
believes that New Securities issued
pursuant to the Exchange Offers in
exchange for Old Securities may be
offered for resale, resold and
otherwise transferred by any holder
thereof (other than any such holder
which is an "affiliate" of the
Company within the meaning of Rule
405 under the Securities Act) without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that such
New Securities are acquired in the
ordinary course of such holder's or
any other such person's business and
that such holder or any other such
person has no arrangement or
understanding with any person to
participate in the distribution of
such New Securities. Under no
circumstances may this Prospectus be
used for an offer to resell or other
retransfer of New Securities. In the
event that the Company's belief is
inaccurate, holders of New Securities
who transfer New Securities in
violation of the prospectus delivery
provisions of the Securities Act and
without an exemption from
registration thereunder may incur
liability thereunder. The Company
does not assume or indemnify holders
against such liability. The Exchange
Offers are not being made to, nor
will the Company accept surrenders
for exchange from, holders of Old
Securities (i) in any jurisdiction in
which the Exchange Offers or the
acceptance thereof would not be in
compliance with the securities or
blue sky laws of such jurisdiction or
(ii) if any holder is engaged or
intends to engage in a distribution
of the New Securities. Each
broker-dealer that receives New
Securities for its own account in
exchange for Old Securities, where
such Old Securities were acquired by
such broker-dealer as a result of
market-making activities or other
trading activities, must acknowledge
that it will deliver a prospectus in
connection with any resale of such
New Securities. The Company has not
entered into any arrangement or
understanding with any person to
distribute the New Securities to be
received in the Exchange Offers. See
"Plan of Distribution."
Expiration Date....................... The Exchange Offers will expire at
5:00 p.m., New York City time, on
August 7, 1996 unless extended, in
which case the term "Expiration Date"
shall mean the latest date and time
to which the Exchange Offers are
extended. The Company will accept
for exchange any and all Old
Securities which are properly
tendered in the Exchange Offers prior
to 5:00 p.m., New York City time, on
the Expiration Date. The New
Securities issued pursuant
-9-
<PAGE>
to the Exchange Offers will be
delivered on or promptly after the
Expiration Date.
Conditions to the Exchange
Offers............................. The Company may terminate the
Exchange Offers if it determines that
its ability to proceed with the
Exchange Offers could be materially
impaired due to any legal or
governmental action, any new law,
statute, rule or regulation, any
interpretation by the staff of the
Commission of any existing law,
statute, rule or regulation or the
failure to obtain any necessary
approvals of governmental agencies or
holders of the Old Securities. The
Company does not expect any of the
foregoing conditions to occur,
although there can be no assurances
that such conditions will not
occur.
Procedures for Tendering Old Notes
and Old Preferred Stock............ Each holder of Old Securities wishing
to participate in the Exchange Offers
must complete, sign and date the
Letter of Transmittal, or a facsimile
thereof, in accordance with the
instructions contained herein and
therein, and mail or otherwise
deliver such Letter of Transmittal,
or such facsimile, together with such
Old Notes or such Old Preferred
Stock, as the case may be, and any
other required documentation to
Norwest Banks, as exchange agent for
the Notes (the "Exchange Agent"), or
to American Stock Transfer and Trust
Company as transfer agent for the
Preferred Stock (the "Transfer
Agent") at the addresses set forth
herein. By executing the Letter of
Transmittal, each holder will
represent to the Company that, among
other things, the New Securities
acquired pursuant to the Exchange
Offers are being obtained in the
ordinary course of business of the
person receiving such New Securities,
whether or not such person has an
arrangement or understanding with any
person to participate in the
distribution of such New Securities
and that neither the holder nor any
such other person is an "affiliate,"
as defined in Rule 405 under the
Securities Act, of the Company.
Special Procedures for Beneficial
Owners............................. Any beneficial owner whose Old
Securities are registered in the name
of a broker, dealer, commercial bank,
trust company or other nominee and
who wishes to tender such Old
Securities in the Exchange Offers
should contact such registered holder
promptly and instruct such registered
holder to tender on such beneficial
owner's behalf. If such beneficial
owner wishes to tender on such
owner's own behalf, such owner must,
prior to completing and executing the
Letter of Transmittal and delivering
its Old Securities, either make
appropriate arrangements to register
ownership of the Old Securities in
such owner's name or obtain a
properly completed bond power from
the registered holder. The transfer
of registered ownership may take
considerable time and may not be able
to be completed prior to the
Expiration Date.
Guaranteed Delivery
Procedures......................... Holders of Old Securities who wish to
tender their Old Securities and whose
Old Securities are not immediately
available or who cannot deliver their
Old Securities or the Letter of
Transmittal to the Exchange Agent or
the Transfer Agent, as the case may
be, prior to the Expiration Date,
must tender their Old Securities
according to the guaranteed delivery
procedures set forth in "The Exchange
Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights..................... Tenders of Old Securities may be
withdrawn at any time prior to 5:00
p.m., New York City time, on the
Expiration Date.
Certain Federal Income Tax
Considerations.....................
-10-
<PAGE>
For a discussion of certain federal
income tax considerations relating to
the exchange of the New Notes for the
Old Notes and the New Preferred Stock
for the Old Preferred Stock, see
"Certain United States Federal Income
Tax Considerations."
Exchange Agent........................ Norwest Banks is the Exchange Agent.
Its telephone number is (612)
667-4070. The address of the
Exchange Agent is set forth in "The
Exchange Offers--Exchange Agent."
Transfer Agent........................ American Stock Transfer & Company is
the Transfer Agent. Its telephone
number is (212) 936-5100. The
address of the Transfer Agent is as
set forth in the "Exchange
Offers--Transfer Agent."
THE NEW NOTES
Aggregate Amount....................... $550,300,000 principal amount at
maturity ($300,029,063 original issue
price) of 12 1/2% Senior Exchange
Discount Notes due May 1, 2006.
Yield and Interest..................... From and after May 1, 2001, the New
Notes will bear interest, which will
be payable in cash, at a rate of 12
1/2% per annum on each May 1 and
November 1, commencing November 1,
2001.
Optional Redemption................... On or after May 1, 2001, the New
Notes will be redeemable at the
option of ICG, in whole or in part,
at the redemption prices set forth
herein, plus accrued and unpaid
interest to the date of redemption.
See "Description of New
Notes--Optional Redemption."
Optional Redemption Upon Public
Equity Offering................. At any time, or from time to time, on
or prior to May 1, 1999, ICG may, at
its option, redeem New Notes having a
principal amount of up to 35% of the
principal amount of the Old Notes
initially issued, at a redemption
price equal to 112 1/2% of the
Accreted Value of such New Notes on
the date of redemption, with the
proceeds of one or more Public Equity
Offerings. See "Description of New
Notes--Optional Redemption."
Guarantee............................. The New Notes will be guaranteed on a
senior, unsecured basis by IntelCom.
Ranking............................... The New Notes and the Note Guarantee
will be senior, unsecured obligations
of ICG and IntelCom, respectively,
will rank pari passu in right of
payment with all existing and future
unsecured, unsubordinated obligations
and will be senior in right of
payment to all existing and future
subordinated indebtedness of ICG and
IntelCom. At March 31, 1996, ICG
and IntelCom had, on an
unconsolidated basis, approximately
$327.0 million of senior
indebtedness (which amount does not
include the Old Notes and the Note
Guarantee), including capitalized
lease obligations, and $68.5
million of subordinated indebtedness.
IntelCom and ICG are each holding
companies. The New Notes and the Note
Guarantee will be effectively
subordinated to all liabilities
(including trade payables) of the
subsidiaries of ICG and IntelCom and
at March 31, 1996, the
subsidiaries of ICG had approximately
$115.7 million of liabilities
(excluding intercompany payables to
ICG), including $78.0 million of
indebtedness. IntelCom and ICG are
expected to incur substantial amounts
of indebtedness in the future,
subject to compliance with the terms
of the Company's indebtedness,
including the Notes Indenture (as
defined herein), and the Amended
Articles. See "Risk
Factors--Substantial Indebtedness;
Ability to Service Debt"
and
-11-
<PAGE>
"--Holding Company Reliance on
Subsidiaries' Funds; Priority of
Creditors; Subordination of Exchange
Debentures."
Additional Amounts.................... Any payments made by IntelCom
pursuant to the Note Guarantee will
be made without withholding or
deduction for Canadian taxes unless
required by law or the interpretation
or administration thereof, in which
case IntelCom will pay such
additional amounts as may be
necessary so that the net amount
received by the holders after such
withholding or deduction will not be
less than the amount that would have
been received in the absence of such
withholding or deduction. See
"Description of New Notes--Additional
Amounts."
Redemption for Changes in
Canadian Withholding
Taxes.............................. In the event IntelCom becomes
obligated to make payments in respect
of the New Notes pursuant to the Note
Guarantee and if, as a result of
certain changes affecting Canadian
withholding taxes, IntelCom becomes
obligated to pay additional amounts
in accordance with the Notes
Indenture, the New Notes will be
redeemable, as a whole but not in
part, at the option of IntelCom at
any time at 100% of their Accreted
Value plus accrued interest, if any.
See "Description of New
Notes--Optional Redemption."
Certain Covenants..................... The Notes Indenture contains certain
covenants which, among other things,
restrict the ability of IntelCom, ICG
and their 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 (other
than with respect to the Preferred
Stock); make investments or make
certain other restricted payments;
sell assets; create restrictions on
the ability of Restricted
Subsidiaries to make certain
payments; issue or sell stock of
certain subsidiaries; enter into
transactions with stockholders or
affiliates; and, with respect to
IntelCom and ICG, consolidate, merge
or sell all or substantially all of
its assets. See "Description of New
Notes--Certain Covenants."
Change of Control..................... Upon a Change of Control (as defined
herein), ICG is required to make an
offer to purchase the New Notes at a
purchase price equal to 101% of their
Accreted Value on the date of
purchase plus accrued interest, if
any. See "Description of New
Notes--Repurchase of New Notes upon a
Change of Control."
THE NEW PREFERRED STOCK
Preferred Stock....................... 150,000 shares of New Exchangeable
Preferred Stock.
Dividends............................. Cumulative at 14 1/4% per annum. All
dividends will be payable quarterly
in cash or, on or prior to May 1,
2001, at the sole option of ICG, in
additional shares of Preferred Stock,
on February 1, May 1, August 1 and
November 1, commencing August 1,
1996. Dividends on the New Preferred
Stock will accrue and be cumulative
from the date of issuance thereof.
For federal income tax purposes,
distributions with respect to the New
Preferred Stock are not expected to
qualify as dividends and will be
treated as a return of capital until
ICG has earnings and profits as
determined under applicable federal
income tax principles. See "Certain
United States Federal Income Tax
Considerations--Tax Consequences to
United States Holders--Dividends on
the New Preferred Stock."
-12-
<PAGE>
Liquidation Preference................ $1,000 per share, plus accrued and
unpaid dividends.
Voting................................ Holders of the New Preferred Stock
will have no voting rights except as
provided by law and as provided in
Amended Articles. In the event that
dividends are not paid for any four
quarters, whether or not consecutive,
or upon certain other events
(including failure to comply with
covenants and failure to pay the
mandatory redemption price when due),
then the number of directors
constituting ICG's Board of Directors
will be adjusted to permit the
holders of the majority of the then
outstanding New Preferred Stock,
voting separately as a class, to
elect two directors. See "Description
of New Preferred Stock--Voting."
Mandatory Redemption.................. ICG is required to redeem the New
Preferred Stock on May 1, 2007
(subject to the legal availability of
funds therefor) at a redemption price
equal to the liquidation preference,
plus accrued and unpaid dividends to
the redemption date. See "Description
of New Preferred Stock--Mandatory
Redemption."
Optional Redemption................... On or after May 1, 2001, the New
Preferred Stock is redeemable, at the
option of ICG, in whole or in part,
at the redemption prices set forth
herein, plus accrued and unpaid
dividends to the redemption date. See
"Description of New Preferred
Stock--Optional Redemption."
Optional Redemption Upon Public
Equity Offering................. At any time, or from time to time, on
or prior to May 1, 1999, ICG may, at
its option, redeem shares of Old
Preferred Stock having an aggregate
liquidation preference of up to 35%
of the aggregate liquidation
preference of all shares of New
Preferred Stock originally issued at
a redemption price equal to 114 1/4%
of the liquidation preference
thereof, plus accrued and unpaid
dividends to the redemption date,
with the proceeds of one or more
Public Equity Offerings. See
"Description of New Preferred
Stock--Optional Redemption."
Ranking............................... The New Preferred Stock will rank (i)
senior to all common stock of ICG and
to all other capital stock of ICG
unless the terms of such stock
expressly provide that it ranks
senior to or on a parity with the New
Preferred Stock; (ii) on a parity
with any capital stock of ICG the
terms of which expressly provide that
it will rank on a parity with the New
Preferred Stock; and (iii) junior to
all capital stock of ICG the terms of
which expressly provide that such
stock will rank senior to the New
Preferred Stock. See "Description of
New Preferred Stock--Ranking."
Optional Exchange Feature............. The New Preferred Stock is
exchangeable into Exchange Debentures
at the option of ICG, in whole but
not in part, subject to (i) such
exchange being permitted by the terms
of the Notes Indenture and the 13
1/2% Notes Indenture (as defined
herein), and (ii) the conditions
described in the Amended Articles
being satisfied. See "Description of
New Preferred Stock--Exchange" and
"Description of Exchange Debentures."
Certain Covenants..................... The Amended Articles contain certain
covenants which, among other things,
restrict the ability of ICG and its
Restricted Subsidiaries to incur
additional indebtedness and issue
preferred stock; create liens; pay
dividends or make distributions in
respect of their capital stock; make
investments or make certain other
restricted payments; sell assets;
create restrictions on the ability of
Restricted Subsidiaries to make
certain payments; issue or sell stock
of Restricted Subsidiaries; enter
into transactions with stockholders
or affiliates; incur senior
subordinated indebtedness; and, with
respect to IntelCom and
-13-
<PAGE>
ICG, consolidate, merge or sell all
or substantially all of its assets.
See "Description of New Preferred
Stock--Certain Covenants."
Change of Control.................... Upon a Change of Control, ICG is
required to make an offer to purchase
the shares of New Preferred Stock at
a purchase price equal to 101% of
their liquidation preference on the
date of purchase, plus accrued and
unpaid dividends to the date of
purchase. See "Description of New
Preferred Stock--Change of Control."
THE EXCHANGE DEBENTURES
Exchange Debentures................... 14 1/4% Subordinated Exchange
Debentures due May 1, 2007 in an
aggregate principal amount equal to
the aggregate liquidation preference
of, and accrued but unpaid dividends
on, the New Preferred Stock
outstanding on the Exchange Date (as
defined herein).
Interest Payment Dates................ May 1 and November 1 of each year,
commencing with the first of such
dates to occur after the Exchange
Date. On or prior to May 1, 2001, the
Company may pay interest on the
Exchange Debentures by issuing
additional Exchange Debentures.
Optional Redemption.................. On or after May 1, 2001, the Exchange
Debentures are redeemable, at the
option of ICG, in whole or in part,
at the redemption prices set forth
herein, plus accrued and unpaid
interest to the redemption date. See
"Description of Exchange
Debentures--Optional Redemption."
Optional Redemption Upon Public
Equity Offering................. At any time, or from time to time, on
or prior to May 1, 1999, ICG may, at
its option, redeem Exchange
Debentures having a principal amount
of up to $52.5 million at a
redemption price equal to 114 1/4% of
the principal amount thereof, plus
accrued and unpaid interest to the
redemption date, with the proceeds of
one or more Public Equity Offerings.
See "Description of Exchange
Debentures--Optional Redemption."
Guarantee............................. IntelCom will guarantee the Exchange
Debentures on a senior subordinated
unsecured basis (the "Debenture
Guarantee").
Ranking............................... The Exchange Debentures will be
senior subordinated Indebtedness of
ICG, subordinated to the prior
payment when due of the principal of,
and premium, if any, and accrued and
unpaid interest on, all existing and
future Senior Indebtedness (as
defined herein) of ICG (including the
New Notes) and senior to the prior
payment when due of the principal and
premium, if any, and accrued and
unpaid interest on, all subordinated
Indebtedness of ICG. IntelCom's
guarantee of the Exchange Debentures
will be senior subordinated
Indebtedness of IntelCom,
subordinated to the prior payment
when due of the principal of, and
premium, if any, and accrued and
unpaid interest on, all existing and
future Senior Guarantor Indebtedness
(as defined herein) of IntelCom
(including the Note Guarantee) and
senior to the prior payment when due
of the principal of, and premium, if
any, and accrued and unpaid interest
on, all subordinated Indebtedness of
IntelCom.
Certain Covenants.................... The Exchange Debenture Indenture (as
defined herein) contains certain
covenants which, among other things,
restricts the ability of IntelCom,
ICG and their Restricted Subsidiaries
to incur additional indebtedness;
create liens; pay dividends or make
distributions in respect of their
capital stock; make investments or
make certain other restricted
payments; sell assets;
-14-
<PAGE>
create restrictions on the ability of
Restricted Subsidiaries to make
certain payments; issue or sell stock
of certain subsidiaries; enter into
transactions with stockholders or
affiliates; incur senior subordinated
indebtedness; and, with respect to
IntelCom and ICG, consolidate, merge
or sell all or substantially all of
their assets. See "Description of
Exchange Debentures--Certain
Covenants."
Registration Requirements............ The Exchange Debentures may not be
issued unless such issuance is
registered under the Securities Act
or is exempt from registration.
Additional Amounts................... Any payments with respect to the
Exchange Debentures made by IntelCom
pursuant to the Debenture Guarantee
will be made without withholding or
deduction for Canadian taxes unless
required by law or the interpretation
or administration thereof, in which
case IntelCom will pay such
additional amounts as may be
necessary so that the net amount
received by the holders after such
withholding or deduction will not be
less than the amount that would have
been received in the absence of such
withholding or deduction. See
"Description of Exchange
Debentures--Additional Amounts."
Redemption for Changes in
Canadian Withholding
Taxes.............................. In the event IntelCom becomes
obligated to make payments in respect
of the Exchange Debentures pursuant
to the Debenture Guarantee and if, as
a result of certain changes affecting
Canadian withholding taxes, IntelCom
becomes obligated to pay additional
amounts in accordance with the
Exchange Debenture Indenture, the
Exchange Debentures will be
redeemable, as a whole but not in
part, at the option of IntelCom at
any time at 100% of their principal
amount plus accrued interest, if any.
See "Description of Exchange
Debentures--Optional Redemption."
Change of Control..................... Upon a Change of Control, ICG is
required to make an offer to purchase
the Exchange Debentures at a purchase
price equal to 101% of their
principal amount on the date of
purchase plus accrued interest, if
any. See "Description of Exchange
Debentures--Change of Control."
RISK FACTORS
For a discussion of certain matters that should be considered by
prospective investors in connection with the Exchange Offers, See "Risk
Factors."
-15-
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA INFORMATION(1)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND STATISTICAL DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
---------------------------------------------- -------------------------
ACTUAL PRO FORMA ACTUAL PRO FORMA
------ ---------- ------ ---------
1993 1994 1995 1995(3) 1995 1996(2) 1996(3)
---- ---- ---- ------- ---- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(2):
Revenue:
Telecom services......................... $ 4,803 $ 14,854 $ 32,330 $ 32,330 $12,833 $ 31,148 $ 31,148
Network services......................... 21,006 36,019 58,778 58,778 28,789 29,691 29,691
Satellite services....................... 3,520 8,121 20,502 11,360 8,934 10,504 8,026
Other.................................... 147 118 -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total revenue........................ 29,476 59,112 111,610 102,468 50,556 71,343 68,865
Operating loss................................... (3,660) (15,266) (46,814) (44,164) (17,289) (31,081) (29,717)
Interest expense................................. (2,523) (8,481) (24,368) (73,994) (6,197) (29,432) (60,081)
Net loss......................................... $(4,609) (23,868) (76,181) (157,228) (23,041) (60,554) (111,739)
Preferred stock dividend......................... -- -- (467) (467) -- (1,027) (1,027)
------ ------ ------ ------ ------ ------ ------
Net loss attributable to common shareholders..... $(4,609) $(23,868) $(76,648) $(157,695) $(23,041) $(61,581) $(112,766)
======= ======== ======== ========= ======== ======== =========
Loss per common share............................ $(0.39) $(1.56) $(3.25) $(6.68) $(1.01) $(2.42) $(4.43)
====== ====== ====== ====== ====== ====== ======
Weighted average number of common
shares outstanding.............................. 11,671 15,342 23,604 23,604 22,746 25,471 25,471
OTHER DATA:
EBITDA(4)........................................ $(187) $(7,068) $(30,190) $(29,754) $(10,182) $(18,720) $(18,009)
Ratio of earnings to combined fixed charges and
preferred stock dividends(5)............. -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
----------
ENDED
------
YEARS ENDED SEPTEMBER 30, MARCH 31,
------------------------- ---------
1993 1994 1995 1995 1996
------- -------- -------- -------- ---------
STATISTICAL DATA(6):
<S> <C> <C> <C> <C> <C>
Telecom networks:
Cities served............................ 6 30 32 32 37
Buildings connected
On-net.................................. 97 226 280 251 327
Off-net................................. -- -- 1,095 777 1,401
------- -------- -------- -------- --------
Total buildings connected............. 97 226 1,375 1,028 1,728
Customer circuits in service (VGEs)...... 50,044 224,072 430,535 287,167 510,755
Switches operational..................... -- 1 13 6 13
Switched minutes of use (millions)....... -- 2 283 42 597
Fiber route miles(7)
Operational............................. 168 323 627 466 780
Under construction...................... -- -- -- -- 1,921
Fiber strand miles(8)
Operational............................. 8,024 14,959 27,150 21,811 36,310
Under construction...................... -- -- -- -- 52,351
Wireless route miles(9)................. -- 606 568 606 582
Satellite Services:
Teleports............................... 1 4 5 5 1
Teleport antennas........................ 15 48 59 58 7
</TABLE>
-16-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Uplink hours(10)......................... 19,949 49,166 141,736 33,158 --
VSATs.................................... -- 810 626 694 658
Maritime installations................... -- -- 27 17 33
Maritime minutes of use (thousands)...... -- -- 1,424 251 2,084
</TABLE>
(Accompanying notes are on the following page)
-17-
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------
ACTUAL(2) PRO FORMA(3)
--------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital
$152,936 $527,352
Total assets 556,567 964,175
Notes payable and current portion of long-term debt and capital lease obligations 9,199 9,199
Long-term debt and capital lease obligations, less current portion 459,096 759,125
Redeemable Preferred Stock of ICG ($30.0 million liquidation value) 19,571 --
Preferred Stock of ICG (redeemable) ($150.0 million liquidation value) -- 144,380
Shareholders' equity 35,513 8,283
- -----------------------------
</TABLE>
(1) The Summary Historical and Pro Forma Financial Information relates to
IntelCom and its subsidiaries. All of IntelCom's business is conducted
through ICG and its subsidiaries.
(2) Effective January 1, 1996, the Company changed its method of accounting
for long-term telecom services contracts to recognize revenue as services
are provided. As required by generally accepted accounting principles, the
Company has reflected the effects of the change in accounting as if such
change had been adopted as of October 1, 1995. The Company's results for
the six months ended March 31, 1996 reflect a charge of $3.5 million
relating to the cumulative effect of this change in accounting as of
October 1, 1995. The effect of this change in accounting in fiscal year
1996 was to decrease loss before cumulative effect of change in accounting
by approximately $22,000 for the six months ended March 31, 1996. If the
new revenue recognition method had been applied retroactively, telecom
services revenue would have decreased by $2.0 million, $0.5 million and
$0.7 million for fiscal 1993, 1994 and 1995, respectively, and $0.6
million for the six months ended March 31, 1995.
(3) Pro Forma Statement of Operations Data reflects (i) the sale of the
Company's teleports in Atlanta, Denver, Los Angeles and New Jersey, (ii)
the receipt of the net proceeds from the Private Offering and interest
expense on $300.0 million gross proceeds of the Notes and preferred stock
dividends on $150.0 million liquidation preference of Preferred Stock,
without giving effect to any increased interest income on available cash
or the capitalization of any interest associated with construction in
progress, (iii) the redemption of $30.0 million of redeemable preferred
stock, payment of accrued dividends and the related $12.3 million charge
for the excess of the redemption price as of April 30, 1996 over the
carrying amount, (iv) the repurchase of 916,666 redeemable warrants and
(v) the payment with respect to consents to amendments to the 13 1/2%
Notes Indenture to permit the Private Offering, as if such events had
occurred at the beginning of the periods presented . Pro Forma Balance
Sheet Data reflects the items in (ii) through (v) above, as if such events
had occurred on the balance sheet date. The sale of the Company's
teleports is reflected in the actual balance sheet data at March 31, 1996.
The charges described in items (iii) and (v) will be reflected in the
Company's results for the three months ended June 30, 1996. See "Pro Forma
Condensed Consolidated Financial Statements."
(4) EBITDA consists of operating loss plus depreciation and amortization.
EBITDA is provided because it is a measure commonly used in the
telecommunications industry. EBITDA is presented to enhance an
understanding of the Company's operating results and is not intended to
represent cash flow or results of operations in accordance with generally
accepted accounting principles for the periods indicated.
-18-
<PAGE>
(5) For the fiscal years ended September 30, 1993, 1994 and 1995 and the
six months ended March 31, 1995 and 1996, earnings were insufficient
to cover combined fixed charges and preferred stock dividends by $6.2
million, $24.8 million, $77.3 million, $23.0 million and $63.0 million,
respectively. On a pro forma basis giving effect to the Private Offering,
the redemption of $30.0 million of redeemable preferred stock and the sale
of four of the Company's teleports as if they occurred on October 1, 1994
and without giving effect to any increased interest income on additional
available cash or the capitalization of any interest associated with
construction in progress, earnings would have been insufficient to cover
fixed charges by $158.3 million and $114.2 million for fiscal 1995 and
the six months ended March 31, 1996, respectively. Combined fixed
charges and preferred stock dividends consist of interest charges and
amortization of debt expense and discount or premium related to
indebtedness, whether expensed or capitalized, that portion of rental
expense the Company believes to be representative of interest (i.e., one-
third of rental expense) and preferred stock dividends.
(6) Amounts presented are for 12-month and six-month periods ended, or
as of, September 30 and March 31. The Company sold four teleports in the
quarter ended March 31, 1996. Statistical Data for Satellite Services does
not reflect this sale.
(7) Fiber route miles refers to the number of miles of fiber optic cable,
including leased fiber. Fiber route miles as of September 30, 1993 are
based upon management estimates. As of March 31, 1996, the Company had
780 fiber route miles, of which 178 fiber route miles were leased. Fiber
route miles under construction represents fiber under construction and
fiber which is expected to be operational within six months.
(8) Fiber strand miles refers to the number of fiber route miles, including
leased fiber, along a telecommunications path multiplied by the number of
fiber strands along that path. Fiber strand miles as of September 30, 1993
are based upon management estimates. As of March 31, 1996, the Company had
36,310 fiber strand miles, of which 1,847 fiber strand miles were leased.
Fiber strand miles under construction represents fiber under construction
and fiber which is expected to be operational within six months.
(9) Wireless route miles represents the total distance of the digital
microwave paths between Company transmitters which are used in the
Company's telecom services networks.
(10) Uplink hours represent the number of hours of video, data and voice
communications transmitted by the Company's earth stations.
-19-
<PAGE>
RISK FACTORS
An investment in the New Securities offered hereby involves a high
degree of risk. The following risk factors, together with the other
information set forth in this Prospectus and appearing in the documents
incorporated by reference herein, should be considered when evaluating an
investment in the New Securities.
HISTORICAL AND ANTICIPATED FUTURE OPERATING LOSSES AND NEGATIVE CASH FLOW
The Company has incurred and expects to continue to incur significant
operating and net losses. The Company expects to continue to generate
negative cash flow from operating activities while it emphasizes
development, construction and expansion of its telecom services business
and until the Company establishes a sufficient revenue generating
customer base. Because of the acceleration of the Company's expansion
strategy, the Company's operating losses are expected to increase over
the near term. The Company had net losses and negative EBITDA of
approximately $76.6 million and $30.2 million, respectively, for fiscal
1995 and approximately $61.6 million and $18.7 million, respectively,
for the first six months of fiscal 1996. In addition, the Company had
accumulated deficits of $134.4 million and $196.0 million at September
30, 1995 and March 31, 1996, respectively. 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 payments on
its indebtedness, including the Notes and, if issued, the Exchange
Debentures, or cash dividend payments on the Preferred Stock. See
"Summary Historical and ProForma Information", including the notes
thereto.
SIGNIFICANT CAPITAL REQUIREMENTS
The Company's current plans for expansion of existing networks, the
development of new networks, the further development of the Company's
products and services and the continued funding of operating losses may
require an aggregate of approximately $100.0 million of additional cash
from outside sources. The Company's arrangements with utilities require
it to make significant cash payments and the development of these
networks requires significant capital expenditures to add switching
facilities and build out from the utilities' fiber backbone to end user
locations. Due to the number of opportunities arising from changes in
the telecommunications regulatory environment and the cash required to
take advantage of these opportunities, management believes that the net
proceeds from the Private Offering, the funds remaining from the Unit
Offering and amounts expected to be available through vendor financing
arrangements will provide sufficient funds necessary for the Company to
expand its telecom services business as currently planned and to fund its
operating deficits for approximately 21 months. Additional sources of
cash may include public and private equity and debt financings by
IntelCom, ICG or ICG's subsidiaries, sales of non-strategic assets,
capital leases and other financing arrangements. There can be no
assurance that additional financing will be available to the Company or,
if available, that it can be obtained on terms acceptable to the Company.
Failure to obtain such financing could result in the delay or abandonment
of some or all of the Company's acquisition, development and expansion
plans and expenditures, which could have a material adverse effect on its
business prospects and limit the Company's ability to make principal and
interest payments on its indebtedness, including the Notes and, if
issued, the Exchange Debentures, or to make payments of cash dividends
on, or the mandatory redemption price of, the Preferred Stock.
RISKS RELATED TO SWITCHED SERVICES STRATEGY
The Company has installed 13 high capacity digital switches that
enable the Company to offer interstate and intrastate switched and
enhanced services, including local dial tone, in all of its markets. The
Company expects to add three switches in 1996 and additional switches and
switching capacity as demand warrants. The Company began generating
switched services revenue in the fourth quarter of fiscal 1994 and
expects revenue from these services to increase. Currently, the Company
is experiencing negative operating margins, as expected, from the
provision of switched services while its networks are in the development
and construction phases and while the Company relies on LEC networks to
terminate and originate a significant portion of its customers' switched
traffic. The Company expects operating margins for switched services on a
given network to improve when (i) sales efforts result in increased
volumes of traffic carried on the Company's own network in place of LEC
facilities, and (ii) higher margin enhanced services are provided to
customers on the Company's network. In addition, the Company
-20-
<PAGE>
believes that the unbundling of LEC services and the implementation of
local telephone number portability, which are mandated by the
Telecommunications Act, will reduce the Company's costs of providing
switched services and facilitate the marketing of such services. However,
the Company's switched services strategy has not yet been profitable and
may not become profitable due to, among other factors, lack of customer
demand, competition from other CLECs and pricing pressure from the LECs.
In addition, to fully implement its switched services strategy, the
Company must make significant capital expenditures to provide additional
switching capacity, network infrastructure and electronic components. The
Company has limited experience providing switched services and there can
be no assurance that the Company's switched services strategy will be
successful. See "--Regulation."
SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE DEBT
At March 31, 1996 on a pro forma basis giving effect to the
Private Offering, the Company would have had approximately $773.5
million of indebtedness, including capitalized lease obligations. The
accretion of original issue discount on the 13 1/2% Notes and the Notes
will cause an increase in indebtedness of approximately $518.5 million by
May 1, 2001. In addition, the Preferred Stock and, if issued, the
Exchange Debentures may pay dividends or interest through the issuance of
additional shares of Preferred Stock or Exchange Debentures, as the case
may be, through May 1, 2001. The Indenture governing the 13 1/2% Notes,
as amended (the "13 1/2% Notes Indenture"), the Amended Articles and the
Notes Indenture limit, but do not prohibit, the incurrence of additional
indebtedness by IntelCom, ICG and their subsidiaries. The Company
anticipates that IntelCom, ICG and their subsidiaries will incur
substantial additional indebtedness in the future. Although the net
proceeds from the Private Offering are expected to enhance liquidity and
improve the Company's financial flexibility in the near term, the
Company's total indebtedness, interest expense and dividend requirements
will be significantly increased as a result of the Private Offering.
The level of the Company's indebtedness could have important
consequences to holders of the Notes, the Preferred Stock and the
Exchange Debentures, including the following: (i) the debt service
requirements of any additional indebtedness could make it more difficult
for the Company to make payments of interest on the Notes and the
Exchange Debentures and of cash dividends on the Preferred Stock; (ii)
the ability of the Company to obtain any necessary financing in the
future for working capital, capital expenditures, debt service
requirements or other purposes may be limited; (iii) a substantial
portion of the Company's cash flow from operations, if any, must be
dedicated to the payment of principal and interest on its indebtedness
and other obligations (including dividends on the Preferred Stock when
required to be paid in cash) and will not be available for other
purposes; (iv) the Company's level of indebtedness could limit its
flexibility in planning for, or reacting to, changes in its business; (v)
the Company is more highly leveraged than 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 has been experiencing substantial negative EBITDA and, on
a pro forma basis giving effect to the Private Offering and the
application of a portion of the net proceeds therefrom to redeem the
Redeemable Preferred Stock and giving effect to the sale of four of the
Company's teleports, the Company's earnings before combined fixed charges
and preferred stock dividend requirements would have been insufficient to
cover combined fixed charges and preferred stock dividend requirements
for fiscal 1995 and the six months ended March 31, 1996 by
approximately $158.3 million and $114.2 million, respectively. In
addition, for the same periods on the same pro forma basis, the Company's
EBITDA minus capital expenditures and interest expense and preferred
stock dividends would have been approximately $(224.5) million and
$(202.9) million, respectively. There can be no assurance that the
Company will be able to improve its earnings before combined fixed
charges and preferred stock dividends or that the Company will be able to
meet its debt service obligations, including its obligations on the
Notes, the Preferred Stock and the Exchange Debentures. 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 Notes, the Preferred Stock and the Exchange Debentures and
could delay or preclude payment of interest or principal on the Notes
and
-21-
<PAGE>
the Exchange Debentures and payment of cash dividends on, or the
redemption price of, the Preferred Stock. The ability of the Company to
meet its obligations will be dependent upon the future performance of the
Company, which will be subject to prevailing economic conditions and to
financial, business and other factors, including factors beyond the
control of the Company. See "Description of New Notes," "Description of
New Preferred Stock" and "Description of Exchange Debentures."
HOLDING COMPANY RELIANCE ON SUBSIDIARIES' FUNDS; PRIORITY OF CREDITORS;
SUBORDINATION OF EXCHANGE DEBENTURES
IntelCom and ICG are each holding companies. The sole material asset
of IntelCom consists of the common stock of ICG and the principal asset
of ICG consists of common stock of its subsidiaries. ICG intends to loan
or contribute a substantial portion of the net proceeds from the Private
Offering to certain of its subsidiaries. ICG must rely upon dividends
and other payments from its subsidiaries to generate the funds necessary
to meet its obligations, including the payment of principal and interest
on the Notes and the Exchange Debentures and the payment of cash
dividends on, and the redemption price of, the Preferred Stock. The
subsidiaries are legally distinct from ICG and have no obligation,
contingent or otherwise, to pay amounts due with respect to the Notes,
the Preferred Stock or the Exchange Debentures or to make funds available
for such payments. ICG's subsidiaries will not guarantee the Notes or the
Exchange Debentures. The ability of ICG's subsidiaries to make such
payments to ICG will be subject to, among other things, the availability
of funds, the terms of each subsidiary's indebtedness and applicable
state laws. In particular, several of ICG's subsidiaries have entered
into credit facilities, certain of which are guaranteed by IntelCom
and/or ICG, which prohibit or restrict the payment of dividends by those
subsidiaries to ICG. Claims of creditors of ICG's subsidiaries, including
trade creditors, will generally have priority as to the assets of such
subsidiaries over the claims of ICG and the holders of ICG's and
IntelCom's indebtedness and preferred stock, including the Notes, the
Preferred Stock and the Exchange Debentures. Accordingly, the Notes and
the Exchange Debentures will be effectively subordinated to the
liabilities (including trade payables) of the subsidiaries of ICG and
IntelCom, respectively. At March 31, 1996, the subsidiaries of ICG
had approximately $115.7 million of liabilities (excluding intercompany
payables to ICG), including $78.0 million of indebtedness.
The Exchange Debentures, if issued, would be subordinate in right of
payment to the prior payment in full of the Notes, the 13 1/2% Notes and
all other existing and future senior indebtedness of the Company. As of
March 31, 1996 after giving pro forma effect to the Private Offering,
IntelCom and ICG would have had approximately $626.5 million and
$705.0 million of Senior Guarantor Indebtedness and senior
indebtedness, respectively, outstanding. In the event of a bankruptcy or
similar proceeding of IntelCom and/or ICG, the assets of IntelCom and ICG
will be available to pay obligations on the Exchange Debentures and
IntelCom's guarantee thereof only after all senior indebtedness of
IntelCom and ICG has been satisfied in full, and there may not be
sufficient assets remaining to pay the Exchange Debentures. See
"Description of Exchange Debentures."
The Notes will be unsecured unsubordinated indebtedness of ICG and
guaranteed on an unsecured unsubordinated basis by IntelCom. At March
31, 1996, the Company had an aggregate of approximately $77.8 million
of secured indebtedness, including capitalized lease obligations. In the
event such secured indebtedness goes into default and the holders thereof
foreclose on the collateral, the holders of secured indebtedness will be
entitled to payment out of the proceeds of their collateral prior to any
holders of general unsecured indebtedness including the Notes,
notwithstanding the existence of any event of default with respect to the
Notes. The Notes Indenture also permits the Company to incur additional
secured indebtedness, to grant additional liens and, on or after May 1,
2001, to pay cash dividends on the Preferred Stock and, if issued, to pay
interest on the Exchange Debentures at any time. See "Description of New
Notes--Covenants." In the event of bankruptcy, liquidation or
reorganization of the Company, holders of secured indebtedness will have
a claim, prior to the claim of the holders of the Notes, on the assets of
the Company securing such indebtedness. In addition, to the extent that
the value of such collateral is insufficient to satisfy such secured
indebtedness, holders of amounts remaining outstanding on such secured
indebtedness (as well as other unsubordinated creditors of the Company,
including holders of the 13 1/2% Notes) would be entitled to share pari
passu with the 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 on any or all of
the Notes then outstanding. Payments on the Preferred Stock and the
Exchange Debentures will also be subject to the prior claims of secured
creditors.
-22-
<PAGE>
CERTAIN FINANCIAL AND OPERATING RESTRICTIONS
The 13 1/2% Notes Indenture, the Notes Indenture, the terms of the
Preferred Stock and the Exchange Debenture Indenture and other
indebtedness of the Company impose significant operating and financial
restrictions on the Company. Such restrictions affect, and in certain
cases significantly limit or prohibit, among other things, the ability of
the Company to incur additional indebtedness or create liens on its
assets, pay dividends, sell assets, engage in mergers or acquisitions or
make investments. Failure to comply with such covenants could limit the
availability of borrowings or result in a default thereunder, in which
case the lenders will be able to accelerate the maturity of the
applicable indebtedness. Moreover, the instruments governing the
Company's material indebtedness contain cross-default provisions which
provide that a default under other indebtedness will be considered a
default under the indebtedness in question. In the event that a cross-
default were triggered, the maturity of substantially all of the
Company's approximately $792.0 million of indebtedness (at May 31, 1996)
would be accelerated and become immediately due and payable. As a
result, the Company would not be able to satisfy all of its debt
obligations. There can be no assurance that the Company will be able to
comply with such covenants in the future. A default under such
indebtedness could result in an acceleration of the Notes and the
Exchange Debentures, in which case the holders of the Notes and the
Exchange Debentures may not be paid in full.
PAYMENTS DUE ON INDEBTEDNESS PRIOR TO MATURITY AND REDEMPTION OF THE
SECURITIES; REFINANCING RISK
As of March 31, 1996, an aggregate of approximately $62.0 million of
capitalized lease obligations was due prior to December 31, 2000, an
aggregate principal amount of approximately $68.5 million (including $0.4
million of accrued interest) was outstanding under certain convertible
subordinated notes and interest notes and an aggregate accreted value of
approximately $326.5 million was outstanding under the 13 1/2% Notes. As
of March 31, 1996, approximately $12.0 million of the 8% Convertible
Subordinated Notes and Interest Notes are due September 17, 1998 and are
convertible at a price of $15.60 per Common Share. Approximately $56.1
million of the 7% Convertible Subordinated Notes and Interest Notes are
due October 30, 1998 and are convertible at a price of $18.00 per Common
Share. The Company has notified the holders of the Notes of its intent to
redeem the 8% Convertible Subordinated Notes by July 8, 1996 and the 7%
Convertible Subordinated Notes by July 26, 1996. The 13 1/2% Notes
require payments of interest to be made in cash commencing on March 15,
2001 and mature on September 15, 2005. As of March 31, 1996, the Company
had $4.1 million of other indebtedness that matures prior to December 31,
2000. The Company may also have additional payment obligations prior to
such time, the amount of which cannot presently be determined. After
giving effect to all of the above, the Company had aggregate indebtedness
of approximately $473.5 million at March 31, 1996. The net proceeds from
the Private Offering, the funds remaining from the Unit Offering and
amounts expected to be available through vendor financing arrangements
will provide sufficient funds necessary for the Company to expand its
telecom services business as currently planned and to fund its operating
deficits for approximately 21 months. Additional sources of cash may
include public and private equity and debt financings by IntelCom, ICG or
ICG's subsidiaries, sales of non-strategic assets, capital leases and
other financing arrangements. Accordingly, the Company will have to
refinance a substantial amount of indebtedness and obtain substantial
additional funds prior to December 31, 2000. The Company's ability to do
so will depend on, among other things, its financial condition at the
time, the restrictions in the instruments governing its indebtedness,
including the 13 1/2% Notes Indenture, the Notes Indenture, the Preferred
Stock and, if applicable, the Exchange Debenture Indenture, and other
factors, including market conditions, beyond the control of the Company.
There can be no assurance that the Company will be able to refinance such
indebtedness, including such capitalized leases, or obtain such
additional funds, and if the Company is unable to effect such
refinancings or obtain additional funds, the Company's ability to make
principal and interest payments on its indebtedness, including the Notes
(and if issued, the Exchange Debentures), or make payments of cash
dividends on, or the mandatory redemption price of, the Preferred Stock,
would be adversely affected.
RISKS RELATED TO RAPID EXPANSION OF BUSINESS
The continued rapid expansion and development of the Company's
business will depend on, among other things, the Company's ability to
evaluate markets, lease fiber from utilities, design fiber backbone
routes, secure financing, install facilities, acquire rights of way and
building access, obtain any required government authorizations and
implement expanded interconnection and collocation with facilities owned
by LECs, all in a timely manner, at reasonable costs and on satisfactory
terms and conditions. In addition, such expansion may involve
acquisitions which, if made, could divert the resources and management
time of the Company and require integration with the Company's existing
networks and services. The Company's ability to effectively manage its
rapid expansion will require it to continue to implement and improve its
operating, financial and accounting systems and to expand, train and
manage its employee base. The inability to effectively manage its planned
expansion could have a material adverse effect on the Company's business,
growth, financial condition and results of operations.
-23-
<PAGE>
COMPETITION
The Company operates in a highly competitive environment that
historically was dominated by an entrenched monopolist--the Regional Bell
Operating Companies ("RBOCs") and GTE Corporation ("GTE"). The Company's
current competitors include the RBOCs, GTE, other CLECs, network systems
integration service providers, microwave and satellite service providers,
teleport operators, wireless telecommunications providers and private
networks built by large end users. Potential competitors include cable
television companies, utilities, local telephone companies outside their
current local service areas, as well as the local service operations of
long distance carriers. Consolidation of telecommunications companies and
the formation of strategic alliances within the telecommunications
industry as well as the development of new technologies could give rise
to increased competition. One of the primary purposes of the
Telecommunications Act is to promote competition, in particular in the
local telephone market. Since enactment of the Telecommunications Act,
several telecommunications companies have indicated their intention to
enter many areas of the telecommunications industry, including areas and
markets in which the Company participates and expects to participate.
This may result in more participants than can ultimately be successful in
a given market, subjecting the Company to further competition.
As a recent entrant in the telecom services industry, the Company,
like other CLECs, has not achieved a significant market share. The LECs
have long-standing relationships with their customers, have the potential
to subsidize services with revenue from a variety of businesses and have
benefitted from certain state and federal regulations that, until
recently, favored the entrenched monopolist over potential competitors.
Recent legislative and regulatory initiatives provide increased business
opportunities for the Company, allowing CLECs such as the Company to
interconnect with local telephone company facilities and provide all
interstate and intrastate services. These opportunities are expected to
be accompanied by increased pricing flexibility for, and relaxation of
regulatory oversight of, the LECs. If local telephone companies lower
their rates, engage in increased volume and term discount pricing
practices or seek to charge CLECs increased fees for, or seek to delay
implementation of, interconnection to their networks, the Company's
results of operations and financial condition could be adversely
affected. There can be no assurance that the Company will be able to
achieve or maintain adequate market share or revenue, or compete
effectively in any of its markets. In addition, the success of the
Company's strategy of leasing or licensing fiber optic cable from
utilities depends upon the ability to connect end users to the Company's
network. Such connections require significant capital expenditures, time
and effort and, in some cases, end users targeted by the Company may
already be connected to another CLEC. There can be no assurance regarding
the number of end users the Company will be able to connect to its
network.
REGULATION
The Company operates in an industry that is undergoing substantial
deregulation as a result of the passage of the Telecommunications Act.
However, the Company continues to be subject to significant federal,
state and local regulation. On the federal level, the Company is not
subject to price or rate of return regulation and is not required to
obtain FCC authorization for the installation or operation of fiber optic
network facilities. As a non-dominant carrier, the Company must file
tariffs for its interstate services and its rates must be reasonable. In
addition, the FCC may have the authority, which it is not presently
exercising, to impose restrictions on foreign ownership of communications
services providers not utilizing radio facilities. The Company must
obtain and maintain certain FCC authorizations for its satellite and
wireless services. In addition, the Company provides maritime
communication services pursuant to an experimental license that expires
February 1, 1997. The FCC recently issued a waiver to the Company which
will allow it to continue to provide these services pending the grant of
a permanent license, for which the Company has applied. State regulatory
agencies regulate competitive access services to the extent that they are
used for intrastate communications. In addition, local authorities
control the Company's access to municipal rights of way.
The Telecommunications Act generally requires LECs to provide
interconnection and nondiscriminatory access to the LEC network on more
favorable terms than have been available in the past. However, such new
agreements are subject to negotiations with each LEC, which may involve
considerable delays, and may not necessarily be
-24-
<PAGE>
obtained on terms and conditions that are acceptable to the Company. In
such instances, the Company may petition the proper state regulatory
agency to arbitrate disputed issues. There can be no assurance that the
Company will be able to negotiate acceptable new interconnection
agreements or that, if state regulatory authorities impose terms and
conditions on the parties in arbitration, such terms will be acceptable
to the Company.
DEPENDENCE ON KEY CUSTOMERS
The Company's five largest customers accounted for approximately 18%
and 22% of the Company's consolidated revenue in fiscal 1994 and 1995,
respectively, and 25% for the six months ended March 31, 1996. No
single customer accounted for more than 10% of the Company's consolidated
revenue during fiscal 1994 or the six months ended March 31, 1996.
For fiscal 1995, revenue from Intel, a Network Services customer,
constituted approximately 11% of the Company's total consolidated
revenue. The Company anticipates that as switched services revenue
represents a larger percentage of the Company's total revenue, the
Company's dependence on its largest telecom services customers will
increase. The loss of, or decrease of business from, one or more of these
customers could have a material adverse effect on the business, financial
condition and results of operations of the Company. While the Company
actively markets its products and services, there can be no assurance
that the Company will be able to attract new customers or retain its
existing customers.
RAPID TECHNOLOGICAL CHANGE
The telecommunications industry is subject to rapid and significant
changes in technology. While the Company believes that, for the
foreseeable future, these changes will neither materially affect the
continued use of fiber optic cable nor materially hinder its ability to
acquire necessary technologies, the effect of technological changes,
including changes relating to emerging wireline and wireless transmission
technologies, on the business of the Company cannot be predicted.
DEPENDENCE ON RIGHTS OF WAY AND OTHER THIRD PARTY AGREEMENTS
The Company must obtain easements, rights of way, franchises and
licenses from various private parties, actual and potential competitors,
and local governments in order to construct and maintain fiber optic
networks. There can be no assurance that the Company will obtain rights
of way and franchise agreements to expand its networks or that these
agreements will be on terms acceptable to the Company, or that current or
potential competitors will not obtain similar rights of way and franchise
agreements that will allow them to compete against the Company. Because
certain of these agreements are short-term or are terminable at will,
there can be no assurance that the Company will continue to have access
to existing rights of way and franchises after the expiration of such
agreements. An important element of the Company's strategy is to enter
into long-term agreements with utilities to take advantage of their
existing easements and rights of way and to license or lease their excess
fiber capacity. The Company has entered into contracts or letters of
intent with several utilities, however other CLECs are seeking to enter
into similar arrangements and have bid and are expected to continue to
bid against the Company for future licenses or leases. Furthermore,
utilities are required by state or local regulators to retain the right
to "reclaim" fiber licensed or leased to the Company if such fiber is
needed for the utility's core business. There can be no assurance that
the Company will be able to obtain additional licenses or leases on
satisfactory terms or that such arrangements will not be subject to
reclamation. If a franchise, license or lease agreement was terminated
and the Company was forced to remove or abandon a significant portion of
its network, such termination could have a material adverse effect on the
Company.
KEY PERSONNEL
The efforts of a small number of key management and operating
personnel will largely determine the Company's success. The success of
the Company also depends in part upon its ability to hire and retain
highly skilled and qualified operating, marketing, financial and
technical personnel. The competition for qualified personnel in the
telecommunications industry is intense and, accordingly, there can be no
assurance that the Company will be able to hire or retain necessary
personnel. The loss of certain key personnel could adversely affect the
Company. The Company has employment agreements with J. Shelby Bryan,
President and Chief Executive Officer, James D.
-25-
<PAGE>
Grenfell, Executive Vice President, Chief Financial Officer and
Treasurer, and William J. Maxwell, Executive Vice President-Telecom and
President of ICG Telecom Group, Inc.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
Shareholders have filed four putative class action lawsuits based
on the timing and content of certain disclosures concerning FOTI's
suspension and debarment from the performance of federal government
contracts. FOTI's debarment has since been terminated.
ORIGINAL ISSUE DISCOUNT; POSSIBLE UNFAVORABLE TAX AND OTHER LEGAL
CONSEQUENCES FOR HOLDERS OF NOTES, PREFERRED STOCK AND EXCHANGE
DEBENTURES AND THE COMPANY
The Notes were issued at a substantial discount from their principal
amount at maturity. Although cash interest will not accrue on the Notes
prior to May 1, 2001, and there will be no periodic payments of cash
interest on the Notes prior to November 1, 2001, original issue discount
("OID"), which is the difference between the stated redemption price at
maturity and the issue price of the Notes, will accrue from the issue
date of the Notes. OID will be includible as interest income periodically
(including for periods ending prior to May 1, 2001) in a U.S.
noteholder's gross income for U.S. federal income tax purposes in advance
of receipt of the cash payments to which the income is attributable.
Further, the Notes will be subject to the high yield discount
obligation rules. Accordingly, ICG will not be able to deduct the OID
attributable to the Notes until paid in cash or property. If the yield to
maturity of the Notes exceeds the applicable federal rate plus six
percentage points (12.4% for long-term debt instruments issued in April
1996), a portion of the OID attributable to the Notes will not be
deductible at all. Therefore, ICG's after tax cash flow, if any, will be
less than if such OID were deductible in full when accrued. In addition,
as a result of the Note Guarantee, a portion of the interest on the Notes
will not be deductible by ICG.
If a bankruptcy case is commenced by or against ICG under the U.S.
Bankruptcy Code after the issuance of the Notes, the claim of a holder of
a Note with respect to the principal amount thereof may be limited to an
amount equal to the sum of (i) the initial offering price and (ii) that
portion of the OID that is not deemed to constitute "unmatured interest"
for purposes of the Bankruptcy Code. Any OID that was not amortized as of
any such bankruptcy filing would constitute "unmatured interest."
The Company does not presently have any current or accumulated
earnings and profits as determined under United States federal income tax
principles and it is unlikely to have current or accumulated earnings and
profits in the foreseeable future. As a result, until such time as the
Company does have earnings and profits, distributions on the Preferred
Stock will be treated as a nontaxable return of capital and will be
applied against and reduce the adjusted tax basis (but not below zero) on
the Preferred Stock in the hands of each holder, thus increasing the
amount of any gain (or reducing the amount of any loss) which would
otherwise be realized by such holder upon the disposition of the
Preferred Stock. Consequently, distributions with respect to the
Preferred Stock will not qualify as dividends for federal income tax
purposes and, as a result, will be treated as a return of capital.
Upon a redemption of Preferred Stock in exchange for Exchange
Debentures, the holder will have capital gain or loss equal to the
difference between the issue price of the Exchange Debentures received
and the holder's adjusted basis in the Preferred Stock redeemed, except
to the extent all or a portion of the Exchange Debentures received is
treated as a dividend payment. Because of ICG's option through May 1,
2001 to pay interest on the Exchange Debentures by issuing additional
Exchange Debentures, any Exchange Debentures issued prior to that date
will be treated as issued with OID, unless under special rules for
interest holidays the amount of OID is treated as de minimis. Holders
would have to accrue all such OID into income over the entire term of the
Exchange Debenture, but would not treat the receipt of stated interest on
the Exchange Debentures as interest for federal income tax purposes.
-26-
<PAGE>
An Exchange Debenture may be subject to the rules for "applicable high
yield discount obligations," in which case the Company's deduction for
OID on such Exchange Debentures will be substantially deferred, and a
portion of such deduction may be disallowed.
For a discussion of these and other relevant tax issues, see "Certain
United States Federal Income Tax Considerations."
ABSENCE OF PUBLIC MARKET
The Notes and the Preferred Stock are, and the Exchange Debentures, if
issued, will be new issues of securities for which there is currently no
active trading market. If any such securities are traded after their
initial issuance, they may trade at a discount from their initial
offering price, depending upon prevailing interest rates, the market for
similar securities and other factors, including general economic
conditions and the financial condition, performance of, and prospects for
the Company.
THE EXCHANGE OFFERS
PURPOSE AND EFFECT OF THE EXCHANGE OFFERS
The Old Securities were sold by the a Placement Agent on April 30,
1996 to a limited number of institutional investors (the "Purchasers").
In connection with the sale of the Old Securities, the Company and the
Purchasers entered into registration rights agreements dated as of April
30, 1996 (collectively the "Registration Rights Agreements"), which
require the Company (i) to cause the Old Securities to be registered
under the Securities Act or (ii) to file with the Commission a
registration statement under the Securities Act with respect to New
Securities identical in all material respects to the Old Securities and
to use its best efforts to cause such registration statement to become
effective under the Securities Act. The Company is further obligated,
upon the effectiveness of that registration statement, to offer the
holders of the Old Securities the opportunity to exchange their Old Notes
and Old Preferred Stock for a like principal amount of New Notes and a
like number of shares of New Preferred Stock, respectively, which will be
issued without a restrictive legend and may be reoffered and resold by
the holder without restrictions or limitations under the Securities Act.
Copies of the Registration Rights Agreements have been filed as exhibits
to the Registration Statement of which this Prospectus is a part. The
Exchange Offers are being made pursuant to the Registration Rights
Agreements to satisfy the Company's obligations thereunder. The term
"Holder" with respect to the Exchange Offers means any person in whose
name Old Securities are registered on the Company's books or any other
person who has obtained a properly completed assignment from the
registered holder.
In order to participate in the Exchange Offers, a Holder must
represent to the Company, among other things, that (i) the New Securities
acquired pursuant to the Exchange Offers are being obtained in the
ordinary course of business of the person receiving such New Securities,
whether or not such person is the Holder, (ii) neither the Holder nor any
such other person is engaging in or intends to engage in a distribution
of such New Securities, (iii) neither the Holder nor any such other
person has an arrangement or understanding with any person to participate
in the distribution of such New Securities, and (iv) neither the Holder
nor any such other person is an "affiliate," as defined under Rule 405
promulgated under the Securities Act, of the Company. In the event that
any Holder of Old Securities cannot make the requisite representations to
the Company in order to participate in the Exchange Offers, such Holder
may be entitled to have such Holder's Old Securities registered in a
"shelf" registration statement on an appropriate form pursuant to Rule
415 under the Securities Act.
Based on a previous interpretation by the staff of the Commission set
forth in no-action letters issued to third-parties, including "Exxon
Capital Holdings Corporation" (available May 13, 1988), "Morgan Stanley &
Co. Incorporated" (available June 5, 1991), "Mary Kay Cosmetics, Inc."
(available June 5, 1991), "Warnaco, Inc." (available October 11, 1991)
and K-III Communications Corp. (available May 14, 1993), the Company
believes that the New Securities issued pursuant to the Exchange Offers
may be offered for resale, resold and otherwise transferred by any Holder
of such New Securities (other than any such Holder which is an
"affiliate" of the
-27-
<PAGE>
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Securities are acquired in the
ordinary course of such Holder's business and such Holder has no
arrangement or understanding with any person to participate in the
distribution of such New Securities. Any Holder who tenders in the
Exchange Offers for the purpose of participating in a distribution of the
New Securities cannot rely on such interpretation by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Under no circumstances may this Prospectus be used for an
offer to resell, resale or other retransfer of the New Securities. In
the event that the Company's belief is inaccurate, Holders of the New
Securities who transfer New Securities in violation of the prospectus
delivery provisions of the Securities Act and without an exemption from
registration thereunder may incur liability thereunder. The Company does
not assume or indemnify Holders against such liability. The Exchange
Offers are not being made to, nor will the Company accept surrenders for
exchange from, Holders of Old Securities in any jurisdiction in which the
Exchange Offers or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction. Each broker-dealer
that receives New Securities for its own account in exchange for Old
Securities, where such Old Securities were acquired by such broker-dealer
as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any
resale of such New Securities. The Company has not entered into any
arrangement or understanding with any person to distribute the New
Securities to be received in the Exchange Offers. See "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFERS
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letters of Transmittal, the Company will accept any
and all Old Securities validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. The Company will issue
$1,000 principal amount of New Notes in exchange for each $1,000
principal amount of outstanding Old Notes surrendered pursuant to the
Note Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the New Notes will be the same as the form and
terms of the Old Notes except that the New Notes will be registered under
the Securities Act and hence will not bear legends restricting the
transfer thereof. The New Notes will evidence the same debt as the Old
Notes. The New Notes will be issued under and entitled to the benefits
of the Indenture, which also authorized the issuance of the Old Notes,
such that both series will be treated as a single class of debt
securities under the Indenture. The form and terms of the New Preferred
Stock will be the same as the form and terms of the Old Preferred Stock
except that the New Preferred Stock will be registered under the
Securities Act and hence will not bear legends restricting the transfer
thereof. The New Preferred Stock will evidence the same rights,
privileges and obligations as the Old Preferred Stock. The New Preferred
Stock will be issued under and entitled to the benefits of the Amended
Articles which also authorized the issuance of the Old Preferred Stock,
such that both series will be treated as a single class of equity
securities under the Amended Articles.
As of the date of this Prospectus, $550,300,000 aggregate principal
amount of the Old Notes and 150,000 shares of Old Preferred Stock are
outstanding. This Prospectus, together with the Letter of Transmittal,
is being sent to all registered Holders of the Old Notes and Old
Preferred Stock.
The Company intends to conduct the Exchange Offers in accordance with
the provisions of the Registration Rights Agreements and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Old Notes that are not tendered for exchange in
the Note Exchange Offer will remain outstanding and will be entitled to
the rights and benefits such Holders have under the Note Indenture. Old
Preferred Stock that is not tendered for exchange under the Preferred
Stock Exchange Offer will remain outstanding and will be entitled to the
rights as set forth in the Amended Articles.
The Company shall be deemed to have accepted validly tendered Old
Securities when, as and if the Company shall have given oral or written
notice thereof to the Exchange Agent or the Transfer Agent, as the case
may be. The Exchange Agent will act as agent for the tendering Holders
for the purposes of receiving the New Notes from
-28-
<PAGE>
the Company and the Transfer Agent will act as agent for the tendering
Holders for the purposes of receiving the New Preferred Stock from the
Company.
If any tendered Old Securities are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Old Securities
will be returned, without expense, to the tendering Holder thereof as
promptly as practicable after the Expiration Date.
Holders who tender Old Securities in the Exchange Offers will not be
required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to
the exchange pursuant to the Exchange Offers. The Company will pay all
charges and expenses, other than certain applicable taxes described
below, in connection with the Exchange Offers. See "--Fees and
Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date," shall mean 5:00 p.m., New York City time
on August 7, 1996, unless the Company, in its sole discretion, extends
the Exchange Offers, in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offers are extended.
In order to extend the Exchange Offers, the Company will notify the
Exchange Agent and the Transfer Agent of any extension by oral or written
notice and will mail to the registered Holders an announcement thereof,
prior to 9:00 a.m., New York City time, on the next business day after
the then Expiration Date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Securities, to extend the Exchange Offers or to
terminate the Exchange Offers if any of the conditions set forth below
under "--Conditions" shall not have been satisfied by giving oral or
written notice of such delay, extension or termination to the Exchange
Agent and the Transfer Agent or (ii) to amend the terms of the Exchange
Offers in any manner. Any such delay in acceptances, extension,
termination or amendment will be followed as promptly as practicable by
oral or written notice thereof to the registered Holders. If either
Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such
amendment by means of a prospectus supplement that will be distributed to
the registered Holders, and the Company will extend the Exchange Offers
for a period of five to ten business days, depending upon the
significance of the amendment and the manner of disclosure to the
registered Holders, if the Exchange Offers would otherwise expire during
such five to ten business day period.
Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of
the Exchange Offers, the Company shall have no obligation to publish,
advertise, or otherwise communicate any such public announcement, other
than by making a timely release to an appropriate news agency.
Upon satisfaction or waiver of all the conditions to the Exchange
Offers, the Company will accept, promptly after the Expiration Date, all
Old Securities properly tendered and will issue the New Securities
promptly after acceptance of the Old Securities. See "--Conditions."
For purposes of the Exchange Offers, the Company shall be deemed to have
accepted properly tendered Old Securities for exchange when, as and if
the Company shall have given oral or written notice thereof to the
Exchange Agent or the Transfer Agent, as the case may be.
In all cases, issuance of the New Securities for Old Securities that
are accepted for exchange pursuant to the Exchange Offers will be made
only after timely receipt by the Exchange Agent or the Transfer Agent, as
the case may be, of a properly completed and duly executed Letter of
Transmittal and all other required documents; provided, however, that the
Company reserves the absolute right to waive any defects or
irregularities in the tender or conditions of the Exchange Offers. If
any tendered Old Securities are not accepted for any reason set forth in
the terms and conditions of the Exchange Offers or if Old Securities are
submitted for a greater principal amount, or a greater number of shares,
respectively, than the Holder desires to exchange, then such unaccepted
or non-exchanged Old Securities evidencing the unaccepted portion, as
appropriate, will be returned without expense to the tendering Holder
thereof as promptly as practicable after the expiration or termination of
the Exchange Offers.
-29-
<PAGE>
CONDITIONS
Notwithstanding any other term of the Exchange Offers, the Company
will not be required to exchange any New Securities for any Old
Securities and may terminate the Exchange Offers before the acceptance of
any Old Securities for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange
Offers which, in the Company's reasonable judgment, might materially
impair the ability of the Company to proceed with the Exchange Offers; or
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted
by the staff of the Commission, which, in the Company's reasonable
judgment, might materially impair the ability of the Company to proceed
with the Exchange Offers; or
(c) any governmental approval or approval by Holders of the Old
Securities has not been obtained, which approval the Company shall, in
its reasonable judgment, deem necessary for the consummation of the
Exchange Offers as contemplated hereby.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any
Old Securities and return all tendered Old Securities to the tendering
Holders, (ii) extend the Exchange Offers and retain all Old Securities
tendered prior to the expiration of the Exchange Offers, subject,
however, to the rights of Holders who tendered such Old Securities to
withdraw their tendered Old Securities or (iii) waive such unsatisfied
conditions with respect to the Exchange Offers and accept all properly
tendered Old Securities which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offers, the Company will
promptly disclose such waiver by means of a prospectus supplement that
will be distributed to the registered Holders, and the Company will
extend the Exchange Offers for a period of five to ten business days,
depending upon the significance of the waiver and the manner of
disclosure to the registered Holders, if the Exchange Offers would
otherwise expire during such five to ten business day period.
PROCEDURES FOR TENDERING
To tender in the Exchange Offers, a Holder must complete, sign and
date the Letter of Transmittal, or facsimile thereof, have the signatures
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile to the
Exchange Agent, with respect to the Notes,or the Transfer Agent, with
respect to the Preferred Stock prior to the Expiration Date. In
addition, either (i) certificates for such Old Securities must be
received by the Exchange Agent or Transfer Agent, as the case may be,
along with the Letter of Transmittal, or (ii) a timely confirmation of
book-entry transfer (a "Book-Entry Confirmation") of such Old Securities,
if such procedure is available, into the Exchange Agent's or Transfer
Agent's account at the Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedure for book-entry transfer described
below must be received by the Exchange Agent or Transfer Agent, as the
case may be, prior to the Expiration Date, or (iii) the Holder must
comply with the guaranteed delivery procedures described below. To be
tendered effectively, the Letter of Transmittal and other required
documents must be received by the Exchange Agent or Transfer Agent, as
the case may be, at the address set forth below under "-- Exchange Agent;
Transfer Agent" prior to the Expiration Date.
The tender by a Holder which is not withdrawn prior to the Expiration
Date will constitute an agreement between such Holder and the Company in
accordance with the terms and subject to the conditions set forth herein
and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF OLD SECURITIES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT OR TRANSFER AGENT,
AS THE CASE MAY BE, IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD
OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR
HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED
TO ASSURE DELIVERY TO THE
-30-
<PAGE>
EXCHANGE AGENT OR TRANSFER AGENT, AS THE CASE MAY BE, BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD SECURITIES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS,
DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE
ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Securities are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact the registered Holder promptly and
instruct such registered Holder to tender on such beneficial owner's
behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Old Securities, either make
appropriate arrangements to register ownership of the Old Securities in
such owner's name or obtain a properly completed assignment from the
registered Holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution (as
defined below) unless the Old Securities tendered pursuant thereto is
tendered (i) by a registered Holder who has not completed the box
entitled "Special Payment Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution (as defined below). In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be,
are required to be guaranteed, such guarantor must be a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an
office or correspondent in the United States or an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Securities listed therein, such Old
Securities must be endorsed or accompanied by a properly completed bond
or stock power, as the case may be, signed by such registered Holder as
such registered Holder's name appears on such Old Securities.
If the Letter of Transmittal or any Old Securities or bond or stock
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate
when signing, and unless waived by the Company, evidence satisfactory to
the Company of their authority to so act must be submitted with the
Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Securities and withdrawal of
tendered Old Securities will be determined by the Company in its sole
discretion, which determination will be final and binding. The Company
reserves the absolute right to reject any and all Old Securities not
properly tendered or any Old Securities the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the right to waive any defects, irregularities or
conditions of tender as to particular Old Securities. The Company's
interpretation of the terms and conditions of the Exchange Offers
(including the instructions in the Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Securities must be cured within such
time as the Company shall determine. Although the Company intends to
notify Holders of defects or irregularities with respect to tenders of
Old Securities, none of the Company, the Exchange Agent, the Transfer
Agent, or any other person shall incur any liability for failure to give
such notification. Tenders of Old Securities will not be deemed to have
been made until such defects or irregularities have been cured or waived.
Any Old Securities received by the Exchange Agent or the Transfer Agent,
as the case may be, that are not properly tendered and as to which the
defects or irregularities have not been cured or waived will be returned
by the Exchange Agent, or the Transfer Agent, as the case may be, to the
tendering Holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to
purchase or make offers for any Old Securities that remain outstanding
subsequent to the Expiration Date or, as set forth above under "--
Conditions," to terminate the Exchange Offers and, to the extent
permitted by applicable law, purchase Old Securities in the open market,
in privately negotiated transactions or otherwise. The terms of any such
purchases or offers could differ from the terms of the Exchange Offers.
-31-
<PAGE>
By tendering, each Holder will represent to the Company that, among
other things, (i) the New Securities acquired pursuant to the Exchange
Offers are being obtained in the ordinary course of business of the
Person receiving such New Securities, whether or not such person is the
Holder, (ii) neither the Holder nor any such other person is engaging in
or intends to engage in a distribution of such New Securities (iii)
neither the Holder nor any such other person has an arrangement or
understanding with any Person to participate in the distribution of such
New Securities, and (iv) neither the Holder nor any such other Person is
an "affiliate," as defined in Rule 405 of the Securities Act, of the
Company.
In all cases, issuance of New Securities that are accepted for
exchange pursuant to the Exchange Offers will be made only after timely
receipt by the Exchange Agent or Transfer Agent of certificates for such
Old Securities or a timely Book-Entry Confirmation of such Old Securities
into the Exchange Agent's or Transfer Agent's account at the Book-Entry
Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old
Securities are not accepted for any reason set forth in the terms and
conditions of the Exchange Offers or if Old Securities are submitted for
a greater principal amount or greater number of shares, as the case may
be, than the Holder desires to exchange, such unaccepted or non-exchanged
Old Securities will be returned without expense to the tendering Holder
thereof (or, in the case of Old Securities tendered by book-entry
transfer into the Exchange Agent's or Transfer Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Old Securities will be
credited to an account maintained with such Book-Entry Transfer Facility)
as promptly as practicable after the expiration or termination of the
Exchange Offers.
BOOK-ENTRY TRANSFER
Each of the Exchange Agent and the Transfer Agent each will make a
request to establish an account with respect to the Old Securities and
the Old Preferred Stock, respectively, at the Book-Entry Transfer
Facility for purposes of the Exchange Offers within two business days
after the date of this Prospectus, and any financial institution that is
a participant in the Book-Entry Transfer Facility's systems may make
book-entry delivery of Old Securities by causing the Book-Entry Transfer
to transfer such Old Notes or Old Preferred Stock into the Exchange
Agent's or the Transfer Agent's account, respectively, at the Book-Entry
Transfer Facility in accordance with such Book-Entry Transfer Facility's
procedures for transfer. However, although delivery of Old Securities
may be effected through book-entry transfer at the Book-Entry Transfer
Facility, the Letter of Transmittal or facsimile thereof, with any
required signature guarantees and any other required documents, must, in
any case, be transmitted to and received by the Exchange Agent or the
Transfer Agent, as the case may be, at the address set forth below under
"--Exchange Agent; Transfer Agent" "--Transfer Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below
must be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Securities and (i) whose Old
Securities are not immediately available or (ii) who cannot deliver their
Old Securities, the Letter of Transmittal or any other required documents
to the Exchange Agent or the Transfer Agent, as the case may be, or the
Transfer Agent, as the case may be prior to the Expiration Date, may
effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent or the Transfer
Agent, as the case may be or the Transfer Agent, as the case may be,
receives from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the Holder, the
certificate number(s) of such Old Notes or Old Preferred Stock and the
principal amount of Old Notes or number of shares of Old Preferred Stock
tendered stating that the tender is being made thereby and guaranteeing
that, within five New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes or Old
Preferred Stock and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the
Exchange Agent or the Transfer Agent, as the case may be; and
-32-
<PAGE>
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all
tendered Old Notes or Old Preferred Stock in proper form for transfer and
other documents required by the Letter of Transmittal are received by the
Exchange Agent or Transfer Agent, as the case may be, within five New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent or the Transfer Agent, as the case
may be, a Notice of Guaranteed Delivery will be sent to Holders who wish
to tender their Old Notes or Old Preferred Stock according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Securities may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To withdraw a tender of Old Securities in the Exchange Offers, a
written or facsimile transmission notice of withdrawal must be received
by the Exchange Agent or the Transfer Agent, as the case may be, or the
Transfer Agent, as the case may be, at its respective address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date.
Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Securities to be withdrawn (the "Depositor"),
(ii) identify the Old Securities to be withdrawn (including the
certificate number or), (iii) be signed by the Holder in the same manner
as the original signature on the Letter of Transmittal by which such Old
Securities were tendered (including any required signature guarantees) or
be accompanied by documents of transfer sufficient to have the Trustee
with respect to the Old Notes, or the Transfer Agent with respect to the
Old Preferred Stock, register the transfer of such Old Securities in the
name of the person withdrawing the tender and (iv) specify the name in
which any such Old Securities are to be registered, if different from
that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be
determined by the Company, whose determination shall be final and binding
on all parties. Any Old Securities so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offers and no New
Securities will be issued with respect thereto unless the Old Securities
so withdrawn are validly retendered. Any Old Securities which have been
tendered but which are not accepted for payment will be returned to the
Holder thereof without cost to such Holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offers.
Properly withdrawn Old Securities may be retendered by following one of
the procedures described above under "--Procedures for Tendering" at any
time prior to the Expiration Date.
EXCHANGE AGENT; TRANSFER AGENT
Norwest Banks has been appointed as Exchange Agent of the Note
Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery with respect to the exchange
of the Old Notes should be directed to the Exchange Agent addressed as
follows:
By Registered Mail or Certified Mail: By Overnight Courier:
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
-33-
<PAGE>
American Stock Transfer & Trust Company has been appointed Transfer
Agent of the Preferred Stock Exchange Offer. Questions and requests for
assistance, requests for additional copies of this Prospectus or the
Letter of Transmittal and requests for Notice of Guaranteed Delivery with
respect to the Old Preferred Stock should be addressed to the Transfer
Agent as follows:
By Registered Mail, Certified Mail or Overnight By Telephone:
Courier:
(212) 936-5100
American Stock Transfer & Trust Company
40 Wall Street By Facsimile:
New York, NY 10005
(718) 236-4588
FEES AND EXPENSES
The expenses of soliciting tenders will be paid by the Company. The
principal solicitation is being made by mail; however, additional
solicitation may be made by telecopier, telephone or in person by
officers and regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offers and will not make any payments to brokers-dealers or
others soliciting acceptances of the Exchange Offers. The Company,
however, will pay the Exchange Agent and the Transfer Agent reasonable
and customary fees for their services and will reimburse them for their
reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange
Offers will be paid by the Company and are estimated in the aggregate to
be approximately $200,000. Such expenses include registration fees, fees
and expenses of the Exchange Agent and the Transfer Agent, accounting and
legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the
exchange of the Old Securities pursuant to the Exchange Offers. If,
however, certificates representing New Securities for principal amounts
or number of shares not tendered or accepted for exchange are to be
delivered to, or are to be issued in the name of, any person other than
the registered Holder of Old Securities tendered, or if tendered the Old
Securities are registered in the name of, any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed
for any reason other than the exchange of the Old Securities pursuant to
the Exchange Offers, then the amount of any such transfer taxes (whether
imposed on the registered Holder or any other persons) will be payable by
the tendering Holder. If satisfactory evidence of payment of such taxes
or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such
tendering Holder.
DESCRIPTION OF NEW NOTES
The New Notes are to be issued under an Indenture, dated as of the
April 30, 1996 (the "Notes Indenture"), among ICG, as issuer, IntelCom,
as guarantor (including its successors and assigns, the "Guarantor"), and
Norwest Bank Colorado, National Association, as Trustee (the "Trustee").
A copy of the Notes Indenture is available upon request from ICG. The
following summary of certain provisions of the Notes Indenture does not
purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Notes Indenture,
including the definitions of certain terms therein and those terms made a
part thereof by the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). Whenever particular defined terms of the Notes
Indenture not otherwise defined herein are referred to, such defined
terms are incorporated herein by reference. References herein to "$"
refers to U.S. dollars.
IntelCom's Board of Directors has adopted a plan under which IntelCom
will become a subsidiary of a new, publicly traded Delaware corporation
("Newco"). Upon the completion of such transaction, references to
-34-
<PAGE>
"IntelCom" herein shall be deemed to also refer to Newco. In addition,
Newco will fully and unconditionally guarantee ICG's obligations under
the New Notes on a senior basis. Upon completion of the transaction
whereby IntelCom becomes a subsidiary of Newco, references herein to
"Guarantor" shall be deemed to also refer to Newco.
GENERAL
The New Notes will be unsecured senior obligations of ICG, limited to
$550,300,000 aggregate principal amount, and will mature on May 1, 2006.
After May 1, 2001, interest on the New Notes will accrue at the rate of
12 1/2% per annum from the most recent Interest Payment Date to which
interest has been paid or provided for, payable semiannually (to Holders
of record at the close of business on April 15 or October 15 immediately
preceding the Interest Payment Date) on May 1 and November 1 of each
year, commencing November 1, 2001.
Although for U.S. federal income tax purposes a significant amount of
original issue discount, taxable as ordinary income, will be recognized
by a Holder of New Notes as such discount is amortized from the date of
issuance of the New Notes, Holders of New Notes will not receive any cash
payments of interest on the New Notes until November 1, 2001. See
"Certain United States Federal Income Tax Considerations."
Principal of, premium, if any, and interest on the New Notes will be
payable, and the New Notes may be exchanged or transferred, at the office
or agency of ICG (which initially will be the corporate trust office of
the Trustee at 1740 Broadway, Denver, Colorado); provided that, at the
option of ICG, payment of interest may be made by check mailed to the
address of the Holders as such address appears in the Security Register.
The New Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 of principal amount at maturity and
any integral multiple thereof. See "--Book Entry; Delivery and Form." No
service charge will be made for any registration of transfer or exchange
of New Notes, but ICG may require payment of a sum sufficient to cover
any transfer tax or other similar governmental charge payable in
connection therewith.
OPTIONAL REDEMPTION
The New Notes will be redeemable, at ICG's option, in whole or in
part, at any time or from time to time, on or after May 1, 2001 and prior
to maturity, upon not less than 30 nor more than 60 days' prior notice
mailed by first class mail to each Holder's last address as it appears in
the Security Register, at the following Redemption Prices (expressed in
percentages of principal amount at maturity), plus accrued 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 May 1, of the years set
forth below:
YEAR PERCENTAGE
2001.................... 106.250%
2002.................... 103.125%
2003 and thereafter..... 100.000%
In addition, at any time on or prior to May 1, 1999, ICG may, at its
option from time to time, redeem New Notes having an aggregate principal
amount of up to 35% of the aggregate principal amount of all Old Notes
issued in the Private Offering, at a redemption price equal to 112/1//2%
of the Accreted Value thereof on the redemption date, with proceeds of
one or more Public Equity Offerings of Common Stock of (A) IntelCom or
(B) ICG, provided that (i), with respect to a Public Equity Offering
referred to in clause (A) above, cash proceeds of such Public Equity
Offering in an amount sufficient to effect the redemption of New Notes to
be so redeemed are contributed by IntelCom to ICG prior to such
redemption and used by ICG to effect such redemption and (ii) such
redemption occurs within 180 days after consummation of such Public
Equity Offering.
-35-
<PAGE>
In the case of any partial redemption, selection of the New Notes for
redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on
which the New Notes are listed or, if the New Notes are not listed on a
national securities exchange, on a pro rata basis or by lot; provided
that no New Note of $1,000 in principal amount at maturity or less shall
be redeemed in part. If any New Note is to be redeemed in part only, the
notice of redemption relating to such New Note shall state the portion of
the principal amount thereof to be redeemed. A new New Note in principal
amount equal to the unredeemed portion thereof will be issued in the name
of the Holder thereof upon cancellation of the original New Note.
In the event that (i) IntelCom has become or would become obligated to
pay, on the next date on which any amount would be payable under or with
respect to the New Notes, any Additional Amounts (as defined herein) as a
result of certain changes affecting Canadian withholding tax laws, and
(ii) IntelCom cannot reasonably arrange for another obligor to make such
payment so as to avoid the requirement to pay such Additional Amounts,
then IntelCom may redeem all, but not less than all, the New Notes at any
time at 100% of the Accreted Value thereof on the redemption date,
together with accrued interest thereon, if any, to the redemption date.
See "--Additional Amounts."
GUARANTEE
ICG's obligations under the New Notes are fully and unconditionally
guaranteed on a senior basis by the Guarantor; provided that the Note
Guarantee shall not be enforceable against the Guarantor in an amount in
excess of the net worth of the Guarantor at the time that determination
of such net worth is, under applicable law, relevant to the
enforceability of such Note Guarantee. Such net worth shall include any
claim of the Guarantor against ICG for reimbursement.
RANKING
The New Notes and the Note Guarantee will be senior unsecured
indebtedness of ICG and IntelCom, respectively, will rank pari passu in
right of payment with all existing and future unsecured, unsubordinated
indebtedness and will be senior in right of payment to all existing and
future subordinated indebtedness of ICG and IntelCom. See "Risk Factors-
-Substantial Indebtedness; Ability to Service Debt" and "--Holding
Company Reliance on Subsidiaries' Funds; Priority of Creditors;
Subordination of Exchange Debentures."
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the covenants and other provisions of the Notes Indenture. Reference is
made to the Notes Indenture for the full definition of all terms as well
as any other capitalized term used herein for which no definition is
provided.
"Accreted Value" is defined to mean, for any Specified Date, the
amount calculated pursuant to (i), (ii), (iii) or (iv) for each $1,000
principal amount at maturity of New Notes:
(i) if the Specified Date occurs on one of the following dates (each a
"Semi-Annual Accrual Date"), the Accreted Value will equal the amount set
forth below for such Semi-Annual Accrual Date:
SEMI-ANNUAL ACCRETED
ACCRUAL DATE VALUE
- ------------ --------
April 30, 1996.................. $ 545.21
November 1, 1996................ $ 579.48
May 1, 1997..................... $ 615.69
November 1, 1997................ $ 654.18
May 1, 1998..................... $ 695.06
-36-
<PAGE>
November 1, 1998................ $ 738.50
May 1, 1999..................... $ 784.66
November 1, 1999................ $ 833.70
May 1, 2000..................... $ 885.81
November 1, 2000................ $ 941.17
May 1, 2001..................... $1,000.00
(ii) if the Specified Date occurs before the first Semi-Annual
Accrual Date, the Accreted Value will equal the sum of (a) the original
issue price and (b) an amount equal to the product of (1) the Accreted
Value for the first Semi-Annual Accrual Date less the original issue
price multiplied by (2) a fraction, the numerator of which is the number
of days from the issue date of the New Notes to the Specified Date, using
a 360-day year of twelve 30-day months, and the denominator of which is
the number of days elapsed from the issue date of the New Notes to the
first Semi-Annual Accrual Date, using a 360-day year of twelve 30-day
months;
(iii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the Accreted Value will equal the sum of (a) the Accreted Value
for the Semi-Annual Accrual Date immediately preceding such Specified
Date and (b) an amount equal to the product of (1) the Accreted Value for
the immediately following Semi-Annual Accrual Date less the Accreted
Value for the immediately preceding Semi-Annual Accrual Date multiplied
by (2) a fraction, the numerator of which is the number of days from the
immediately preceding Semi-Annual Accrual Date to the Specified Date,
using a 360-day year of twelve 30-day months, and the denominator of
which is 180; or
(iv) if the Specified Date occurs after the last Semi-Annual Accrual
Date, the Accreted Value will equal $1,000.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Guarantor and its Restricted
Subsidiaries for such period determined in conformity with GAAP; provided
that the following items shall be excluded in computing Adjusted
Consolidated Net Income (without duplication): (i) the net income of any
Person (other than net income attributable to a Restricted Subsidiary) in
which any Person (other than the Guarantor or any of its Restricted
Subsidiaries) has a joint interest and the net income of any Unrestricted
Subsidiary, except to the extent of the amount of dividends or other
distributions actually paid to the Guarantor or any of its Restricted
Subsidiaries by such other Person or such Unrestricted Subsidiary during
such period; (ii) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of the "Limitation on Restricted Payments" covenant described
below (and in such case, except to the extent includable pursuant to
clause (i) above), the net income (or loss) of any Person accrued prior
to the date it becomes a Restricted Subsidiary or is merged into or
consolidated with the Guarantor or any of its Restricted Subsidiaries or
all or substantially all of the property and assets of such Person are
acquired by the Guarantor or any of its Restricted Subsidiaries; (iii)
the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary; (iv) any gains or losses (on an
after-tax basis) attributable to Asset Sales; (v) except for purposes of
calculating the amount of Restricted Payments that may be made pursuant
to clause (C) of the first paragraph of the "Limitation on Restricted
Payments" covenant described below, any amount paid or accrued as
dividends on preferred stock of the Guarantor or any Restricted
Subsidiary owned by Persons other than the Guarantor and any of its
Restricted Subsidiaries; and (vi) all extraordinary gains and
extraordinary losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Guarantor and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the
extent resulting from write-ups of capital assets (excluding write-ups in
connection with accounting for acquisitions in conformity with GAAP),
after deducting therefrom (i) all current liabilities of the Guarantor
and its Restricted Subsidiaries (excluding intercompany items) and (ii)
all goodwill, trade names, trademarks, patents, unamortized
-37-
<PAGE>
debt discount and expense and other like intangibles, all as set forth on
the most recently available quarterly or annual consolidated balance
sheet of the Guarantor and its Restricted Subsidiaries, prepared in
conformity with GAAP.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract
or otherwise; provided that, with respect to the Guarantor and any of its
Subsidiaries, the term "Affiliate" shall be deemed to include William W.
Becker, Lawrence L. Becker and any person related by blood or marriage to
either of them.
"Asset Acquisition" means (i) an investment by the Guarantor or any of
its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Guarantor or shall be
merged into or consolidated with the Guarantor or any of its Restricted
Subsidiaries; provided that such Person's primary business is related,
ancillary or complementary to the businesses of the Guarantor and its
Restricted Subsidiaries on the date of such investment or (ii) an
acquisition by the Guarantor or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Guarantor or any of its
Restricted Subsidiaries that constitute substantially all of a division
or line of business of such Person; provided that the property and assets
acquired are related, ancillary or complementary to the businesses of the
Guarantor and its Restricted Subsidiaries on the date of such
acquisition.
"Asset Disposition" means the sale or other disposition by the
Guarantor or any of its Restricted Subsidiaries (other than to the
Guarantor or another Restricted Subsidiary of the Guarantor) of (i) all
or substantially all of the Capital Stock of any Restricted Subsidiary of
the Guarantor or (ii) all or substantially all of the assets that
constitute a division or line of business of the Guarantor or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transactions) in one
transaction or a series of related transactions by the Guarantor or any
of its Restricted Subsidiaries to any Person other than the Guarantor or
any of its Restricted Subsidiaries of (i) all or any of the Capital Stock
of any Restricted Subsidiary, (ii) all or substantially all of the
property and assets of an operating unit or business of the Guarantor or
any of its Restricted Subsidiaries or (iii) any other property and assets
of the Guarantor or any of its Restricted Subsidiaries outside the
ordinary course of business of the Guarantor or such Restricted
Subsidiary and, in each case, that is not governed by the provisions of
the Notes Indenture applicable to mergers, consolidations and sales of
assets of the Guarantor; provided that the meaning of "Asset Sale" shall
not include (A) sales or other dispositions of inventory, receivables and
other current assets, and (B) dispositions of assets of the Guarantor or
any of its Restricted Subsidiaries, in substantially simultaneous
exchanges for consideration consisting of any combination of cash,
Temporary Cash Investments and assets that are used or useful in the
telecommunications business of the Guarantor or its Restricted
Subsidiaries, if such consideration has an aggregate fair market value
substantially equal to the fair market value of the assets so disposed
of; provided, however, that fair market value shall be determined in good
faith by the Board of Directors of ICG, whose determination shall be
conclusive and evidenced by a Board Resolution delivered to the Trustee;
and provided further that any cash or Temporary Cash Investments received
by the Guarantor or any of its Restricted Subsidiaries pursuant to any
transaction described in clause (B) above shall be applied in accordance
with clause (A) or (B) of the first paragraph of the "Limitation on Asset
Sales" covenant.
"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.
-38-
<PAGE>
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether now
outstanding or issued after the date of the Notes Indenture, including,
without limitation, all Common Stock and preferred stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in
conformity with GAAP, is required to be capitalized on the balance sheet
of such Person; and "Capitalized Lease Obligations" means the discounted
present value of the rental obligations under such lease.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of Voting Stock having more than 40% of the voting
power of the total Voting Stock of the Guarantor on a fully diluted
basis; (ii) individuals who on the Closing Date constitute the Board of
Directors of the Guarantor (together with any new directors whose
election by the Board of Directors or whose nomination for election by
the Guarantor's stockholders was approved by a vote of at least a
majority of the members of the Board of Directors then in office who
either were members of the Board of Directors on the Closing Date or
whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the members of the Board
of Directors then in office; or (iii) all of the Common Stock of ICG is
not beneficially owned by the Guarantor; provided, however, that a Change
of Control shall be deemed not to occur solely as a result of a
Reorganization permitted by the Notes Indenture.
"Closing Date" means the date on which the New Notes are originally
issued under the Notes Indenture.
"Consolidated EBITDA" means, for any period, the sum of the amounts
for such period of (i) Adjusted Consolidated Net Income, (ii)
Consolidated Interest Expense, (iii) income taxes, to the extent such
amount was deducted in calculating Adjusted Consolidated Net Income
(other than income taxes (either positive or negative) attributable to
extraordinary and non-recurring gains or losses or sales of assets), (iv)
depreciation expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, (v) amortization expense,
to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, and (vi) all other non-cash items reducing
Adjusted Consolidated Net Income (other than items that will require cash
payments and for which an accrual or reserve is, or is required by GAAP
to be, made), less all non-cash items increasing Adjusted Consolidated
Net Income, all as determined on a consolidated basis for the Guarantor
and its Restricted Subsidiaries in conformity with GAAP; provided that,
if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced
in accordance with GAAP) by an amount equal to (A) the amount of the
Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the quotient of (1) the number of shares of
outstanding Common Stock of such Restricted Subsidiary not owned on the
last day of such period by the Guarantor or any of its Restricted
Subsidiaries divided by (2) the total number of shares of outstanding
Common Stock of such Restricted Subsidiary on the last day of such
period.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness and the interest portion of
any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and
other fees and charges owed with respect to letters of credit and
bankers' acceptance financing; the net costs associated with Interest
Rate Agreements; and Indebtedness that is Guaranteed or secured by the
Guarantor or any of its Restricted Subsidiaries) and all but the
principal component of rentals in respect of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by the
Guarantor and its Restricted Subsidiaries during such period; excluding,
however, without duplication, (i) any amount of such interest of any
Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income pursuant
to clause (iii) of the definition thereof (but only in the same
proportion as the net income of such Restricted Subsidiary is excluded
from the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof) and (ii) any premiums, fees and
expenses (and any amortization thereof) payable in connection with the
offering of the 13/1//2% Notes and the warrants issued therewith,
-39-
<PAGE>
the New Notes and/or the Preferred Stock, all as determined on a
consolidated basis (without taking into account Unrestricted
Subsidiaries) in conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available
quarterly or annual consolidated balance sheet of the Guarantor and its
Restricted Subsidiaries (which shall be as of a date not more than 90
days prior to the date of such computation, and which shall not take into
account Unrestricted Subsidiaries), less any amounts attributable to
Redeemable Stock or any equity security convertible into or exchangeable
for Indebtedness, the cost of treasury stock and the principal amount of
any promissory notes receivable from the sale of the Capital Stock of the
Guarantor or any of its Restricted Subsidiaries, each item to be
determined in conformity with GAAP (excluding the effects of foreign
currency exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52).
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to
protect the Guarantor or any of its Restricted Subsidiaries against
fluctuations in currency values to or under which the Guarantor or any of
its Restricted Subsidiaries is a party or a beneficiary on the Closing
Date or becomes a party or a beneficiary thereafter.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"FOTI" means Fiber Optic Technologies Inc., a Colorado corporation.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of August 8, 1995, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All
ratios and computations contained in the Notes Indenture shall be
computed in conformity with GAAP applied on a consistent basis, except
that calculations made for purposes of determining compliance with the
terms of the covenants and with other provisions of the Notes Indenture
shall be made without giving effect to (i) the amortization of any
expenses incurred in connection with the offering of the 13/1//2% Notes
and the warrants issued therewith, the New Notes and/or the Preferred
Stock and (ii) except as otherwise provided, the amortization of any
amounts required or permitted by Accounting Principles Board Opinion Nos.
16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of
the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Indebtedness or other
obligation of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided that the term
"Guarantee" shall not include endorsements for collection or deposit in
the ordinary course of business. The term "Guarantee" used as a verb has
a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise,
such Indebtedness, including an Incurrence of Indebtedness by reason of
the acquisition of more than 50% of the Capital Stock of any Person;
provided that neither the accrual of interest nor the accretion of
original issue discount shall be considered an Incurrence of
Indebtedness. The term "Incurrence" has a corresponding meaning.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person
for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect
thereto), (iv) all obligations of such
-40-
<PAGE>
Person to pay the deferred and unpaid purchase price of property or
services, which purchase price is due more than six months after the date
of placing such property in service or taking delivery and title thereto
or the completion of such services, except Trade Payables, (v) all
obligations of such Person as lessee under Capitalized Leases, (vi) all
Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
provided that the amount of such Indebtedness shall be the lesser of (A)
the fair market value of such asset at such date of determination and (B)
the amount of such Indebtedness, (vii) all Indebtedness of other Persons
Guaranteed by such Person to the extent such Indebtedness is Guaranteed
by such Person and (viii) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall
be the outstanding balance at such date of all unconditional obligations
as described above and, with respect to contingent obligations, the
maximum liability upon the occurrence of the contingency giving rise to
the obligation, provided (i) that the amount outstanding at any time of
any Indebtedness issued with original issue discount is the original
issue price of such Indebtedness and (ii) that Indebtedness shall not
include any liability for federal, state, local or other taxes.
"Indebtedness to EBITDA Ratio" means, as at any date of determination,
the ratio of (i) the aggregate amount of Indebtedness of the Guarantor,
ICG and their Restricted Subsidiaries on a consolidated basis
("Consolidated Indebtedness") as at the date of determination to (ii) the
Consolidated EBITDA of the Guarantor for the then most recent four full
fiscal quarters for which reports have been filed pursuant to the
"Commission Reports and Reports to Holders" covenant described below
(such four full fiscal quarter period being referred to herein as the
"Four Quarter Period"); provided that (x) pro forma effect shall be given
to any Indebtedness Incurred from the beginning of the Four Quarter
Period through the Transaction Date (including any Indebtedness Incurred
on the Transaction Date), to the extent outstanding on the Transaction
Date, (y) if during the period commencing on the first day of such Four
Quarter Period through the Transaction Date (the "Reference Period"), the
Guarantor, ICG or any of the Restricted Subsidiaries shall have engaged
in any Asset Sale, Consolidated EBITDA for such period shall be reduced
by an amount equal to the EBITDA (if positive), or increased by an amount
equal to the EBITDA (if negative), directly attributable to the assets
which are the subject of such Asset Sale and any related retirement of
Indebtedness as if such Asset Sale and related retirement of Indebtedness
had occurred on the first day of such Reference Period or (z) if during
such Reference Period the Guarantor, ICG or any of the Restricted
Subsidiaries shall have made any Asset Acquisition, Consolidated EBITDA
of the Guarantor shall be calculated on a pro forma basis as if such
Asset Acquisition and any related financing had occurred on the first day
of such Reference Period.
"IntelCom" means IntelCom Group Inc. and its successors and assigns.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of
Guarantee or similar arrangement; but excluding advances to customers in
the ordinary course of business that are, in conformity with GAAP,
recorded as accounts receivable on the balance sheet of the Guarantor or
its Restricted Subsidiaries) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase or
acquisition of Capital Stock, bonds, notes, debentures or other similar
instruments issued by, such Person and shall include the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary. For purposes of the
definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described below, (i) "Investment" shall include the
fair market value of the assets (net of liabilities) of any Restricted
Subsidiary of the Guarantor at the time that such Restricted Subsidiary
of the Guarantor is designated an Unrestricted Subsidiary and shall
exclude the fair market value of the assets (net of liabilities) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary of the Guarantor and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its
fair market value at the time of such transfer, in each case as
determined by the Board of Directors in good faith.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the
nature thereof, any sale with recourse against the seller or any
Affiliate of the seller, or any agreement to give any security interest).
"MTN" means Maritime Telecommunications Network, Inc., a Colorado
corporation, and its successors.
-41-
<PAGE>
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the
extent corresponding to the principal, but not interest, component
thereof) when received in the form of cash or cash equivalents (except to
the extent such obligations are financed or sold with recourse to the
Guarantor or any Restricted Subsidiary of the Guarantor) and proceeds
from the conversion of other property received when converted to cash or
cash equivalents, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes (whether or not
such taxes will actually be paid or are payable) as a result of such
Asset Sale without regard to the consolidated results of operations of
the Guarantor and its Restricted Subsidiaries, taken as a whole, (iii)
payments made to repay Indebtedness or any other obligation outstanding
at the time of such Asset Sale that either (A) is secured by a Lien on
the property or assets sold or (B) is required to be paid as a result of
such sale and (iv) appropriate amounts to be provided by the Guarantor or
any Restricted Subsidiary of the Guarantor as a reserve against any
liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP and (b) with respect to any issuance
or sale of Capital Stock, the proceeds of such issuance or sale in the
form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are
financed or sold with recourse to the Guarantor or any Restricted
Subsidiary of the Guarantor) and proceeds from the conversion of other
property received when converted to cash or cash equivalents, net of
attorney's fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultant and other fees
incurred in connection with such issuance or sale and net of taxes paid
or payable as a result thereof.
"Offer to Purchase" means an offer to purchase New Notes by ICG 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 Senior
Discount Note not tendered will continue to accrue interest pursuant to
its terms; (iv) that, unless ICG defaults in the payment of the purchase
price, any Senior Discount 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 Senior Discount Note purchased
pursuant to the Offer to Purchase will be required to surrender the
Senior Discount Note, together with the form entitled "Option of the
Holder to Elect Purchase" on the reverse side of the Senior Discount Note
completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding
the Payment Date; (vi) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of
business on the third Business Day immediately preceding the Payment
Date, a telegram, facsimile transmission or letter setting forth the name
of such Holder, the principal amount of New Notes delivered for purchase
and a statement that such Holder is withdrawing his election to have such
New Notes purchased; and (vii) that Holders whose new New Notes are being
===
purchased only in part will be issued new Notes equal in principal
amount to the unpurchased portion of the New Notes surrendered; provided
that each Senior Discount Note purchased and each new Senior Discount
Note issued shall be in a principal amount of $1,000 or integral
multiples thereof. On the Payment Date, ICG 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 ICG.
The Paying Agent shall promptly mail to the Holders of New Notes so
accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail to such Holders a new Senior
Discount Note equal in principal amount to any unpurchased portion of the
Senior Discount Note surrendered; provided that each Senior Discount Note
purchased and each new Senior Discount Note issued shall be in a
principal amount of $1,000 or integral multiples thereof. ICG 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. ICG 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
ICG is required to repurchase New Notes pursuant to an Offer to Purchase.
-42-
<PAGE>
"Ohio LINX" means ICG Ohio LINX, Inc., an Ohio corporation.
"Permitted Investment" means (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment,
become a Restricted Subsidiary or be merged or consolidated with or into
or transfer or convey all or substantially all its assets to, the
Guarantor or a Restricted Subsidiary; provided that such person's primary
business is related, ancillary or complementary to the businesses of the
Guarantor and its Restricted Subsidiaries on the date of such Investment;
(ii) a Temporary Cash Investment; (iii) payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses in accordance with GAAP; (iv) loans
or advances to employees made in the ordinary course of business in
accordance with past practice of the Guarantor or its Restricted
Subsidiaries and that do not in the aggregate exceed $2 million at any
time outstanding; and (v) stock, obligations or securities received in
satisfaction of judgments.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for
which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made; (ii) statutory
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other similar Liens arising in the ordinary
course of business and with respect to amounts not yet delinquent or
being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (iv) Liens
incurred or deposits made to secure the performance of tenders, bids,
leases, statutory or regulatory obligations, bankers' acceptances, surety
and appeal bonds, government contracts, performance and return-of-money
bonds and other obligations of a similar nature incurred in the ordinary
course of business (exclusive of obligations for the payment of borrowed
money); (v) easements, rights of way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of the
Guarantor or any of its Restricted Subsidiaries; (vi) Liens (including
extensions and renewals thereof) upon real or personal property acquired
after the Closing Date; provided that (a) such Lien is created solely for
the purpose of securing Indebtedness Incurred, in accordance with the
"Limitation on Indebtedness" covenant described below, (1) to finance the
cost (including the cost of improvement or construction) of the item of
property or assets subject thereto and such Lien is created prior to, at
the time of or within six months after the later of the acquisition, the
completion of construction or the commencement of full operation of such
property or (2) to refinance any Indebtedness previously so secured, (b)
the principal amount of the Indebtedness secured by such Lien does not
exceed 100% of such cost and (c) any such Lien shall not extend to or
cover any property or assets other than such item of property or assets
and any improvements on such item; (vii) leases or subleases granted to
others that do not materially interfere with the ordinary course of
business of the Guarantor and its Restricted Subsidiaries, taken as a
whole; (viii) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of the Guarantor
or its Restricted Subsidiaries relating to such property or assets; (ix)
any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing
Uniform Commercial Code financing statements regarding leases; (xi) Liens
on property of, or on shares of stock or Indebtedness of, any corporation
existing at the time such corporation becomes, or becomes a part of, any
Restricted Subsidiary; provided that such Liens do not extend to or cover
any property or assets of the Guarantor or any Restricted Subsidiary
other than the property or assets acquired; (xii) Liens in favor of the
Guarantor or any Restricted Subsidiary; (xiii) Liens arising from the
rendering of a final judgment or order against the Guarantor or any
Restricted Subsidiary of the Guarantor that does not give rise to an
Event of Default; (xiv) Liens securing reimbursement obligations with
respect to letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds thereof;
(xv) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; (xvi) Liens encumbering customary initial deposits
and margin deposits, and other Liens that are either within the general
parameters customary in the industry and incurred in the ordinary course
of business, in each case, securing Indebtedness under Interest Rate
Agreements and Currency Agreements and forward contracts, options, future
contracts, futures options or similar agreements or arrangements designed
to protect the Guarantor or any of its Restricted Subsidiaries from
fluctuations in the price of commodities; (xvii) Liens arising out of
conditional sale, title retention, consignment or similar arrangements
for the sale of goods entered into by the Guarantor or any of
-43-
<PAGE>
its Restricted Subsidiaries in the ordinary course of business in
accordance with the past practices of the Guarantor and its Restricted
Subsidiaries prior to the Closing Date; and (xviii) Liens on or sales of
receivables.
"Preferred stock" or "preferred stock" means, with respect to any
Person, any and all shares, interests, participations or other
equivalents (however designated, whether voting or non-voting) of such
Person's preferred or preference stock, whether now outstanding or issued
after the date of the Notes Indenture, including, without limitation, all
series and classes of such preferred or preference stock.
"Preferred Stock" means the preferred stock of ICG issued on the
Closing Date and any shares of preferred stock issued as payment in kind
dividends thereon.
"Public Equity Offering" means a bona fide underwritten primary public
offering of Common Stock of IntelCom or ICG pursuant to an effective
registration statement under the Securities Act.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the New Notes, (ii) redeemable at the
option of the holder of such class or series of Capital Stock at any time
prior to the Stated Maturity of the New Notes or (iii) convertible into
or exchangeable for Capital Stock referred to in clause (i) or (ii) above
or Indebtedness having a scheduled maturity prior to the Stated Maturity
of the New Notes; provided that any Capital Stock that would not
constitute Redeemable Stock but for provisions thereof giving holders
thereof the right to require such Person to repurchase or redeem such
Capital Stock upon the occurrence of an "asset sale" or "change of
control" occurring prior to the Stated Maturity of the New Notes shall
not constitute Redeemable Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more
favorable to the holders of such Capital Stock than the provisions
contained in "Limitation on Asset Sales" and "Repurchase of New Notes
Upon a Change of Control" covenants described below and such Capital
Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Guarantor's
repurchase of such New Notes as are required to be repurchased pursuant
to the "Limitation on Asset Sales" and "Repurchase of New Notes Upon a
Change of Control" covenants described below.
"Restricted Subsidiary" means any Subsidiary of the Guarantor other
than an Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary of the Guarantor that, together with its
Subsidiaries, (i) for the most recent fiscal year of the Guarantor,
accounted for more than 10% of the consolidated revenues of the Guarantor
and its Restricted Subsidiaries or (ii) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the
Guarantor and its Restricted Subsidiaries, all as set forth on the most
recently available consolidated financial statements of the Guarantor for
such fiscal year.
"Specified Date" means any redemption date, any date of purchase for
any purchase of New Notes pursuant to the "Limitation on Asset Sales" or
"Repurchase of New Notes upon a Change of Control" covenants described
below or any date on which the New Notes are due and payable after an
Event of Default.
"StarCom" means StarCom International Optics Corporation, a British
Columbia corporation, and its subsidiaries.
"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and
(ii) with respect to any scheduled installment of principal of or
interest on any debt security, the date specified in such debt security
as the fixed date on which such installment is due and payable.
"Strategic Investor" means any Person engaged in the
telecommunications business which has a net worth or equity market
capitalization of at least $1 billion.
"Strategic Investor Subordinated Indebtedness" means all Indebtedness
of ICG owed to a Strategic Investor that is contractually subordinate in
right of payment to the New Notes to at least the following extent: no
payment
-44-
<PAGE>
of principal (or premium, if any) or interest on or otherwise payable in
respect of such Indebtedness may be made (whether as a result of a
default or otherwise) prior to the payment in full of all of the
Guarantor's and ICG's obligations under the New Notes, provided, however,
that prior to the payment of such obligations, interest on Strategic
Investor Subordinated Indebtedness may be payable solely in kind or in
Common Stock (other than Redeemable Stock) of the Guarantor.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of
America or any agency thereof, (ii) time deposit accounts, certificates
of deposit and money market deposits maturing within 270 days of the date
of acquisition thereof, bankers' acceptances with maturities not
exceeding 270 days, and overnight bank deposits, in each case issued by
or with a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $100
million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by
at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund
sponsored by a registered broker dealer or mutual fund distributor, (iii)
repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii)
above, (iv) commercial paper, maturing not more than 180 days after the
date of acquisition, issued by a corporation (other than an Affiliate of
the Guarantor) organized and in existence under the laws of the United
States of America, any state thereof or any foreign country recognized by
the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard &
Poor's Ratings Group, and (v) securities with maturities of six months or
less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States
of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.
"13 1/2% Notes" means the 13 1/2% Notes due 2005 of ICG guaranteed by
IntelCom on a senior unsecured basis.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Guarantor or any of its Restricted Subsidiaries, the
date such Indebtedness is to be Incurred and, with respect to any
Restricted Payment, the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Guarantor
that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and
(ii) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors may designate any Restricted Subsidiary of the Guarantor
(including any newly acquired or newly formed Subsidiary of the
Guarantor), other than ICG or a Subsidiary that has given a Subsidiary
Guarantee, to be an Unrestricted Subsidiary unless such Subsidiary owns
any Capital Stock of, or owns or holds any Lien on any property of, the
Guarantor or any Restricted Subsidiary; provided that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B)
if such Subsidiary has assets greater than $1,000, that such designation
would be permitted under the "Limitation on Restricted Payments" covenant
described below. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary of the Guarantor; provided that
immediately after giving effect to such designation (x) the Guarantor
could Incur $1.00 of additional Indebtedness under the first paragraph of
the "Limitation on Indebtedness" covenant described below and (y) no
Default or Event of Default shall have occurred and be continuing. Any
such designation by the Board of Directors shall be evidenced to the
Trustee by promptly filing with the Trustee a copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
-45-
<PAGE>
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
such Subsidiary if all of the outstanding Capital Stock in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned by such Person or
one or more Wholly Owned Subsidiaries of such Person.
"Zycom" means Zycom Corporation, an Alberta, Canada corporation.
COVENANTS
LIMITATION ON INDEBTEDNESS
(a) Under the terms of the Notes Indenture, the Guarantor will not,
and will not permit any of its Restricted Subsidiaries to, Incur any
Indebtedness (other than the New Notes, the Guarantor's Guarantee thereof
and Indebtedness existing on the Closing Date); provided that the
Guarantor and ICG may Incur Indebtedness if, after giving effect to the
Incurrence of such Indebtedness and the receipt and application of the
proceeds therefrom, the Indebtedness to EBITDA Ratio would be greater
than zero and less than 5:1.
Notwithstanding the foregoing, the Guarantor and any Restricted
Subsidiary (except as specified below) may Incur each and all of the
following: (i) Indebtedness of the Guarantor or ICG outstanding at any
time, which Indebtedness generates gross proceeds to the Guarantor or ICG
of up to $400 million, less the gross proceeds of Indebtedness
permanently repaid as provided under the "Limitation on Asset Sales"
covenant described below; provided that (A) Indebtedness generating gross
proceeds to the Guarantor or ICG of up to $150 million may be Incurred
under this clause (i) with no additional requirements and (B) prior to,
or contemporaneously with, the Incurrence of Indebtedness generating all
or any part of the remaining $250 million of gross proceeds referred to
under this clause (i), the Guarantor or ICG shall have issued or shall
issue preferred stock (which has a final stated redemption date later
than the Stated Maturity of the 13/1// 2% Notes) generating an amount of
gross proceeds equal to or greater than the amount of Indebtedness so
Incurred and (x) with respect to preferred stock issued on the same date
as Indebtedness Incurred under this clause (i)(B), having a dividend rate
of no more than 2.75 percentage points higher than the interest rate on
the Indebtedness so Incurred, and (y) with respect to preferred stock
issued at any other time which will be applied to satisfy the criteria
under this clause (i)(B), having a secondary market yield, on the same
date as the Indebtedness so Incurred, which a nationally recognized
investment banking firm certifies to the Trustee is no more than 2.75
percentage points higher than the interest rate on the Indebtedness that
is being Incurred pursuant to this clause (i)(B); (ii) Indebtedness to
the Guarantor or any of its Wholly Owned Restricted Subsidiaries;
provided that any subsequent issuance or transfer of any Capital Stock
which results in any such Wholly Owned Restricted Subsidiary ceasing to
be a Wholly Owned Restricted Subsidiary or any subsequent transfer of
such Indebtedness (other than to the Guarantor or another Wholly Owned
Restricted Subsidiary) shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness not permitted by this clause (ii); (iii)
Indebtedness issued in exchange for, or the net proceeds of which are
used to refinance or refund, then outstanding Indebtedness, other than
Indebtedness Incurred under clause (i), (ii), (v), (vi), (viii), (ix),
(xi) or (xii) of this paragraph, and any refinancings thereof in an
amount not to exceed the amount so refinanced or refunded (plus premiums,
accrued interest, fees and expenses); provided that Indebtedness the
proceeds of which are used to refinance or refund the New Notes or
Indebtedness that is pari passu with, or subordinated in right of payment
to, the New Notes or the Senior Discount Note Guarantee shall only be
permitted under this clause (iii) if (A) in case the New Notes are
refinanced in part or the Indebtedness to be refinanced is pari passu
with the New Notes or the Senior Discount Note Guarantee, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is outstanding, is expressly made
pari passu with, or subordinate in right of payment to, the remaining New
Notes or the Senior Discount Note Guarantee, as the case may be, (B) in
case the Indebtedness to be refinanced is subordinated in right of
payment to the New Notes or the Senior Discount Note Guarantee, such new
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such new Indebtedness is issued or remains outstanding,
is expressly made subordinate in right of payment to the New Notes or the
Senior Discount Note Guarantee, as the case may be, at least to the
extent that the Indebtedness
-46-
<PAGE>
to be refinanced is subordinated to the New Notes or the Senior Discount
Note Guarantee, as the case may be and (C) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does
not mature prior to the Stated Maturity of the Indebtedness to be
refinanced or refunded, and the Average Life of such new Indebtedness is
at least equal to the remaining Average Life of the Indebtedness to be
refinanced or refunded; and provided further that in no event may
Indebtedness of the Guarantor or ICG be refinanced by means of any
Indebtedness of any Restricted Subsidiary of the Guarantor or ICG, as the
case may be, pursuant to this clause (iii); (iv) Indebtedness (A) in
respect of performance, surety or appeal bonds provided in the ordinary
course of business, (B) under Currency Agreements and Interest Rate
Agreements; provided that such agreements do not increase the
Indebtedness of the obligor outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or interest
rates or by reason of fees, indemnities and compensation payable
thereunder; and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of ICG or any of its Restricted Subsidiaries
pursuant to such agreements, in any case Incurred in connection with the
disposition of any business, assets or Restricted Subsidiary of ICG
(other than Guarantees of Indebtedness Incurred by any Person acquiring
all or any portion of such business, assets or Restricted Subsidiary of
ICG for the purpose of financing such acquisition), in a principal amount
at maturity not to exceed the gross proceeds actually received by ICG or
any Restricted Subsidiary in connection with such disposition; (v)
Indebtedness of the Guarantor or, to the extent the proceeds referred to
below are contributed to ICG, ICG, not to exceed, at any one time
outstanding, twice the amount of Net Cash Proceeds received by the
Guarantor after the Closing Date from the issuance and sale of its
Capital Stock (other than Redeemable Stock or preferred stock); provided
that such Indebtedness does not mature prior to the Stated Maturity of
the New Notes, has an Average Life longer than the New Notes and is
subordinated to the New Notes as provided in Schedule I to the Notes
Indenture; (vi) Strategic Investor Subordinated Indebtedness; (vii)
Indebtedness of the Guarantor or ICG, to the extent the proceeds thereof
are immediately used after the Incurrence thereof to purchase New Notes
tendered in an Offer to Purchase made as a result of a Change of Control;
(viii) Indebtedness of any Restricted Subsidiary of the Guarantor
Incurred pursuant to any credit agreement (including equipment leasing or
financing agreements) of such Restricted Subsidiary in effect on August
8, 1995 (or any agreement refinancing Indebtedness under such credit
agreement), up to the amount of the commitment under such credit
agreement on August 8, 1995; (ix) Indebtedness of the Guarantor or ICG,
in an amount not to exceed $100 million at any one time outstanding,
consisting of Capitalized Lease Obligations with respect to assets that
are used or useful in the telecommunications business of the Guarantor or
its Restricted Subsidiaries; (x) Indebtedness Incurred to defease the New
Notes; (xi) Indebtedness of any Person that becomes a Restricted
Subsidiary of the Guarantor after March 31, 1996, which Indebtedness
exists or for which there is a commitment to lend at the time such Person
becomes a Restricted Subsidiary and subsequent Incurrences thereof
("Acquired Indebtedness"), in an accreted amount not to exceed $50
million at any one time outstanding in the aggregate for all such
Restricted Subsidiaries; provided that such Acquired Indebtedness does
not exceed 65% of the consideration (calculated by including the Acquired
Indebtedness as a part of such consideration) for the acquisition of such
Person; and (xii) Indebtedness of the Guarantor or ICG, in an amount not
to exceed $30 million at any one time outstanding, consisting of letters
of credit and similar arrangements used to support obligations of the
Guarantor or any of its Restricted Subsidiaries with respect to the
acquisition of (by purchase, lease or otherwise), construction of, or
improvements on, assets that will be used or useful in the
telecommunications business of the Guarantor or its Restricted
Subsidiaries.
(b) For purposes of determining any particular amount of Indebtedness
under this "Limitation on Indebtedness" covenant, Guarantees, Liens or
obligations with respect to letters of credit supporting Indebtedness
otherwise included in the determination of such particular amount shall
not be included. For purposes of determining compliance with this
"Limitation on Indebtedness" covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the types of
Indebtedness described in the above clauses, ICG, in its sole discretion,
shall classify such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one of such clauses.
LIMITATION ON RESTRICTED PAYMENTS
So long as any of the New Notes are outstanding, the Guarantor will
not, and will not permit any Restricted Subsidiary to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on
its Capital Stock
-47-
<PAGE>
held by Persons other than the Guarantor or any of its Restricted
Subsidiaries (other than dividends or distributions payable solely in
shares of its or such Restricted Subsidiary's Capital Stock (other than
Redeemable Stock) of the same class held by such holders or in options,
warrants or other rights to acquire such shares of Capital Stock and
other than pro rata dividends or distributions on Common Stock of
Restricted Subsidiaries), (ii) purchase, redeem, retire or otherwise
acquire for value any shares of Capital Stock of the Guarantor or any
Restricted Subsidiary (including options, warrants or other rights to
acquire such shares of Capital Stock) held by Persons other than the
Guarantor or any of its Wholly Owned Restricted Subsidiaries (except for
Capital Stock of MTN, StarCom, Ohio LINX, FOTI and Zycom to the extent
the consideration therefor consists solely of Common Stock (other than
Redeemable Stock) of the Guarantor transferred in compliance with the
Securities Act), (iii) make any voluntary or optional principal payment,
or voluntary or optional redemption, repurchase, defeasance or other
acquisition or retirement for value, of Indebtedness of ICG or the
Guarantor that is subordinated in right of payment to the New Notes or
the Note Guarantee, as the case may be, or (iv) make any Investment,
other than a Permitted Investment, in any Person (such payments or any
other actions described in clauses (i) through (iv) being collectively
"Restricted Payments") if, at the time of, and after giving effect to,
the proposed Restricted Payment: (A) a Default or Event of Default shall
have occurred and be continuing, (B) the Guarantor could not Incur at
least $1.00 of Indebtedness under the first paragraph of the "Limitation
on Indebtedness" covenant or (C) the aggregate amount expended for all
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a Board Resolution) after the date
of the Notes Indenture shall exceed the sum of (1) 50% of the aggregate
amount of the Adjusted Consolidated Net Income (or, if the Adjusted
Consolidated Net Income is a loss, minus 100% of such amount) (determined
by excluding income resulting from transfers of assets by the Guarantor
or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period)
beginning on the first day of the fiscal quarter immediately following
the Closing Date and ending on the last day of the last fiscal quarter
preceding the Transaction Date for which reports have been filed pursuant
to the "Commission Reports and Reports to Holders" covenant plus (2) the
aggregate Net Cash Proceeds received by the Guarantor after the Closing
Date from the issuance and sale permitted by the Notes Indenture of its
Capital Stock (other than Redeemable Stock) to a Person who is not a
Subsidiary of the Guarantor, or from the issuance to a Person who is not
a Subsidiary of the Guarantor of any options, warrants or other rights to
acquire Capital Stock of the Guarantor (in each case, exclusive of any
Redeemable Stock or any options, warrants or other rights that are
redeemable at the option of the holder, or are required to be redeemed,
prior to the Stated Maturity of the New Notes) plus (3) an amount equal
to the net reduction in Investments (other than reductions in Permitted
Investments) in any Person resulting from payments of interest on
Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Guarantor or any Restricted
Subsidiary (except to the extent any such payment is included in the
calculation of Adjusted Consolidated Net Income), or from redesignations
of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each
case as provided in the definition of "Investments"), not to exceed the
amount of Investments previously made by the Guarantor and its Restricted
Subsidiaries in such Person.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with
the foregoing paragraph; (ii) the redemption, repurchase, defeasance or
other acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the New Notes or the Senior Discount
Note Guarantee, as the case may be, including premium, if any, and
accrued and unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (iii) of the second paragraph of the
"Limitation on Indebtedness" covenant; (iii) the repurchase, redemption
or other acquisition of Capital Stock of the Guarantor or ICG (or
options, warrants or other rights to acquire such Capital Stock) and with
respect to any Preferred Stock, the payment of accrued dividends thereon
in exchange for, or out of the proceeds of a substantially concurrent
issuance or sale of, shares of Capital Stock (other than Redeemable
Stock) of the Guarantor or ICG; provided that the redemption of any
preferred stock and the payment of accrued dividends thereon pursuant to
any mandatory redemption feature thereof and any redemption of any other
Capital Stock and with respect to any Preferred Stock, the payment of
accrued dividends thereon (or options, warrants or other rights to
acquire such Capital Stock) shall be deemed to be "substantially
concurrent" with such issuance and sale if the required notice with
respect to such redemption is irrevocably given by a date which is no
later than five Business Days after receipt of the proceeds of such
issuance and sale and such redemption and payment is consummated within
the period provided for in the documents providing for the redemption of
such preferred stock or the documents governing the redemption of such
other
-48-
<PAGE>
Capital Stock, as the case may be; (iv) the acquisition of Indebtedness
of ICG or the Guarantor which is subordinated in right of payment to the
New Notes or the Senior Discount Note Guarantee, as the case may be, in
exchange for, or out of the proceeds of, a substantially concurrent
offering of, shares of the Capital Stock of the Guarantor (other than
Redeemable Stock); (v) payments or distributions, in the nature of
satisfaction of dissenters' rights, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the
provisions of the Notes Indenture applicable to mergers, consolidations
and transfers of all or substantially all of the property and assets of
ICG or the Guarantor; (vi) Investments, not to exceed $10 million in the
aggregate, each evidenced by a senior promissory note payable to ICG that
provides that it will become due and payable prior to (or, in the case of
acceleration, concurrently with) any required repayment (including
pursuant to an Offer to Purchase in connection with a Change of Control)
of the New Notes; (vii) Investments, not to exceed $5 million in the
aggregate, that meet the requirements of clause (vi) above; provided that
the Board of Directors of the Guarantor shall have determined, in good
faith, that each such Investment under this clause (vii) will enable the
Guarantor, ICG or one of their Restricted Subsidiaries to obtain
additional business that it might not be able to obtain without the
making of such Investment; (viii) with respect to preferred stock
permitted to be issued and sold under the "Limitation on the Issuance of
Capital Stock of Restricted Subsidiaries" covenant, the payment (A) of
dividends on such preferred stock in additional shares of preferred stock
and (B) of cash dividends on such preferred stock and accrued interest on
unpaid dividends, in each case after May 1, 2001; (ix) the repurchase, in
the event of a Change of Control, of preferred stock of ICG or the
Guarantor and Indebtedness of ICG or the Guarantor into which such
preferred stock has been exchanged; provided that prior to repurchasing
such preferred stock or Indebtedness, ICG or the Guarantor, as the case
may be, shall have made a Change of Control Offer to repurchase the New
Notes in accordance with the terms of the Notes Indenture (and an offer
to repurchase other Indebtedness, if required by the terms thereof, in
accordance with the indenture or other document governing such other
Indebtedness) and shall have accepted and paid for any New Notes (and
other Indebtedness) properly tendered in connection with such Change of
Control Offer for the New Notes or change of control offer for such other
Indebtedness; (x) the issuance of preferred stock permitted to be issued
under the Notes Indenture in exchange for Indebtedness; provided that the
Incurrence of such Indebtedness complies with the "Limitation on
Indebtedness" covenant; and (xi) the redemption of the 12% Redeemable
Preferred Stock of ICG and the repurchase of 916,666 warrants to purchase
Common Stock of IntelCom, in each case in accordance with the documents
governing such redemption or repurchase, with a portion of the net
proceeds from the issuance of the Preferred Stock; provided that, except
in the case of clauses (i) and (iii), no Default or Event of Default
shall have occurred and be continuing or occur as a consequence of the
actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clauses (ii), (viii)(A)
and (x) thereof), and the Net Cash Proceeds from any issuance of Capital
Stock referred to in clause (iii) or (iv) shall be included in
calculating whether the conditions of clause (C) of the first paragraph
of this "Limitation on Restricted Payments" covenant have been met with
respect to any subsequent Restricted Payments. Notwithstanding the
foregoing, in the event the proceeds of an issuance of Capital Stock of
the Guarantor are used for the redemption, repurchase or other
acquisition of the New Notes, or Indebtedness that is pari passu with the
New Notes, then the Net Cash Proceeds of such issuance shall be included
in clause (C) of the first paragraph of this "Limitation on Restricted
Payments" covenant only to the extent such proceeds are not used for such
redemption, repurchase or other acquisition of such Indebtedness.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES
So long as any of the New Notes are outstanding, the Guarantor will
not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted
by applicable law on any Capital Stock of such Restricted Subsidiary
owned by the Guarantor or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to the Guarantor or any other Restricted Subsidiary,
(iii) make loans or advances to the Guarantor or any other Restricted
Subsidiary or (iv) transfer any of its property or assets to the
Guarantor or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Notes Indenture or
any other agreement in effect on the Closing Date, and any extensions,
refinancings,
-49-
<PAGE>
renewals or replacements of such agreements; provided that the
encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements are no less favorable in any material respect to
the Holders than those encumbrances or restrictions that are then in
effect and that are being extended, refinanced, renewed or replaced; (ii)
existing under or by reason of applicable law; (iii) existing with
respect to any Person or the property or assets of such Person acquired
by the Guarantor or any Restricted Subsidiary, existing at the time of
such acquisition and not incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property
or assets of such Person so acquired; (iv) in the case of clause (iv) of
the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that
restrict in a customary manner the subletting, assignment or transfer of
any property or asset that is a lease, license, conveyance or contract or
similar property or asset, (B) existing by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Guarantor or any Restricted Subsidiary not
otherwise prohibited by the Notes Indenture or (C) arising or agreed to
in the ordinary course of business, not relating to any Indebtedness, and
that do not, individually or in the aggregate, detract from the value of
property or assets of the Guarantor or any Restricted Subsidiary in any
manner material to the Guarantor or any Restricted Subsidiary; (v) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement
that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary; or (vi) imposed pursuant to preferred stock
of ICG issued under clause (vi) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant, or exchange
debentures or exchange notes of ICG issued in exchange therefor; provided
that such restrictions (A) may include a prohibition (x) on payments on
Capital Stock upon liquidation, winding-up and dissolution of ICG and (y)
on the payment of dividends on and the making of any distribution on, or
the purchase, redemption, retirement or other acquisition for value of
Capital Stock of ICG if dividends or other amounts on such preferred
stock are unpaid and (B) any restrictions imposed pursuant to preferred
stock of ICG other than pursuant to clause (A) shall be no more
restrictive than the restrictions contained in the Notes Indenture
(assuming that references to the Guarantor in the Notes Indenture were
replaced with references to ICG). Nothing contained in this "Limitation
on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent the Guarantor or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to exist
any Liens otherwise permitted in the "Limitation on Liens" covenant or
(2) restricting the sale or other disposition of property or assets of
the Guarantor or any of its Restricted Subsidiaries that secure
Indebtedness of the Guarantor or any of its Restricted Subsidiaries.
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
Under the terms of the Notes Indenture, the Guarantor will not sell,
and will not permit any Restricted Subsidiary, directly or indirectly, to
issue or sell, any shares of Capital Stock of a Restricted Subsidiary
(including options, warrants or other rights to purchase shares of such
Capital Stock) except (i) to the Guarantor or a Wholly Owned Restricted
Subsidiary; (ii) issuances or sales to foreign nationals of shares of
Capital Stock of foreign Restricted Subsidiaries, to the extent required
by applicable law; (iii) if, immediately after giving effect to such
issuance or sale, such Restricted Subsidiary would no longer constitute a
Restricted Subsidiary; (iv) with respect to Common Stock of MTN, StarCom
and Zycom; provided that the proceeds of any such sale under clause (iv)
shall be applied in accordance with clause (A) or (B) of the first
paragraph of the "Limitation on Asset Sales" covenant described below;
(v) with respect to Common Stock of FOTI; provided that FOTI shall not
retain any net proceeds from such sales or issuances in excess of $10
million in the aggregate and any net proceeds in excess of such $10
million shall be received by, or paid promptly by FOTI to, the Guarantor,
ICG or any Wholly Owned Restricted Subsidiary of the Guarantor; and (vi)
with respect to (A) preferred stock of ICG having an initial liquidation
preference of up to $250 million and (B) any preferred stock of ICG
issued as dividends on such preferred stock; provided that such preferred
stock does not require the payment of cash dividends prior to May 1,
2001.
LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES
The Guarantor will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of ICG or any Indebtedness of
the Guarantor ("Guaranteed Indebtedness"), unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture
to the Notes Indenture providing for a Guarantee (a "Subsidiary
Guarantee") of payment of the New Notes by such Restricted Subsidiary and
(ii) such Restricted
-50-
<PAGE>
Subsidiary waives and will not in any manner whatsoever claim or take the
benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Guarantor, ICG or any other
Restricted Subsidiary as a result of any payment by such Restricted
Subsidiary under its Subsidiary Guarantee; provided that this paragraph
shall not be applicable to any Guarantee of any Restricted Subsidiary
that (x) existed at the time such Person became a Restricted Subsidiary
and (y) was not Incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary. If the Guaranteed Indebtedness
is (A) pari passu with the New Notes or a Senior Discount Note Guarantee,
then the Guarantee of such Guaranteed Indebtedness shall be pari passu
with, or subordinated to, the Subsidiary Guarantee or (B) subordinated to
the New Notes or a Senior Discount Note Guarantee, then the Guarantee of
such Guaranteed Indebtedness shall be subordinated to the Subsidiary
Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the New Notes or the Senior Discount Note Guarantee, as
the case may be.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon (i) any
sale, exchange or transfer, to any Person not an Affiliate of the
Guarantor of all of ICG'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 Notes
Indenture) or (ii) the release or discharge of the Guarantee which
resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
Under the terms of the Notes Indenture, the Guarantor will not, and
will not permit any Restricted Subsidiary to, directly or indirectly,
enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of
such holder) of 5% or more of any class of Capital Stock of the Guarantor
or with any Affiliate of the Guarantor or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to the Guarantor
or such Restricted Subsidiary than could be obtained, at the time of such
transaction or at the time of the execution of the agreement providing
therefor, in a comparable arm's-length transaction with a Person that is
not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of
the Board of Directors or (B) for which the Guarantor or a Restricted
Subsidiary delivers to the Trustee a written opinion of a nationally
recognized investment banking firm stating that the transaction is fair
to the Guarantor or such Restricted Subsidiary from a financial point of
view; (ii) any transaction solely between the Guarantor and any of its
Wholly Owned Restricted Subsidiaries or solely between Wholly Owned
Restricted Subsidiaries; (iii) the payment of reasonable and customary
regular fees to directors of the Guarantor or ICG who are not employees
of the Guarantor or ICG; (iv) any payments or other transactions pursuant
to any tax-sharing agreement between the Guarantor and any other Person
with which the Guarantor files a consolidated tax return or with which
the Guarantor is part of a consolidated group for tax purposes; or (v)
any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant. Notwithstanding the foregoing, any transaction
covered by the first paragraph of this "Limitation on Transactions with
Shareholders and Affiliates" covenant and not covered by clauses (ii)
through (iv) of this paragraph, the aggregate amount of which exceeds $2
million in value, must be approved or determined to be fair in the manner
provided for in clause (i)(A) or (B) above.
LIMITATION ON LIENS
Under the terms of the Notes Indenture, the Guarantor will not, and
will not permit any Restricted Subsidiary to, create, incur, assume or
suffer to exist any Lien on any of its assets or properties of any
character, or any shares of Capital Stock or Indebtedness of any
Restricted Subsidiary, without making effective provision for all of the
New Notes (or, in the case of a Lien on assets or properties of the
Guarantor, the Senior Discount Note Guarantee) and all other amounts due
under the Notes Indenture to be directly secured equally and ratably with
(or, if the obligation or liability to be secured by such Lien is
subordinated in right of payment to the New Notes or the Senior Discount
Note Guarantee, prior to) the obligation or liability secured by such
Lien.
-51-
<PAGE>
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or
Capital Stock of ICG 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 Guarantor or a
Wholly Owned Restricted Subsidiary to secure Indebtedness owing to the
Guarantor or such other Restricted Subsidiary; (iv) Liens securing
Indebtedness which is Incurred to refinance secured Indebtedness which is
permitted to be Incurred under clause (iii) of the second paragraph of
the "Limitation on Indebtedness" covenant; provided that such Liens do
not extend to or cover any property or assets of the Guarantor, ICG or
any Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; (v) Liens with respect to assets or
properties of any Person that becomes a Restricted Subsidiary after the
Closing Date; provided that such Liens do not extend to or cover any
assets or properties of the Guarantor or any of its Restricted
Subsidiaries other than the assets or properties of such Person subject
to such Lien on the date such Person becomes a Restricted Subsidiary; and
provided further that such Liens are not incurred in contemplation of, or
in connection with, such Person becoming a Restricted Subsidiary; (vi)
Permitted Liens; or (vii) Liens, solely in favor of Acquired
Indebtedness, on Capital Stock of Persons that become Restricted
Subsidiaries of the Guarantor after the Closing Date.
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
Under the terms of the Notes Indenture, the Guarantor will not, and
will not permit any Restricted Subsidiary to, enter into any sale-
leaseback transaction involving any of its assets or properties whether
now owned or hereafter acquired, whereby the Guarantor or a Restricted
Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any
other assets or properties which the Guarantor or such Restricted
Subsidiary, as the case may be, intends to use for substantially the same
purpose or purposes as the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback
transaction if (i) the lease is for a period, including renewal rights,
of not in excess of three years; (ii) the lease secures or relates to
industrial revenue or pollution control bonds; (iii) the transaction is
between the Guarantor and any Wholly Owned Restricted Subsidiary or
between Wholly Owned Restricted Subsidiaries; or (iv) the Guarantor or
such Restricted Subsidiary, within six months after the sale or transfer
of any assets or properties is completed, applies an amount not less than
the net proceeds received from such sale in accordance with clause (A) or
(B) of the first paragraph of the "Limitation on Asset Sales" covenant
described below.
LIMITATION ON ASSET SALES
Under the terms of the Notes Indenture, the Guarantor will not, and
will not permit any Restricted Subsidiary to, consummate any Asset Sale,
unless (i) the consideration received by the Guarantor or such Restricted
Subsidiary is at least equal to the fair market value of the assets sold
or disposed of and (ii) at least 75% of the consideration received
consists of cash or Temporary Cash Investments. In the event and to the
extent that the Net Cash Proceeds received by the Guarantor or its
Restricted Subsidiaries from one or more Asset Sales occurring on or
after the Closing Date in any period of 12 consecutive months exceed 10%
of Adjusted Consolidated Net Tangible Assets (determined as of the date
closest to the commencement of such 12-month period for which a
consolidated balance sheet of ICG and its Subsidiaries has been
prepared), then the Guarantor shall or shall cause the relevant
Restricted Subsidiary to (i) within six months after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible
Assets (A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Guarantor or ICG, or
Indebtedness of any Restricted Subsidiary other than ICG, in each case
owing to a Person other than the Guarantor or any of its Restricted
Subsidiaries or (B) invest an equal amount, or the amount not so applied
pursuant to clause (A) (or enter into a definitive agreement committing
to so invest within six months after the date of such agreement), in
property or assets of a nature or type or that are used in a business (or
in a company having property and assets of a nature or type, or engaged
in a business) similar or related to the nature or type of the property
and assets of, or the business of, the Guarantor and its Restricted
Subsidiaries existing on the date of such investment (as determined in
good faith by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution) and (ii) apply (no later
than the end of the six-month period referred to in clause (i)) such
excess Net Cash Proceeds (to the extent not
-52-
<PAGE>
applied pursuant to clause (i)) as provided in the following paragraphs
of this "Limitation on Asset Sales" covenant. The amount of such excess
Net Cash Proceeds required to be applied (or to be committed to be
applied) during such six-month period as set forth in clause (i) of the
preceding sentence and not applied as so required by the end of such
period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant
to this "Limitation on Asset Sales" covenant totals at least $10 million,
ICG must commence, not later than the fifteenth Business Day of such
month, and consummate an Offer to Purchase from the Holders on a pro rata
basis an aggregate Accreted Value of New Notes equal to the Excess
Proceeds on such date, at a purchase price equal to 101% of the Accreted
Value of the New Notes, plus, in each case, accrued interest (if any) to
the date of purchase.
REPURCHASE OF NEW NOTES UPON A CHANGE OF CONTROL
ICG must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all New Notes then
outstanding, at a purchase price equal to 101% of the Accreted Value
thereof, plus accrued interest (if any) to the date of purchase. Prior
to the mailing of the notice to Holders commencing such Offer to
Purchase, but in any event within 30 days following any Change of
Control, ICG covenants to (i) repay in full all indebtedness of ICG that
would prohibit the repurchase of the New Notes pursuant to such Offer to
Purchase or (ii) obtain any requisite consents under instruments
governing any such indebtedness of ICG to permit the repurchase of the
New Notes. ICG shall first comply with the covenant in the preceding
sentence before it shall be required to repurchase New Notes pursuant to
this "Repurchase of New Notes upon a Change of Control" covenant.
If ICG is unable to repay all of its indebtedness that would prohibit
repurchase of the New Notes or is unable to obtain the consents of the
holders of indebtedness, if any, of ICG outstanding at the time of a
Change of Control whose consent would be so required to permit the
repurchase of New Notes, then ICG will have breached such covenant. This
breach will constitute an Event of Default under the Notes Indenture if
it continues for a period of 30 consecutive days after written notice is
given to ICG by the Trustee or the Holders of at least 25% in aggregate
principal amount of the New Notes outstanding. In addition, the failure
by ICG to repurchase New Notes at the conclusion of the Offer to Purchase
will constitute an Event of Default without any waiting period or notice
requirements.
There can be no assurance that ICG 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 ICG which might be
outstanding at the time). The above covenant requiring ICG to repurchase
the New Notes will, unless the consents referred to above are obtained,
require ICG to repay all indebtedness then outstanding which by its terms
would prohibit such Senior Discount Note repurchase, either prior to or
concurrently with such Senior Discount Note repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not ICG or the Guarantor is required to file reports with
the Commission, if any New Notes are outstanding ICG and the Guarantor
shall file with the Commission all such reports and other information as
they would be required to file with the Commission by Sections 13(a) or
15(d) under the Securities Exchange Act of 1934, as amended. See
"Available Information." ICG shall supply the Trustee and each Holder, or
shall supply to the Trustee for forwarding to each Holder, without cost
to such Holder, copies of such reports or other information.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Notes Indenture: (a) default in the payment of principal of (or premium,
if any, on) any Senior Discount Note when the same becomes due and
payable at maturity, upon acceleration, redemption or otherwise; (b)
default in the payment of interest on any Senior Discount
-53-
<PAGE>
Note when the same becomes due and payable, and such default continues
for a period of 30 days; (c) ICG or the Guarantor defaults in the
performance of or breaches any other covenant or agreement of ICG or the
Guarantor in the Notes Indenture or under the New Notes and such default
or breach continues for a period of 30 consecutive days after written
notice to ICG or the Guarantor by the Trustee or the Holders of 25% or
more in aggregate principal amount at maturity of the New Notes; (d)
there occurs with respect to any issue or issues of Indebtedness of ICG,
the Guarantor or any Significant Subsidiary having an outstanding
principal amount at maturity of $10 million or more in the aggregate for
all such issues of all such Persons, whether such Indebtedness now exists
or shall hereafter be created, (I) an event of default that has caused
the holder thereof to declare such Indebtedness to be due and payable
prior to its Stated Maturity and such Indebtedness has not been
discharged in full or such acceleration has not been rescinded or
annulled within 30 days of such acceleration and/or (II) the failure to
make a principal payment at the final (but not any interim) fixed
maturity and such defaulted payment shall not have been made, waived or
extended within 30 days of such payment default; (e) any final judgment
or order (not covered by insurance) for the payment of money in excess of
$10 million in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or
retention as not so covered) shall be rendered against ICG, the Guarantor
or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 30 consecutive days following entry of the
final judgment or order that causes the aggregate amount for all such
final judgments or orders outstanding and not paid or discharged against
all such Persons to exceed $10 million during which a stay of enforcement
of such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; (f) a court having jurisdiction in the
premises enters a decree or order for (A) relief in respect of ICG, the
Guarantor or any Significant Subsidiary in an involuntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, (B) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of ICG, the
Guarantor or any Significant Subsidiary or for all or substantially all
of the property and assets of ICG, the Guarantor or any Significant
Subsidiary or (C) the winding up or liquidation of the affairs of ICG,
the Guarantor or any Significant Subsidiary and, in each case, such
decree or order shall remain unstayed and in effect for a period of 30
consecutive days; or (g) ICG, the Guarantor or any Significant Subsidiary
(A) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents
to the entry of an order for relief in an involuntary case under any such
law, (B) consents to the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of ICG, the Guarantor or any Significant Subsidiary or
for all or substantially all of the property and assets of ICG, the
Guarantor or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors.
If an Event of Default (other than an Event of Default specified in
clause (f) or (g) above that occurs with respect to ICG or the Guarantor)
occurs and is continuing under the Notes Indenture, the Trustee or the
Holders of at least 25% in aggregate principal amount at maturity of the
New Notes, then outstanding, by written notice to ICG (and to the Trustee
if such notice is given by the Holders), may, and the Trustee at the
request of such Holders shall, declare the Accreted Value of, premium, if
any, and accrued interest, if any, on the New Notes to be immediately due
and payable. Upon a declaration of acceleration, such Accreted Value of,
premium, if any, and accrued interest, if any, shall be immediately due
and payable. In the event of a declaration of acceleration because an
Event of Default set forth in clause (d) above has occurred and is
continuing, such declaration of acceleration shall be automatically
rescinded and annulled if the event of default triggering such Event of
Default pursuant to clause (d) shall be remedied or cured by ICG, the
Guarantor or the relevant Significant Subsidiary or waived by the holders
of the relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in
clause (f) or (g) above occurs with respect to ICG or the Guarantor, the
Accreted Value of, premium, if any, and accrued interest, if any, on the
New Notes then outstanding shall ipso facto become and be immediately due
and payable without any declaration or 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 ICG and to the
Trustee, may waive all past defaults and rescind and annul a declaration
of acceleration and its consequences if, among other things, (i) all
existing Events of Default, other than the nonpayment of the Accreted
Value of, premium, if any, and accrued interest on the New Notes that
have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction. For information
as to the waiver of defaults, see "--Modification and Waiver."
-54-
<PAGE>
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
Notes Indenture, that may involve the Trustee in personal liability, or
that the Trustee determines in good faith may be unduly prejudicial to
the rights of Holders of New Notes not joining in the giving of such
direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of New Notes.
A Holder may not pursue any remedy with respect to the Notes Indenture or
the New Notes unless: (i) the Holder gives the Trustee written notice of
a continuing Event of Default; (ii) the Holders of at least 25% in
aggregate principal amount of outstanding New Notes make a written
request to the Trustee to pursue the remedy; (iii) such Holder or Holders
offer the Trustee indemnity satisfactory to the Trustee against any
costs, liability or expense; (iv) the Trustee does not comply with the
request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority
in aggregate principal amount of the outstanding New Notes do not give
the Trustee a direction that is inconsistent with the request. However,
such limitations do not apply to the right of any Holder of a Senior
Discount Note to receive payment of the principal of, premium, if any, or
interest on, such Senior Discount 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 Notes Indenture will require certain officers of ICG and the
Guarantor to certify, on or before a date not more than 90 days after the
end of each fiscal year of the Guarantor, that a review has been
conducted of the activities of ICG, or the Guarantor, as the case may be,
and its Restricted Subsidiaries and ICG's, or the Guarantor's, and its
Restricted Subsidiaries' performance under the Notes Indenture and that
ICG and the Guarantor have fulfilled all obligations thereunder, or, if
there has been a default in the fulfillment of any such obligation,
specifying each such default and the nature and status thereof. ICG and
the Guarantor will also be obligated to notify the Trustee of any default
or defaults in the performance of any covenants or agreements under the
Notes Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Neither ICG nor the Guarantor shall consolidate with, merge with or
into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or
substantially an entirety in one transaction or a series of related
transactions) to, any Person (other than a consolidation or merger with
or into a Wholly Owned Restricted Subsidiary with a positive net worth;
provided that, in connection with any such merger or consolidation, no
consideration (other than Common Stock in the surviving Person, ICG or
the Guarantor) shall be issued or distributed to the stockholders of ICG
or the Guarantor) or permit any Person to merge with or into ICG or the
Guarantor unless: (i) ICG or the Guarantor shall be the continuing
Person, or the Person (if other than ICG or the Guarantor) formed by such
consolidation or into which ICG or the Guarantor is merged or that
acquired or leased such property and assets of ICG or the Guarantor shall
be a corporation organized and validly existing under the laws of the
United States of America or any jurisdiction thereof and shall expressly
assume, by a supplemental indenture, executed and delivered to the
Trustee, all of the obligations of ICG or the Guarantor, as the case may
be, under the Notes 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, ICG or the Guarantor, as the case may be, or any
Person becoming the successor obligor of the New Notes or the Senior
Discount Note Guarantee, as the case may be, shall have a Consolidated
Net Worth equal to or greater than the Consolidated Net Worth of ICG or
the Guarantor, as the case may be, immediately prior to such transaction;
(iv) immediately after giving effect to such transaction on a pro forma
basis ICG, or any Person becoming the successor obligor of the New Notes,
as the case may be, could Incur at least $1.00 of Indebtedness under the
first paragraph of the "Limitation on Indebtedness" covenant; and (v) ICG
delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clauses (iii) and
(iv) above) and an Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided
for herein relating to such transaction have been complied with;
provided, however, that clauses (iii) and (iv) above do not apply if, in
the good faith determination of the Board of Directors of the Guarantor,
whose determination shall be evidenced by a Board Resolution, the
principal purpose of such transaction is part of a plan to change the
jurisdiction of
-55-
<PAGE>
incorporation of ICG or the Guarantor to a state of the United States;
and provided further that any such transaction shall not have as one of
its purposes the evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Notes Indenture will provide that ICG
will be deemed to have paid and will be discharged from any and all
obligations in respect of the New Notes on the 123rd day after the
deposit referred to below, and the provisions of the Notes Indenture will
no longer be in effect with respect to the New Notes (except for, among
other matters, certain obligations to register the transfer or exchange
of the New Notes, to replace stolen, lost or mutilated New Notes, to
maintain paying agencies and to hold monies for payment in trust) if,
among other things, (A) ICG or the Guarantor has deposited with the
Trustee, in trust, money and/or U.S. Government Obligations that through
the payment of interest and principal in respect thereof in accordance
with their terms will provide money in an amount sufficient to pay the
principal of, premium, if any, and accrued interest on the New Notes on
the Stated Maturity of such payments in accordance with the terms of the
Notes Indenture and the New Notes, (B) ICG 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 ICG'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 date of the Notes
Indenture such that a ruling is no longer required or (y) a ruling
directed to the Trustee received from the Internal Revenue Service to the
same effect as the aforementioned Opinion of Counsel and (ii) an Opinion
of Counsel to the effect that the creation of the defeasance trust does
not violate the Investment Company Act of 1940 and after the passage of
123 days following the deposit, the trust fund will not be subject to the
effect of Section 547 of the United States Bankruptcy Code or Section 15
of the New York Debtor and Creditor Law, (C) immediately after giving
effect to such deposit on a pro forma basis, no Event of Default, or
event that after the giving of notice or lapse of time or both would
become an Event of Default, shall have occurred and be continuing on the
date of such deposit or during the period ending on the 123rd day after
the date of such deposit, and such deposit shall not result in a breach
or violation of, or constitute a default under, any other agreement or
instrument to which ICG or the Guarantor is a party or by which ICG or
the Guarantor is bound and (D) if at such time the New Notes are listed
on a national securities exchange, ICG has delivered to the Trustee an
Opinion of Counsel to the effect that the New Notes will not be delisted
as a result of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Notes Indenture further will provide that the provisions of the Notes
Indenture will no longer be in effect with respect to clauses (iii) and
(iv) 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 covenants and clauses (iii) and
(iv) under "--Consolidation, Merger and Sale of Assets," and clauses (d)
and (e) under "Events of Default" shall be deemed not to be Events of
Default, upon, among other things, the deposit with the Trustee, in
trust, of money and/or U.S. Government Obligations that through the
payment of interest and principal in respect thereof in accordance with
their terms will provide money in an amount sufficient to pay the
principal of, premium, if any, and accrued interest on the New Notes on
the Stated Maturity of such payments in accordance with the terms of the
Notes Indenture and the New Notes, the satisfaction of the provisions
described in clauses (B)(ii), (C) and (D) of the preceding paragraph and
the delivery by ICG 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 ICG
exercises its option to omit compliance with certain covenants and
provisions of the Notes Indenture with respect to the New Notes as
described in the immediately preceding paragraph and the New Notes are
declared due and payable because of the occurrence of an Event of Default
that remains applicable, the amount of money and/or U.S. Government
Obligations on deposit with the Trustee will be sufficient to pay amounts
due on the New Notes at the time of their Stated Maturity but may not be
sufficient to pay amounts due on the New Notes at the time of the
acceleration resulting from such Event
-56-
<PAGE>
of Default. However, ICG will remain liable for such payments and the
Senior Discount Note Guarantee with respect to such payments will remain
in effect.
MODIFICATION AND WAIVER
Modifications and amendments of the Notes Indenture may be made by
ICG, the Guarantor and the Trustee with the consent of the Holders of not
less than a majority in aggregate principal amount at maturity of the
outstanding New Notes; provided, however, that no such modification or
amendment may, without the consent of each Holder affected thereby, (i)
change the Stated Maturity of the principal of, or any installment of
interest on, any Senior Discount Note, (ii) reduce the principal amount
at maturity of, or premium, if any, payable upon the redemption of, or
the rate of interest on, any Senior Discount Note, (iii) adversely affect
any right of repayment at the option of any Holder of any Senior Discount
Note, (iv) change the currency in which principal of, or premium, if any,
or interest on, any Senior Discount Note is payable, (v) impair the right
to institute suit for the enforcement of any payment on or after the
Stated Maturity (or, in the case of a redemption, on or after the
Redemption Date) of any Senior Discount Note, (vi) waive a default in the
payment of principal of, premium, if any, or interest on the New Notes,
(vii) reduce the percentage in principal amount at maturity of
outstanding New Notes the consent of whose Holders is necessary for
waiver of compliance with certain provisions of the Notes Indenture or
for waiver of certain defaults or (viii) release the Guarantor from its
Senior Discount Note Guarantee.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS,
DIRECTORS, OR EMPLOYEES
The Notes Indenture provides that no recourse for the payment of the
principal of, premium, if any, or interest on any of the New Notes or for
any claim based thereon or otherwise in respect thereof, and no recourse
under or upon any obligation, covenant or agreement of ICG or the
Guarantor in the Notes Indenture, or in any of the New Notes or because
of the creation of any Indebtedness represented thereby, shall be had
against any incorporator, shareholder, officer, director, employee or
controlling person of ICG or the Guarantor or of any successor Person
thereof. Each Holder, by accepting the New Notes, waives and releases
all such liability.
CONCERNING THE TRUSTEE
The Notes Indenture provides that, except during the continuance of a
Default, the Trustee will not be liable, except for the performance of
such duties as are specifically set forth in such Notes Indenture. If an
Event of Default has occurred and is continuing, the Trustee will use the
same degree of care and skill in its exercise as a prudent person would
exercise under the circumstances in the conduct of such person's own
affairs.
The Notes Indenture and provisions of the Trust Indenture Act of 1939,
as amended, incorporated by reference therein contain limitations on the
rights of the Trustee, should it become a creditor of ICG 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.
ADDITIONAL AMOUNTS
Any payments made by IntelCom under or with respect to the New Notes
pursuant to the Note Guarantee will be made free and clear of and without
withholding or deduction for or on account of any present or future tax,
duty, levy, impost, assessment or other governmental charge (including
penalties, interest and other liabilities related thereto) imposed or
levied by or on behalf of the Government of Canada or of any province or
territory thereof or by any authority or agency therein or thereof having
power to tax (hereinafter "Taxes"), unless IntelCom is required to
withhold or deduct Taxes by law or by the interpretation or
administration thereof. If IntelCom is required to withhold or deduct
any amount for or on account of Taxes from any payment made under or with
respect to the New Notes, IntelCom will pay such additional amounts
("Additional Amounts") as may be necessary, so that the net amount
received by each Holder of New Notes (including Additional Amounts) after
such withholding or deduction will not be less than the amount such
Holder would have received if such Taxes had not been withheld or
deducted; provided, however, that no Additional Amounts will be payable
with respect to a payment made to a
-57-
<PAGE>
Holder (an "Excluded Holder") (i) with which IntelCom does not deal at
arm's length (within the meaning of the Income Tax Act (Canada)) at the
time of making such payment, or (ii) which is subject to such Taxes by
reason of its being connected with Canada or any province or territory
thereof otherwise than solely by reason of the Holder's activity in
connection with purchasing the New Notes, by the mere holding of New
Notes or by reason of the receipt of payments thereunder. IntelCom will
upon written request of any Holder (other than an Excluded Holder),
reimburse such Holder, for the amount of (i) any Taxes so levied or
imposed and paid by such Holder as a result of payments made under or
with respect to the New Notes and (ii) any Taxes so levied or imposed
with respect to any reimbursement under the foregoing clause (i), but
excluding any such Taxes on such Holder's net income so that the net
amount received by such Holder after such reimbursement will not be less
than the net amount the Holder would have received if Taxes on such
reimbursement had not been imposed.
At least 30 days prior to each date on which any payment under or with
respect to the Senior Discount Notes is due and payable, if IntelCom will
be obligated to pay Additional Amounts with respect to such payment,
IntelCom will deliver to the Trustee an Officers' Certificate stating the
fact that such Additional Amounts will be payable and the amounts so
payable and will set forth such other information necessary to enable the
Trustee to pay such Additional Amounts to Holders on the payment date.
Whenever either in the Notes Indenture, the New Notes or in this
Memorandum there is mentioned, in any context, the payment of principal
(and premium, if any), Redemption Price, interest or any other amount
payable under or with respect to any Senior Discount Note, such mention
shall be deemed to include mention of the payment of Additional Amounts
to the extent that, in such context, Additional Amounts are, were or
would be payable in respect thereof. See "--Optional Redemption."
CONSENT TO JURISDICTION AND SERVICE
IntelCom will appoint ICG as its agent for service of process in any
suit, action or proceeding with respect to the Notes Indenture or the New
Notes and for actions brought under federal or state securities laws
brought in any federal or state court located in the City of New York and
will agree to submit to such jurisdiction.
BOOK ENTRY; DELIVERY AND FORM
So long as DTC, or its nominee, is the registered owner or holder of
the Global New Note, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the New Notes represented by such
Global New Note for all purposes under the Notes Indenture and the New
Notes. No beneficial owner of an interest in the Global New Note will be
able to transfer that interest except in accordance with DTC's applicable
procedures, in addition to those provided for under the Notes Indenture
and, if applicable, those of Euroclear and Cedel.
Payments of the principal of, and interest on, the Global New Notes
will be made to DTC or its nominee, as the case may be, as the registered
owner thereof. ICG will have no responsibility or liability for any
aspect of the records relating to or payments made on account of
beneficial ownership interests in the Global New Notes or for
maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
ICG expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of the Global New Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global
New Note, as shown on the records of DTC or its nominee. ICG also
expects that payments by participants to owners of beneficial interest in
such Global New Note held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of
such participants.
Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules. Transfers between participants in
Euroclear and Cedel will be effected in the ordinary way in accordance
with their respective rules and operating procedures.
ICG understands that DTC will take any action permitted to be taken by
a holder of New Notes (including the presentation of New Notes for
exchange as described below) only at the direction of one or more
participants
-58-
<PAGE>
to whose account the DTC interests in the Global New Notes is credited
and only in respect of such portion of the aggregate principal amount of
New Notes as to which such participant or participants has or have given
such direction. However, if there is an Event of Default under the New
Notes, DTC will exchange the Global New Notes for Certificated New Notes,
which it will distribute to its participants.
ICG understands: DTC is a limited purpose trust company organized
under the laws of the State of New York, a "banking organization" within
the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and
settlement of securities transaction between participants through
electronic book entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates and certain
other organizations. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either
directly or indirectly ("indirect participants").
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interest in the Global New
Notes among participants of DTC, Euroclear and Cedel, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. ICG will have no
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated New Notes. If DTC is at any time unwilling or unable to
continue as a depositary for the Global New Note and a successor
depositary is not appointed by ICG within 90 days, ICG will issue
Certificated New Notes in exchange for the Global New Note.
DESCRIPTION OF NEW PREFERRED STOCK
The New Preferred Stock will be issued pursuant to the Amended
Articles. The summary contained herein of certain provisions of the New
Preferred Stock does not purport to be complete and is qualified in its
entirety by reference to the provisions of the Amended Articles, a copy
of which is available from ICG upon request. The definitions of certain
terms used in the Amended Articles and in the following summary are set
forth below. See "--Certain Definitions." References herein to "$"
refers to U.S. dollars.
IntelCom's Board of Directors has adopted a plan under which IntelCom
will become a subsidiary of a new, publicly traded Delaware corporation
("Newco"). Upon the completion of such transaction, references to
"IntelCom" herein shall be deemed to also refer to Newco.
GENERAL
ICG is authorized to issue 1,000,000 shares of preferred stock,
without par value. ICG's Board of Directors has authority, without
further action by stockholders of IntelCom, to authorize the issuance of
classes of preferred stock of ICG from time to time in one or more
series, with such designations, preferences and relative rights within
the limits prescribed by the Colorado Business Corporation Act (the
"CBCA"), as may be determined by ICG's Board of Directors. The Board of
Directors of ICG has authorized the issuance of up to 1,000,000 shares of
Preferred Stock, which consist of the 150,000 shares of Preferred Stock
issued in the Private Offering, plus additional shares of Preferred Stock
which may be used to pay dividends on the Preferred Stock if ICG elects
to pay dividends in additional shares of New Preferred Stock. The New
Preferred Stock, when issued by ICG and paid for by the Placement Agent,
will be fully paid and non-assessable, and the holders thereof will not
have any subscription or preemptive rights related thereto. American
Stock Transfer and Trust Company, 40 Wall Street, 46th floor, New York,
New York 10005, will be transfer agent and registrar for the New
Preferred Stock.
-59-
<PAGE>
RANKING
The New Preferred Stock will, with respect to dividend distributions
and distributions upon the liquidation, winding-up and dissolution of
ICG, rank (i) senior to all classes of common stock of ICG and to each
other class of capital stock or series of preferred stock established
after the date of this Memorandum by ICG's Board of Directors the terms
of which do not expressly provide that it ranks senior to or on a parity
with the New Preferred Stock as to dividend distributions and
distributions upon the liquidation, winding-up and dissolution of ICG
(collectively referred to with the common stock of ICG as "Junior
Securities"); (ii) on a parity with any class of capital stock or series
of preferred stock issued by ICG established after the date of this
Memorandum by ICG's Board of Directors, the terms of which expressly
provide that such class or series will rank on a parity with the New
Preferred Stock as to dividend distributions and distributions upon the
liquidation, winding-up and dissolution of ICG (collectively referred to
as "Parity Securities"); and (iii) subject to certain conditions
described below, junior to each class of capital stock or series of
preferred stock issued by ICG established after the date of this
Memorandum by ICG's Board of Directors, the terms of which expressly
provide that such class or series will rank senior to the New Preferred
Stock as to dividend distributions and distributions upon liquidation,
winding-up and dissolution of ICG (collectively referred to as "Senior
Securities"). The New Preferred Stock will be subject to the issuance of
series of Junior Securities, Parity Securities and Senior Securities;
provided that ICG may not issue any new class of Senior Securities
without the approval of the holders of at least a majority of the shares
of New Preferred Stock then outstanding, voting or consenting, as the
case may be, separately as one class, except that without the approval of
holders of the New Preferred Stock, ICG may issue shares of Senior
Securities (1) in exchange for, or the proceeds of which are used to
redeem or repurchase, all, but not less than all, shares of New Preferred
Stock then outstanding, or (2) in exchange for, or the proceeds of which
are used to repay, any outstanding Indebtedness of ICG.
DIVIDENDS
Holders of New Preferred Stock will be entitled to receive, when, as
and if declared by ICG's Board of Directors, out of funds legally
available therefor, dividends on the New Preferred Stock at a rate per
annum equal to 14 1/4% of the liquidation preference per share of New
Preferred Stock, payable quarterly. All dividends will be cumulative,
whether or not earned or declared, on a daily basis from the date of
issuance of the New Preferred Stock and will be payable quarterly in
arrears on February 1, May 1, August 1 and November 1 of each year,
commencing on August 1, 1996. The Amended Articles provide that on or
before May 1, 2001, ICG may, at its option, pay dividends in cash or in
additional fully paid and non-assessable shares of New Preferred Stock
having an aggregate liquidation preference equal to the amount of such
dividends. However, the 13 1/2% Notes Indenture and Notes Indenture
contain limitations on ICG's ability to pay dividends in cash prior to
May 1, 2001. After May 1, 2001, dividends may be paid only in cash.
Future agreements of ICG or IntelCom could restrict the payment of cash
dividends by ICG. If any dividend (or portion thereof) payable on any
dividend payment date on or before May 1, 2001 is not declared or paid in
full in cash or in shares of New Preferred Stock as described above on
such dividend payment date, the amount of the accrued and unpaid dividend
will bear interest at the dividend rate on the New Preferred Stock,
compounding quarterly from such dividend payment date until paid in full.
If any dividend (or portion thereof) payable on any dividend payment date
after May 1, 2001 is not declared or paid in full in cash on such
dividend payment date, the amount of the accrued and unpaid dividend will
bear interest at the dividend rate on the New Preferred Stock,
compounding quarterly from such dividend payment date until paid in full.
No full dividends may be declared or paid or funds set apart for the
payment of dividends on any Parity Securities for any period unless full
cumulative dividends on the New Preferred Stock shall have been or
contemporaneously are declared and paid in full or declared and, if
payable in cash, a sum in cash set apart for such payment on the New
Preferred Stock. If full dividends are not so paid, the New Preferred
Stock will share dividends pro rata with the Parity Securities.
OPTIONAL REDEMPTION
The New Preferred Stock may be redeemed (subject to contractual and
other restrictions with respect thereto and to the legal availability of
funds therefor) at any time on or after May 1, 2001, in whole or in part,
at the option
-60-
<PAGE>
of ICG, at the redemption prices (expressed as a percentage of the
liquidation preference thereof) set forth below, plus an amount in cash
equal to all accumulated and unpaid dividends (including an amount in
cash equal to a prorated dividend for the period from the dividend
payment date immediately prior to the redemption date to the redemption
date, subject to the right of holders of preferred stock on a record date
to receive dividends on a dividend payment date) if redeemed during the
12-month period beginning May 1 of each of the years set forth below:
YEAR PERCENTAGE
2001................. 107.125%
2002................. 104.750%
2003................. 102.375%
2004 and thereafter.. 100.000%
In addition, on or prior to May 1, 1999, ICG may, at its option from
time to time, redeem shares of New Preferred Stock having an aggregate
liquidation preference of up to 35% of the aggregate liquidation
preference of all shares of New Preferred Stock issued in the Private
Offering, at a redemption price equal to 114 1/4% of the liquidation
preference thereof (subject to the right of holders of New Preferred
Stock on relevant record dates to receive dividends due on relevant
dividend payment dates), plus an amount in cash equal to a prorated
dividend for the period from the dividend payment date immediately prior
to the redemption date to the redemption date, with proceeds of one or
more Public Equity Offerings of Common Stock of (A) ICG or (B) IntelCom,
provided that (i) with respect to a Public Offering referred to in clause
(B) above, cash proceeds of such Public Equity Offering in an amount
sufficient to effect the redemption of New Preferred Stock to be so
redeemed are contributed by IntelCom to ICG prior to such redemption and
used by ICG to effect such redemption and (ii) such redemption occurs
within 180 days after consummation of such Public Equity Offering.
No optional redemption may be authorized or made unless prior thereto
full unpaid cumulative dividends shall have been paid or a sum set apart
for such payment on the New Preferred Stock.
In the event of partial redemptions of New Preferred Stock, the shares
to be redeemed will be determined pro rata, except that ICG may redeem
such shares held by any holder of fewer than 100 shares without regard to
such pro rata redemption requirement. The Notes Indenture and the
13 1/2% Notes Indenture restrict the ability of ICG to redeem the New
Preferred Stock, and future agreements may contain similar provisions.
See "Description of New Notes." Notice of redemption shall be mailed by
first class mail at least 30 but no more than 60 days before the
redemption date to each holder of New Preferred Stock to be redeemed at
its registered address. If any New Preferred Stock is to be redeemed in
part, the notice of redemption that related to such New Preferred Stock
shall state the portion of the liquidation preference to be redeemed.
New shares of New Preferred Stock having an aggregate liquidation
preference equal to the unredeemed portion will be issued in the name of
the holder thereof upon cancellation of the original share of New
Preferred Stock and, unless ICG fails to pay the redemption price on the
redemption date, after the redemption date dividends will cease to accrue
on the New Preferred Stock called for redemption.
MANDATORY REDEMPTION
The New Preferred Stock will be subject to mandatory redemption
(subject to the legal availability of funds therefor) in whole on May 1,
2007 at a price, payable in cash, equal to the liquidation preference
thereof, plus all accumulated and unpaid dividends to the date of
redemption. Future agreements of ICG or IntelCom may restrict or
prohibit ICG from redeeming the New Preferred Stock, but ICG will be
required to redeem the New Preferred Stock on May 1, 2007,
notwithstanding any such restriction.
CHANGE OF CONTROL
-61-
<PAGE>
Upon the occurrence of a Change of Control ICG will be required
(subject to the legal availability of funds therefor) to make an offer
(the "Change of Control Offer") to each holder of New Preferred Stock to
repurchase all or any part of such holder's New Preferred Stock at a cash
purchase price equal to 101% of the liquidation preference thereof, plus
an amount in cash equal to all accumulated and unpaid dividends per share
to the date of purchase. The Change of Control Offer must be made within
30 days following a Change of Control, must remain open for at least 30
and not more than 40 days and must comply with the requirements of Rule
14e-1 under the Exchange Act and any other applicable securities laws and
regulations. Notwithstanding the foregoing, ICG has agreed not to make a
Change of Control Offer if any of the New Notes or 13 1/2% Notes are
outstanding upon the occurrence of a Change of Control unless all of the
New Notes and 13 1/2% Notes tendered pursuant to the "Change of Control
Offers" with respect thereto are repurchased as a result of such Change
of Control, in which case the date on which all New Notes and 13 1/2%
Notes (and any other Indebtedness or Senior Securities of ICG having
provisions similar to Section 4.04(x) of the Notes Indenture) are so
repurchased will, under the Amended Articles, be deemed to be the date on
which such Change of Control shall have occurred.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of Voting Stock having more than 40% of the voting
power of the total Voting Stock of IntelCom on a fully diluted basis;
(ii) individuals who on the Closing Date constitute the Board of
Directors of IntelCom (together with any new directors whose election by
the Board of Directors or whose nomination for election by IntelCom's
stockholders was approved by a vote of at least a majority of the members
of the Board of Directors then in office who either were members of the
Board of Directors on the Closing Date or whose election or nomination
for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board of Directors then in
office; or (iii) all of the Common Stock of ICG is not beneficially owned
by IntelCom; provided, however, that a Change of Control shall be deemed
not to occur as a result of a Reorganization permitted by the Amended
Articles.
None of the provisions in the Amended Articles relating to a purchase
upon a Change of Control can be waived by ICG's Board of Directors. ICG
could, in the future, enter into certain transactions, including certain
recapitalizations of ICG, that would not constitute a Change of Control,
but would increase the amount of indebtedness outstanding at such time.
If a Change of Control were to occur, ICG would be obligated to offer to
repurchase all of the New Notes and 13 1/2% Notes prior to making an
offer to repurchase shares of New Preferred Stock, and there can be no
assurance that ICG would have sufficient funds to pay the purchase price
for all shares of New Preferred Stock that ICG is required to purchase.
In the event that ICG were required to purchase outstanding shares of New
Preferred Stock pursuant to a Change of Control Offer, ICG expects that
it would need to seek third-party financing, to the extent it does not
have available funds, to meet its purchase obligations. However, there
can be no assurance that ICG would be able to obtain such financing. In
addition, ICG's ability to purchase the New Preferred Stock may be
limited by other then-existing agreements and by restrictions imposed by
the CBCA.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-
up of ICG, holders of New Preferred Stock will be entitled to be paid,
out of the assets of ICG available for distribution, $1,000 per share,
plus an amount in cash equal to accumulated and unpaid dividends thereon
to the date fixed for liquidation, dissolution or winding-up (including
an amount equal to a prorated dividend for the period from the last
dividend payment date to the date fixed for liquidation, dissolution or
winding-up), before any distribution is made on any Junior Securities,
including, without limitation, ICG Common Stock. If, upon any voluntary
or involuntary liquidation, dissolution or winding-up of ICG, the amounts
payable with respect to the New Preferred Stock and all other Parity
Securities are not paid in full, the holders of the New Preferred Stock
and the Parity Securities will share equally and ratably in any
distribution of assets of ICG with respect to the New Preferred Stock and
Parity Securities, in proportion to the full liquidation preference and
accumulated and unpaid dividends to which each is entitled. After
payment of the full amount of the liquidation preferences and accumulated
and unpaid dividends to which they are entitled, the holders of shares of
New Preferred Stock will not be entitled to any further participation in
any distribution of assets of ICG. However, a merger, consolidation or
sale of substantially all of ICG's assets that complies with the
-62-
<PAGE>
provisions described below under the "Mergers, Consolidation and Sale of
Assets" covenant shall be deemed not to be a liquidation, dissolution or
winding up of ICG.
The Amended Articles do not contain any provision requiring funds to
be set aside to protect the liquidation preference of the New Preferred
Stock. The CBCA provides that no distribution to shareholders of a
Colorado corporation (including a dividend or a purchase, redemption or
other acquisition of shares) may be made if, after giving effect to such
distribution, (i) the corporation would not be able to pay its debts as
they become due in the usual course of business or (ii) the corporation's
total assets would be less than the sum of its total liabilities plus the
amount that would be needed, if the corporation were to be dissolved at
the time of the distribution, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are superior to
those receiving the distribution. A corporation's board of directors may
base its determination that a distribution is not prohibited by the
restriction described in the foregoing sentence either on financial
statements prepared on the basis of accounting practices and principles
that are reasonable under the circumstances or on a fair valuation or
other method that is reasonable under the circumstances.
VOTING RIGHTS
Holders of the New Preferred Stock will have no voting rights with
respect to any matters except as provided by law or as set forth in the
Amended Articles. The Amended Articles provide that if (i) (a) dividends
on the New Preferred Stock are in arrears and have not been paid (or if,
after May 1, 2001, such dividends have not been paid in cash) for four
quarterly periods (whether or not consecutive), (b) ICG fails to
discharge any redemption obligation with respect to the New Preferred
Stock, (c) a breach or violation by ICG of the provisions described below
under "--Exchange" occurs, or ICG fails to exchange Exchange Debentures
for the New Preferred Stock tendered for exchange on the Exchange Date
(as defined below), whether or not ICG satisfies the conditions to permit
such exchange, (d) ICG fails to make a Change of Control Offer or cash
payment with respect thereto if required by the provisions set forth
above under "--Change of Control," (e) a breach or violation of the
provisions described below under "--Certain Covenants" occurs and is not
remedied within 30 days after notice thereof to ICG by holders of 25% or
more of the liquidation preference of the New Preferred Stock then
outstanding, or (f) a default occurs on the obligation to pay principal
of, interest on or any other payment obligation when due (a "Payment
Default") at final maturity, on one or more classes of Indebtedness of
ICG or any Subsidiary of ICG, whether such Indebtedness exists on the
Closing Date or is incurred thereafter, having individually or in the
aggregate an outstanding principal amount of $10 million or more, or any
other Payment Default occurs on one or more such classes of Indebtedness
and such class or classes of Indebtedness are declared due and payable
prior to their respective maturities, and (ii) in the case of clauses (e)
and (f), such event continues for a period of 180 days or more, then the
number of directors constituting ICG's Board of Directors will be
adjusted to permit the holders of the majority of the then outstanding
New Preferred Stock, voting separately as a class, to elect two
directors. Such voting rights and the term of office of such elected
directors will continue until such time as (i) all dividends in arrears
on the New Preferred Stock are paid in full (and, in the case of
dividends payable with respect to any period after May 1, 2001, are paid
in cash) and (ii) any failure, breach or default referred to in clause
(b), (c), (d), (e) or (f) is remedied, at which time the term of any
directors elected pursuant to the provisions of this paragraph shall
terminate. For the purpose of determining the number of quarterly periods
for which accrued dividends have not been paid, any accrued and unpaid
dividend that is subsequently paid shall not be treated as unpaid. Each
such event described in clauses (a) through (f) above is referred to
herein as a "Voting Rights Triggering Event." Within 15 days of the time
ICG becomes aware of the occurrence of any default referred to in clause
(f) above, ICG shall give notice thereof to holders of the New Preferred
Stock at their addresses as they appear on the records of the Transfer
Agent.
The Amended Articles provide that upon the occurrence of a Voting
Rights Triggering Event, the number of directors constituting ICG's Board
of Directors will be increased by two directors, whom the holders of the
New Preferred Stock will be entitled to elect. Whenever the right of the
holders of New Preferred Stock to elect directors shall cease, the number
of directors constituting ICG's Board of Directors will be restored to
the number of directors constituting ICG's Board of Directors prior to
the time or event which entitled the holders of New Preferred Stock to
elect directors.
-63-
<PAGE>
Any vacancy occurring in the office of a director elected by holders
of the New Preferred Stock may be filled by the remaining director
elected by such holders unless and until such vacancy shall be filled by
vote of such holders.
The Amended Articles provide that, except as stated above under "--
Ranking," ICG will not authorize any class of Senior Securities without
the affirmative vote or consent of holders of at least a majority of the
shares of New Preferred Stock then outstanding, voting or consenting, as
the case may be, separately as one class. The Amended Articles also
provide that ICG may not amend the Amended Articles so as to affect
adversely the specified rights, preferences, privileges or voting rights
of holders of shares of the New Preferred Stock or authorize the issuance
of any additional shares of New Preferred Stock (other than to pay
dividends in kind on New Preferred Stock), without the affirmative vote
or consent of the holders of at least a majority of the outstanding
shares of New Preferred Stock, voting or consenting, as the case may be,
separately as one class. The holders of at least a majority of the
outstanding shares of New Preferred Stock, voting or consenting, as the
case may be, separately as one class, may also waive compliance with any
provision of the Amended Articles.
Under Colorado law, holders of New Preferred Stock will be entitled to
vote as a separate voting group upon a proposed amendment to the Amended
Articles that requires a shareholder vote, whether or not entitled to
vote thereon by the Amended Articles, if the amendment would: (i)
increase or decrease the aggregate number of authorized shares of
preferred stock; (ii) effect an exchange or reclassification of all or
part of the shares of the New Preferred Stock into shares of another
class or series; (iii) effect an exchange or reclassification, or create
the right of exchange, of all or part of the shares of another class or
series into shares of New Preferred Stock; (iv) change the designation,
preferences, limitations or relative rights of all or part of the shares
of New Preferred Stock; (v) change the shares of all or part of the New
Preferred Stock into a different number of shares of New Preferred Stock;
(vi) create a new class of shares having rights or preferences with
respect to distributions or dissolution that are prior, superior, or
substantially equal to the New Preferred Stock; (vii) increase the
rights, preferences, or number of authorized shares of any class or
series that, after giving effect to the amendment, have rights or
preferences with respect to distributions or to dissolution that are
prior, superior, or substantially equal to the New Preferred Stock; or
(viii) cancel or otherwise affect rights to distributions or dividends
that have accumulated but have not yet been declared on all or part of
the shares of New Preferred Stock. Under Colorado law, if an amendment
that entitles two or more series of a class of shares to vote as separate
voting groups would affect those two or more series in the same or a
substantially similar way, the shares of all the series so affected are
instead required to vote together as a single voting group rather than as
separate voting groups.
In general, except as otherwise provided in the Amended Articles, the
voting rights described in the foregoing paragraph will not apply to an
amendment to the Amended Articles that is approved by ICG's Board of
Directors, without being subject to any requirement for shareholder
action, establishing the preferences, limitations, and relative rights of
any class or series of ICG preferred stock already authorized by the
Amended Articles at the time of such amendment. Under the Amended
Articles, ICG's Board of Directors has the authority to authorize the
issuance of classes or series of preferred stock up to the 1,000,000
shares authorized without further action by shareholders, including
without any voting by holders of New Preferred Stock under Colorado law
as described in the preceding paragraph. See "--General." Notwithstanding
the foregoing, the Amended Articles provide that ICG will not authorize
or issue any class of Senior Securities without the affirmative vote of
holders of a majority of the shares of New Preferred Stock then
outstanding voting separately as a class, except as described above under
"--Ranking." See "--Voting Rights."
CERTAIN COVENANTS
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF NEW PREFERRED STOCK
(a) Under the terms of the Amended Articles, ICG will not, and will
not permit any of its Restricted Subsidiaries to, Incur any Indebtedness
(other than the New Notes, the Exchange Debentures and Indebtedness
existing on the Closing Date) or issue any Redeemable Stock; provided
that ICG may Incur Indebtedness or issue Redeemable Stock if, after
giving effect to the Incurrence of such Indebtedness or the issuance of
such Redeemable
-64-
<PAGE>
Stock and the receipt and application of the proceeds therefrom, the
Indebtedness to EBITDA Ratio would be greater than zero and less than
5:1.
Notwithstanding the foregoing, ICG and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness of ICG or any Restricted Subsidiary or Redeemable Stock of
ICG outstanding at any time, which Indebtedness or Redeemable Stock
generates gross proceeds to ICG of up to $900 million, less (without
duplication) the gross proceeds of Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant contained in the
13/1//2% Notes Indenture and the Notes Indenture; (ii) Indebtedness to
IntelCom, ICG or any of ICG's Wholly Owned Restricted Subsidiaries;
provided that any subsequent issuance or transfer of any Capital Stock
which results in any such Wholly Owned Restricted Subsidiary ceasing to
be a Wholly Owned Restricted Subsidiary or any subsequent transfer of
such Indebtedness (other than to IntelCom, ICG or another Wholly Owned
Restricted Subsidiary) shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness not permitted by this clause (ii); (iii)
Indebtedness or Redeemable Stock issued in exchange for, or the net
proceeds of which are used to refinance or refund, then outstanding
Indebtedness or Redeemable Stock, other than Indebtedness Incurred or
Redeemable Stock issued under clause (i), (ii), (v), (vi), (viii), (ix),
(x) or (xi) of this paragraph, and any refinancings thereof in an amount
not to exceed the amount so refinanced or refunded (plus premiums,
accrued interest, accrued dividends, fees and expenses); provided that
such new Indebtedness or Redeemable Stock, determined as of the date of
Incurrence of such new Indebtedness or issuance of Redeemable Stock, does
not mature prior to the Stated Maturity of the Indebtedness or have a
mandatory redemption date prior to the Redeemable Stock to be refinanced
or refunded, and the Average Life of such new Indebtedness is at least
equal to the remaining Average Life of the Indebtedness to be refinanced
or refunded; and provided further that in no event may Indebtedness or
Redeemable Stock of ICG be refinanced by means of any Indebtedness or
Redeemable Stock of any Restricted Subsidiary of ICG pursuant to this
clause (iii); (iv) Indebtedness (A) in respect of performance, surety or
appeal bonds provided in the ordinary course of business, (B) under
Currency Agreements and Interest Rate Agreements; provided that such
agreements do not increase the Indebtedness of the obligor outstanding at
any time other than as a result of fluctuations in foreign currency
exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder; and (C) arising from agreements
providing for indemnification, adjustment of purchase price or similar
obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of ICG or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary of ICG (other than Guarantees of Indebtedness Incurred by any
Person acquiring all or any portion of such business, assets or
Restricted Subsidiary of ICG for the purpose of financing such
acquisition), in a principal amount at maturity not to exceed the gross
proceeds actually received by ICG or any Restricted Subsidiary in
connection with such disposition; (v) Indebtedness or Redeemable Stock of
ICG, to the extent the proceeds referred to below are contributed to ICG,
not to exceed, at any one time outstanding, twice the amount of Net Cash
Proceeds received by IntelCom after the Closing Date from the issuance
and sale of its Capital Stock (other than Redeemable Stock or preferred
stock); provided that such Indebtedness does not mature prior to the
final mandatory redemption date of the New Preferred Stock; (vi)
Strategic Investor Subordinated Indebtedness; (vii) Indebtedness or
Redeemable Stock of ICG, to the extent the proceeds thereof are
immediately used after the Incurrence or issuance thereof to purchase New
Preferred Stock tendered in a Change of Control Offer; (viii)
Indebtedness of any Restricted Subsidiary of ICG Incurred pursuant to any
credit agreement of such Restricted Subsidiary in effect on August 8,
1995 (or any agreement refinancing Indebtedness under such credit
agreement), up to the amount of the commitment under such credit
agreement (including equipment leasing or financing agreements) on August
8, 1995; (ix) Indebtedness of ICG, in an amount not to exceed $100
million at any one time outstanding, consisting of Capitalized Lease
Obligations with respect to assets that are used or useful in the
telecommunications business of ICG or its Restricted Subsidiaries; (x)
Indebtedness or Redeemable Stock of any Person that becomes a Restricted
Subsidiary of ICG after the Closing Date, which Indebtedness exists
or, with respect to such Indebtedness for which there is a commitment to
lend, at the time such Person becomes a Restricted Subsidiary and, with
respect to such Indebtedness, the subsequent incurrence thereof
("Acquired Indebtedness"), in an accreted amount not to exceed $50
million at any one time outstanding in the aggregate for all such
Restricted Subsidiaries; provided that such Acquired Indebtedness does
not exceed 65% of the consideration (calculated by including such
Acquired Indebtedness as a part of such consideration) paid by ICG and
its Restricted Subsidiaries for the acquisition of such Person; and (xi)
Indebtedness of ICG, in an amount not to exceed $30 million at any one
time outstanding, consisting of letters of credit and similar
arrangements used to support obligations of ICG or any
-65-
<PAGE>
of its Restricted Subsidiaries with respect to the acquisition of (by
purchase, lease or otherwise), construction of, or improvements on,
assets that will be used or useful in the telecommunications business of
ICG or its Restricted Subsidiaries.
(b) For purposes of determining any particular amount of Indebtedness
under this "Incurrence of Indebtedness and Issuance of New Preferred
Stock" covenant, Guarantees, Liens or obligations with respect to letters
of credit supporting Indebtedness otherwise included in the determination
of such particular amount shall not be included. For purposes of
determining compliance with this "Incurrence of Indebtedness and Issuance
of New Preferred Stock" covenant, in the event that an item of
Indebtedness or Redeemable Stock meets the criteria of more than one of
the types of Indebtedness or Redeemable Stock described in the above
clauses, ICG, in its sole discretion, shall classify such item of
Indebtedness or Redeemable Stock and only be required to include the
amount and type of such Indebtedness or Redeemable Stock in one of such
clauses.
LIMITATION ON RESTRICTED PAYMENTS
So long as any shares of the New Preferred Stock are outstanding, ICG
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, (i) declare or pay any dividend or make any distribution on
Junior Securities held by Persons other than ICG or any of its Restricted
Subsidiaries (other than dividends or distributions payable solely in
shares of its or such Restricted Subsidiary's Junior Securities (other
than Redeemable Stock) of the same class held by such holders or in
options, warrants or other rights to acquire such shares of Junior
Securities and other than pro rata dividends or distributions on Common
Stock of Restricted Subsidiaries); (ii) purchase, redeem, retire or
otherwise acquire for value any shares of Junior Securities of ICG or any
Restricted Subsidiary (including options, warrants or other rights to
acquire such shares of Junior Securities) held by Persons other than ICG
or any of its Wholly Owned Restricted Subsidiaries (except for Junior
Securities of MTN, StarCom, Ohio LINX, FOTI and Zycom to the extent the
consideration therefor consists solely of common stock (other than
Redeemable Stock) of IntelCom or Junior Securities of ICG, in each case,
transferred in compliance with the Securities Act); or (iii) make any
Investment, other than a Permitted Investment, in any Person (such
payments or any other actions described in clauses (i) through (iii)
being collectively "Restricted Payments") if, at the time of, and after
giving effect to, the proposed Restricted Payment: (A) an event referred
to in clauses (i)(a) through (i)(f) under "Voting Rights" shall have
occurred and be continuing, (B) ICG could not Incur at least $1.00 of
Indebtedness under the first paragraph of the "Incurrence of Indebtedness
and Issuance of New Preferred Stock" covenant, (C) the aggregate amount
expended for all Restricted Payments (the amount so expended, if other
than in cash, to be determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board
Resolution) after the date of the Amended Articles shall exceed the sum
of (1) 50% of the aggregate amount of the Adjusted Consolidated Net
Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100%
of such amount) (determined by excluding income resulting from transfers
of assets by ICG or a Restricted Subsidiary to an Unrestricted
Subsidiary) accrued on a cumulative basis during the period (taken as one
accounting period) beginning on the first day of the fiscal quarter
immediately following the Closing Date and ending on the last day of the
last fiscal quarter preceding the Transaction Date for which reports have
been filed pursuant to the "Reports" covenant plus (2) the aggregate Net
Cash Proceeds received by ICG after the Closing Date (x) from the
issuance and sale, permitted by the Amended Articles, of Junior
Securities (other than Redeemable Stock) to a Person who is not a
Subsidiary of ICG, or from the issuance to a Person who is not a
Subsidiary of ICG of any options, warrants or other rights to acquire
Junior Securities of ICG (in each case, exclusive of any Redeemable Stock
or any options, warrants or other rights that are redeemable at the
option of the holder, or are required to be redeemed, prior to the Stated
Maturity of the New Preferred Stock) or (y) as a capital contribution
from IntelCom plus (3) an amount equal to the net reduction in
Investments (other than reductions in Permitted Investments) in any
Person resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of assets, in each
case to ICG or any Restricted Subsidiary (except to the extent any such
payment is included in the calculation of Adjusted Consolidated Net
Income), or from redesignations of Unrestricted Subsidiaries as
Restricted Subsidiaries (valued in each case as provided in the
definition of "Investments"), not to exceed the amount of Investments
previously made by ICG and its Restricted Subsidiaries in such Person or
(D) dividends on the New Preferred Stock shall not have been paid in full
as provided in the Amended Articles.
-66-
<PAGE>
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with
the foregoing paragraph; (ii) the repurchase, redemption or other
acquisition of Junior Securities of ICG (or options, warrants or other
rights to acquire such Junior Securities) and with respect to any Junior
Securities, the payment of accrued dividends thereon, in exchange for, or
out of the proceeds of a substantially concurrent issuance or sale of,
shares of Junior Securities (other than Redeemable Stock) of ICG;
provided that the redemption of any preferred stock pursuant to any
mandatory redemption feature thereof and any redemption of any other
Junior Securities and, in each case, the payment of accrued dividends
thereon (or options, warrants or other rights to acquire such Junior
Securities) and with respect to any Junior Securities, the payment of
accrued dividends thereon, shall be deemed to be "substantially
concurrent" with such issuance and sale if the required notice with
respect to such redemption is irrevocably given by a date which is no
later than five Business Days after receipt of the proceeds of such
issuance and sale and such redemption and payment is consummated within
the period provided for in the document governing such preferred stock or
the documents governing the redemption of such other Junior Securities,
as the case may be; (iii) payments or distributions, in the nature of
satisfaction of dissenters' rights, pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the
provisions of the Amended Articles applicable to mergers, consolidations
and transfers of all or substantially all of the property and assets of
ICG; (iv) Investments, not to exceed $10 million in aggregate, each
evidenced by a senior promissory note payable to ICG that provides that
it will become due and payable prior to any required repurchase
(including pursuant to an Offer to Purchase in connection with a Change
of Control) of the New Preferred Stock; (v) Investments, not to exceed $5
million in the aggregate, that meet the requirements of clause (iv)
above; provided that the Board of Directors of ICG shall have determined,
in good faith, that each such Investment under this clause (v) will
enable ICG or one of its Restricted Subsidiaries to obtain additional
business that it might not be able to obtain without the making of such
Investment; (vi) with respect to Junior Securities permitted to be issued
and sold by the "Limitation on Issuance and Sale of Capital Stock of
Restricted Subsidiaries" covenant, the payment (A) of dividends on such
Junior Securities in additional shares of Junior Securities and (B) of
cash dividends on such Junior Securities in an amount not to exceed the
dividend rate thereon and accrued interest on unpaid dividends, in each
case after May 1, 2001; (vii) the repurchase, in the event of a Change of
Control, of Junior Securities of ICG and Indebtedness of ICG into which
such Junior Securities have been exchanged; provided that prior to
repurchasing such Junior Securities or Indebtedness, ICG shall have made
a Change of Control Offer to repurchase the shares of New Preferred Stock
in accordance with the terms of the Amended Articles (and an offer to
repurchase other Indebtedness, if required by the terms thereof, in
accordance with the indenture or other document governing such other
Indebtedness) and shall have accepted and paid for any shares of New
Preferred Stock (and other Indebtedness) properly tendered in connection
with such Change of Control Offer for the shares of New Preferred Stock
or change of control offer for such other Indebtedness; (viii) the
issuance of Junior Securities permitted to be issued under the Amended
Articles in exchange for Indebtedness; provided that the Incurrence of
such Indebtedness complies with the "Incurrence of Indebtedness and
Issuance of New Preferred Stock" covenant and (ix) (A) the payment of a
dividend or other transfer of funds to IntelCom, with a portion of the
proceeds of the issuance of the New Preferred Stock in an amount not to
exceed the amount required to repurchase 916,666 warrants to purchase
Common Stock of IntelCom and (B) the redemption of the 12% Redeemable New
Preferred Stock of ICG, in each case, in accordance with the provisions
of the documents governing such repurchase or redemption, provided that,
except in the case of clause (i), no Default or Event of Default shall
have occurred and be continuing or occur as a consequence of the actions
or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payments referred to in clauses (vi)(A) and
(viii) thereof), and the Net Cash Proceeds from any issuance of Junior
Securities referred to in clause (ii), shall be included in calculating
whether the conditions of clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant have been met with respect
to any subsequent Restricted Payments. Notwithstanding the foregoing, in
the event the proceeds of an issuance of Junior Securities are used for
the redemption, repurchase or other acquisition of the New Preferred
Stock, or Parity Securities, then the Net Cash Proceeds of such issuance
shall be included in clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant only to the extent such
proceeds are not used for such redemption, repurchase or other
acquisition of New Preferred Stock or Parity Securities.
-67-
<PAGE>
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES
So long as any shares of New Preferred Stock are outstanding, ICG 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 ICG or any other Restricted Subsidiary, (ii) pay any
Indebtedness owed to ICG or any other Restricted Subsidiary, (iii) make
loans or advances to ICG or any other Restricted Subsidiary or (iv)
transfer any of its property or assets to ICG or any other Restricted
Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in any agreements in
effect on the Closing Date, and any extensions, refinancings, renewals or
replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or
replacements are no less favorable in any material respect to the holders
of the New Preferred Stock than those encumbrances or restrictions that
are then in effect and that are being extended, refinanced, renewed or
replaced; (ii) existing under or by reason of applicable law; (iii)
existing with respect to any Person or the property or assets of such
Person acquired by ICG or any Restricted Subsidiary, existing at the time
of such acquisition and not incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property
or assets of such Person so acquired; (iv) in the case of clause (iv) of
the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that
restrict in a customary manner the subletting, assignment or transfer of
any property or asset that is a lease, license, conveyance or contract or
similar property or asset, (B) existing by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of ICG or any Restricted Subsidiary not otherwise
prohibited by the Amended Articles or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that
do not, individually or in the aggregate, detract from the value of
property or assets of ICG or any Restricted Subsidiary in any manner
material to ICG or any Restricted Subsidiary; or (v) with respect to a
Restricted Subsidiary and imposed pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of
the Capital Stock of, or property and assets of, such Restricted
Subsidiary. Nothing contained in this "Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries" covenant shall
prevent ICG 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 ICG or any of its Restricted
Subsidiaries that secure Indebtedness of ICG or any of its Restricted
Subsidiaries.
LIMITATION ON ISSUANCES AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
Under the terms of the Amended Articles, ICG 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 ICG or a Wholly Owned Restricted Subsidiary; (ii)
issuances or sales to foreign nationals of shares of Capital Stock of
foreign Restricted Subsidiaries, to the extent required by applicable
law; (iii) if, immediately after giving effect to such issuance or sale,
such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary; (iv) with respect to Common Stock of MTN, StarCom and Zycom;
provided that the proceeds of any such sale under clause (iv) shall be
reinvested in the business of ICG and its Restricted Subsidiaries or used
to repay Indebtedness of ICG or any of its Restricted Subsidiaries or
Senior Securities; and (v) with respect to Common Stock of FOTI; provided
that FOTI shall not retain any net proceeds from such sales or issuances
in excess of $10 million in the aggregate and any net proceeds in excess
of such $10 million shall be received by, or paid promptly by FOTI to,
ICG or any Wholly Owned Restricted Subsidiary of ICG.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
Under the terms of the Amended Articles, ICG will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, enter into,
renew or extend any transaction (including, without limitation, the
purchase, sale, lease or exchange of property or assets, or the rendering
of any service) with any holder (or any Affiliate of such
-68-
<PAGE>
holder) of 5% or more of any class of Capital Stock of ICG or with any
Affiliate of ICG or any Restricted Subsidiary, except upon fair and
reasonable terms no less favorable to ICG or such Restricted Subsidiary
than could be obtained, at the time of such transaction or at the time of
the execution of the agreement providing therefor, in a comparable arm's-
length transaction with a Person that is not such a holder or an
Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of
the Board of Directors of ICG or (B) for which ICG or a Restricted
Subsidiary delivers to the Transfer Agent a written opinion of a
nationally recognized investment banking firm stating that the
transaction is fair to ICG or such Restricted Subsidiary from a financial
point of view; (ii) any transaction solely between ICG and any of its
Wholly Owned Restricted Subsidiaries or solely between Wholly Owned
Restricted Subsidiaries; (iii) the payment of reasonable and customary
regular fees to directors of ICG who are not employees of ICG; (iv) any
payments or other transactions pursuant to any tax-sharing agreement (or
a similar agreement that is not materially adverse to the interests of
holders of the New Preferred Stock) between ICG and any other Person with
which ICG files a consolidated tax return or with which ICG is part of a
consolidated group for tax purposes; or (v) any Restricted Payments not
prohibited by the "Limitation on Restricted Payments" covenant.
Notwithstanding the foregoing, any transaction covered by the first
paragraph of this "Limitation on Transactions with Shareholders and
Affiliates" covenant and not covered by clauses (ii) through (iv) of this
paragraph, the aggregate amount of which exceeds $2 million in value,
must be approved or determined to be fair in the manner provided for in
clause (i)(A) or (B) above.
LIMITATION ON LIENS
Under the terms of the Amended Articles, ICG will not, and will not
permit any Restricted Subsidiary to, create, incur, assume or suffer to
exist any Lien on any of its assets or properties, now or hereafter
acquired, or any shares of Capital Stock of or Indebtedness of any
Restricted Subsidiary.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or
Capital Stock of ICG or its Restricted Subsidiaries created in favor of
the holders of the New Preferred Stock; (iii) Liens with respect to the
assets of a Restricted Subsidiary granted by such Restricted Subsidiary
to ICG or a Wholly Owned Restricted Subsidiary to secure Indebtedness
owing to ICG or such other Restricted Subsidiary; (iv) Liens securing
Indebtedness which is Incurred to refinance secured Indebtedness which is
permitted to be Incurred under clause (iii) of the second paragraph of
the "Incurrence of Indebtedness and Issuance of New Preferred Stock"
covenant; provided that such Liens do not extend to or cover any property
or assets of ICG or any Restricted Subsidiary other than the property or
assets securing the Indebtedness being refinanced; (v) Liens with respect
to assets or properties of any Person that becomes a Restricted
Subsidiary after the Closing Date; provided that such Liens do not extend
to or cover any assets or properties of ICG or any of its Restricted
Subsidiaries other than the assets or properties of such Person subject
to such Lien on the date such Person becomes a Restricted Subsidiary; and
provided further that such Liens are not incurred in contemplation of, or
in connection with, such Person becoming a Restricted Subsidiary; (vi)
Permitted Liens; and (vii) Liens securing Indebtedness.
MERGER, CONSOLIDATION AND SALE OF ASSETS
ICG shall not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person (other
than a consolidation or merger with or into a Wholly Owned Restricted
Subsidiary with a positive net worth; provided that, in connection with
any such merger or consolidation, no consideration (other than Common
Stock in the surviving Person or ICG) shall be issued or distributed to
the stockholders of ICG) or permit any Person to merge with or into ICG
unless: (i) ICG shall be the continuing Person, or the Person (if other
than ICG) formed by such consolidation or into which ICG is merged or
that acquired or leased such property and assets of ICG shall be a
corporation organized and validly existing under the laws of the United
States of America or any jurisdiction thereof and the New Preferred Stock
shall be converted into or exchanged for and shall become shares of such
successor company, having in respect of such successor or resulting
company substantially the same powers, preferences and relative
participating, optional or other special rights and
-69-
<PAGE>
the qualifications, limitations or restrictions thereon that the New
Preferred Stock had immediately prior to such transaction; (ii)
immediately after giving effect to such transaction, no event referred to
under clauses (a) through (e) under "--Voting Rights" or any default,
breach or violation that would become such an event after the giving of
notice, the passage of time or both, shall have occurred and be
continuing; (iii) immediately after giving effect to such transaction on
a pro forma basis, ICG or any Person becoming the successor issuer of the
New Preferred Stock, as the case may be, shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of ICG
immediately prior to such transaction; (iv) immediately after giving
effect to such transaction on a pro forma basis ICG, or any Person
becoming the successor issuer of the New Preferred Stock, as the case may
be, could Incur at least $1.00 of Indebtedness under the first paragraph
of the "Incurrence of Indebtedness and Issuance of New Preferred Stock"
covenant; and (v) ICG delivers to the Transfer Agent an Officers'
Certificate (attaching the arithmetic computations to demonstrate
compliance with clauses (iii) and (iv) above) and an Opinion of Counsel,
in each case stating that such consolidation, merger or transfer complies
with this provision and that all conditions precedent provided for herein
relating to such transaction have been complied with; provided, however,
that clauses (iii) and (iv) above do not apply if, in the good faith
determination of the Board of Directors of ICG, whose determination shall
be evidenced by a Board Resolution, the principal purpose of such
transaction is part of a plan to change the jurisdiction of incorporation
of ICG to a different state of the United States; and provided further
that any such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
SENIOR SUBORDINATED INDEBTEDNESS
So long as any shares of New Preferred Stock are outstanding, ICG will
not Incur any Indebtedness, other than the Exchange Debentures, that is
expressly made subordinated in right of payment to any Senior
Indebtedness (as defined in the Exchange Debenture Indenture) unless such
Indebtedness, by its terms and by the terms of any agreement or
instrument pursuant to which such Indebtedness is outstanding is
expressly made pari passu with, or subordinate in right of payment to,
the Exchange Debentures pursuant to provisions substantially similar to
those contained in Article Eleven of the Exchange Debenture Indenture;
provided that the foregoing limitations shall not apply to distinctions
between categories of Senior Indebtedness that exist by reason of any
Liens or Guarantees arising or created in respect of some but not all
Senior Indebtedness.
REPORTS
So long as any shares of New Preferred Stock are outstanding, ICG
shall file with the Commission the annual reports, quarterly reports and
the information, documents and other reports required to be filed by ICG
with the Commission pursuant to Sections 13 or 15 of the Exchange Act,
whether or not ICG has or is required to have a class of securities
registered under the Exchange Act, at the time it is or would be required
to file the same with the Commission and, within 15 days after ICG is or
would be required to file such reports, information or documents with the
Commission.
EXCHANGE
ICG may exchange all, but not less than all, of the outstanding shares
of New Preferred Stock, including any shares of New Preferred Stock
issued as payment for dividends, into Exchange Debentures at any time
following the date on which such exchange is permitted by the terms of
the Notes Indenture and the 13/1//2% Notes Indenture. Presently, the
Exchange of the New Preferred Stock for Exchange Debentures would be
restricted by covenants in such indentures relating to the incurrence of
Indebtedness. There can be no assurance that the conditions in such
covenants for the exchange of New Preferred Stock for Exchange Debentures
will be satisfied or that the exchange will occur or that future
Indebtedness of ICG would not also restrict an exchange. See
"Description of New Notes". In order to effect such exchange, ICG shall
(a) if necessary to satisfy the condition set forth in clause (B) in the
following paragraph based upon the written advice of counsel to ICG, file
a registration statement with the Commission relating to the exchange,
and (b) if a registration statement is filed with the Commission pursuant
to clause (a), use its best efforts to cause such registration statement
to be declared effective as soon as practicable by the Commission unless
the opinion referred to in clause (B) in the following paragraph shall
have been subsequently delivered.
-70-
<PAGE>
Prior to initiating such exchange, ICG shall certify, to the
satisfaction of the trustees under the 13/1//2% Notes Indenture and the
Notes Indenture, that such exchange is permitted under such respective
Indentures. ICG shall also provide such Trustees with an Officer's
Certificate setting forth with specificity the basis for ICG's conclusion
that such exchange is so permitted. In order to effectuate such
exchange, ICG shall send a written notice of exchange by mail to each
holder of record of shares of New Preferred Stock, which notice shall
state (i) that ICG is exchanging the New Preferred Stock into Exchange
Debentures pursuant to the Amended Articles and (ii) the date fixed for
exchange (the "Exchange Date"), which date shall not be less than 15 days
nor more than 60 days following the date on which such notice is mailed
(except as provided in the last sentence of this paragraph). On the
Exchange Date, if the conditions set forth in clauses (A) through (E)
below are satisfied and if the exchange is then permitted under the Notes
Indenture and the 13/1//2% Notes Indenture, ICG shall issue Exchange
Debentures in exchange for the New Preferred Stock as provided in the
next paragraph, provided that on the Exchange Date: (A) there shall be
legally available funds sufficient therefor (including, without
limitation, legally available funds sufficient therefor under Section 7-
106-401 (or any successor provision) of the CBCA); (B) a registration
statement relating to the Exchange Debentures shall have been declared
effective under the Securities Act prior to such exchange and shall
continue to be effective on the Exchange Date or ICG shall have obtained
a written opinion of counsel that an exemption from the registration
requirements of the Securities Act is available for such exchange and
that upon receipt of such Exchange Debentures pursuant to such exchange
made in accordance with such exemption, each holder of an Exchange
Debenture that is not an Affiliate of ICG will not be subject to any
restrictions imposed by the Securities Act upon the resale of such
Exchange Debenture, and such exemption is relied upon by ICG for such
exchange; (C) the Exchange Debenture Indenture and the trustee thereunder
shall have been qualified under the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"); (D) immediately after giving effect
to such exchange, no Default or Event of Default (each as defined in the
Exchange Debenture Indenture) would exist under the Exchange Debenture
Indenture; and (E) ICG shall have delivered to the Trustee under the
Exchange Debenture Indenture a written opinion of counsel, dated the date
of exchange, regarding the satisfaction of the conditions set forth in
clauses (A), (B) and (C). In the event that (i) the issuance of the
Exchange Debentures is not permitted on the Exchange Date or (ii) any of
the conditions set forth in clause (A) through (E) of the preceding
sentence are not satisfied on the Exchange Date, ICG shall use its best
efforts to satisfy such conditions and effect such exchange as soon as
practicable.
Upon any exchange pursuant to the preceding paragraph, the holders of
outstanding shares of New Preferred Stock will be entitled to receive a
principal amount of Exchange Debentures for shares of New Preferred
Stock, the liquidation preference of which, plus the amount of
accumulated and unpaid dividends (including a prorated dividend for the
period from the immediately preceding dividend payment date to the date
of exchange) with respect to which, equals such principal amount. The
Exchange Debentures will be issued in registered form, without coupons.
Exchange Debentures issued in exchange for New Preferred Stock will be in
principal amounts of $1,000 and integral multiples thereof to the extent
practicable, and will also be issued in principal amounts less than
$1,000 so that each holder of New Preferred Stock will receive
certificates representing the entire principal amount of Exchange
Debentures to which its shares of New Preferred Stock entitle it,
provided that ICG may, subject to the restrictions in the Notes Indenture
and the 13/1//2% Notes Indenture and any of its other then-existing
Indebtedness, pay cash in lieu of issuing an Exchange Debenture in a
principal amount less than $1,000. On and after the date of exchange,
dividends will cease to accrue on the outstanding shares of New Preferred
Stock, and all rights of the holders of New Preferred Stock (except the
right to receive the Exchange Debentures, an amount in cash, to the
extent applicable, equal to the accrued and unpaid dividends to the
Exchange Date, and if ICG so elects, cash in lieu of any Exchange
Debenture which is in an amount that is not an integral multiple of
$1,000) will terminate. The person entitled to receive the Exchange
Debentures issuable upon such exchange will be treated for all purposes
as the registered holder of such Exchange Debentures.
IntelCom and ICG will comply with the provisions of Rule 13e-4
promulgated pursuant to the Exchange Act in connection with any exchange,
to the extent applicable.
NEW PREFERRED STOCK BOOK ENTRY; DELIVERY AND FORM
So long as DTC, or its nominee, is the registered owner or holder of a
Global New Preferred Stock Certificate, DTC or such nominee, as the case
may be, will be considered the sole owner or holder of the New
-71-
<PAGE>
Preferred Stock represented by such Global New Preferred Stock
Certificate for all purposes under the Amended Articles and the New
Preferred Stock. No beneficial owner of an interest in the Global New
Preferred Stock Certificate will be able to transfer that interest except
in accordance with DTC's applicable procedures, in addition to those
provided for under the Amended Articles.
Payments made with respect to the Global New Preferred Stock
Certificate will be made to DTC or its nominee, as the case may be, as
the registered owner thereof. ICG will have no responsibility or
liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global New Preferred
Stock or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests.
ICG expects that DTC or its nominee, upon receipt of any payments made
with respect to the Global New Preferred Stock, will credit participants'
accounts with payments in amounts proportionate to their respective
beneficial interests in the amount of such Global New Preferred Stock as
shown on the records of DTC or its nominee. ICG also expects that
payments by participants to owners of beneficial interest in such Global
New Preferred Stock held through such participants will be governed by
standing instructions and customary practices, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of
such participants.
Transfers between participants in DTC will be effected in the ordinary
way in accordance with DTC rules and will be settled in same-day funds.
The Company understands that DTC will take any action permitted to be
taken by a holder of New Preferred Stock (including the presentation of
New Preferred Stock for exchange as described below) only at the
direction of one or more participants to whose account the DTC interests
in the Global New Preferred Stock is credited and only in respect of such
portion of the aggregate liquidation preference of New Preferred Stock as
to which such participant or participants has or have given such
direction.
The Company understands: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking
organization" within the meaning of New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of
the Uniform Commercial Code and a "Clearing Agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC was created to
hold securities for its participants and facilitate the clearance and
settlement of securities transaction between participants through
electronic book entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates and certain
other organizations. Indirect access to the DTC system is available to
others such as banks, brokers, dealers and trust companies that clear
through or maintain a custodial relationship with a participant, either
directly or indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order
to facilitate transfers of interest in the Global New Preferred Stock
Certificate among participants of DTC, it is under no obligation to
perform or continue to perform such procedures, and such procedures may
be discontinued at any time. The Company will have no responsibility for
the performance by DTC or its respective participants or indirect
participants of its respective obligations under the rules and procedures
governing their operations.
CERTIFICATED NEW PREFERRED STOCK
If DTC is at any time unwilling or unable to continue as a depositary
for the Global New Preferred Stock and a successor depositary is not
appointed by ICG within 90 days, ICG will issue Certificated New
Preferred Stock in exchange for the Global New Preferred Stock
Certificate.
CERTAIN DEFINITIONS
-72-
<PAGE>
Set forth below are certain defined terms used in the Amended
Articles. Reference is made to the Amended Articles for the full
definition of such terms, as well as any other capitalized terms used
herein for which no definition is provided.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of ICG and its Restricted Subsidiaries for
such period determined in conformity with GAAP; provided that the
following items shall be excluded in computing Adjusted Consolidated Net
Income (without duplication): (i) the net income of any Person (other
than net income attributable to a Restricted Subsidiary) in which any
Person (other than ICG or any of its Restricted Subsidiaries) has a joint
interest and the net income of any Unrestricted Subsidiary, except to the
extent of the amount of dividends or other distributions actually paid to
ICG or any of its Restricted Subsidiaries by such other Person or such
Unrestricted Subsidiary during such period; (ii) solely for the purposes
of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of the "Limitation on
Restricted Payments" covenant described above (and in such case, except
to the extent includable pursuant to clause (i) above), the net income
(or loss) of any Person accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with ICG or any of its
Restricted Subsidiaries or all or substantially all of the property and
assets of such Person are acquired by ICG or any of its Restricted
Subsidiaries; (iii) the net income of any Restricted Subsidiary to the
extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is not at
the time permitted by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary; (iv)
any gains or losses (on an after-tax basis) attributable to Asset Sales;
(v) except for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described above, any amount
paid or accrued as dividends on preferred stock of ICG or any Restricted
Subsidiary owned by Persons other than ICG and any of its Restricted
Subsidiaries; and (vi) all extraordinary gains and extraordinary losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of ICG 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 ICG and its
Restricted Subsidiaries (excluding intercompany items) and (ii) all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, all as set forth on the most recently
available quarterly or annual consolidated balance sheet of ICG and its
Restricted Subsidiaries, prepared in conformity with GAAP.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract
or otherwise; provided that, with respect to ICG and any of its
Subsidiaries, the term "Affiliate" shall be deemed to include Mr. William
Becker, Mr. Lawrence Becker and any person related by blood or marriage
to either of them.
"Asset Acquisition" means (i) an investment by ICG or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of ICG or shall be merged into or
consolidated with ICG or any of its Restricted Subsidiaries; provided
that such Person's primary business is related, ancillary or
complementary to the businesses of ICG and its Restricted Subsidiaries on
the date of such investment or (ii) an acquisition by ICG or any of its
Restricted Subsidiaries of the property and assets of any Person other
than ICG or any of its Restricted Subsidiaries that constitute
substantially all of a division or line of business of such Person;
provided that the property and assets acquired are related, ancillary or
complementary to the businesses of ICG and its Restricted Subsidiaries on
the date of such acquisition.
"Asset Disposition" means the sale or other disposition by ICG or any
of its Restricted Subsidiaries (other than to ICG or another Restricted
Subsidiary of ICG) of (i) all or substantially all of the Capital Stock
of any Restricted Subsidiary of ICG or (ii) all or substantially all of
the assets that constitute a division or line of business of ICG or any
of its Restricted Subsidiaries.
-73-
<PAGE>
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transactions) in one
transaction or a series of related transactions by ICG or any of its
Restricted Subsidiaries to any Person other than ICG 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 ICG or any of its Restricted
Subsidiaries or (iii) any other property and assets of ICG or any of its
Restricted Subsidiaries outside the ordinary course of business of ICG or
such Restricted Subsidiary and, in each case, that is not governed by the
provisions described under "--Merger, Consolidation and Sale of Assets,"
provided that the meaning of "Asset Sale" shall not include (A) sales or
other dispositions of inventory, receivables and other current assets,
and (B) dispositions of assets of ICG or any of its Restricted
Subsidiaries, in substantially simultaneous exchanges for consideration
consisting of any combination of cash, Temporary Cash Investments and
assets that are used or useful in the telecommunications business of ICG
or its Restricted Subsidiaries, if such consideration has an aggregate
fair market value substantially equal to the fair market value of the
assets so disposed of; provided, however, that fair market value shall be
determined in good faith by the Board of Directors of ICG, whose
determination shall be conclusive and evidenced by a Board Resolution
delivered to the Transfer Agent.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from such date of determination to
the dates of each successive scheduled principal payment of such debt
security and (b) the amount of such principal payment by (ii) the sum of
all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether now
outstanding or issued after the date of the Amended Articles, including,
without limitation, all Common Stock and preferred stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in
conformity with GAAP, is required to be capitalized on the balance sheet
of such Person; and "Capitalized Lease Obligations" means the discounted
present value of the rental obligations under such lease.
"Closing Date" means the date the New Preferred Stock is originally
issued under the Amended Articles.
"Consolidated EBITDA" means, for any period, the sum of the amounts
for such period of (i) Adjusted Consolidated Net Income, (ii)
Consolidated Interest Expense, (iii) income taxes, to the extent such
amount was deducted in calculating Adjusted Consolidated Net Income
(other than income taxes (either positive or negative) attributable to
extraordinary and non-recurring gains or losses or sales of assets), (iv)
depreciation expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, (v) amortization expense,
to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, and (vi) all other non-cash items reducing
Adjusted Consolidated Net Income (other than items that will require cash
payments and for which an accrual or reserve is, or is required by GAAP
to be, made), less all non-cash items increasing Adjusted Consolidated
Net Income, all as determined on a consolidated basis for ICG and its
Restricted Subsidiaries in conformity with GAAP; provided that, if any
Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced
in accordance with GAAP) by an amount equal to (A) the amount of the
Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the quotient of (1) the number of shares of
outstanding Common Stock of such Restricted Subsidiary not owned on the
last day of such period by ICG or any of its Restricted Subsidiaries
divided by (2) the total number of shares of outstanding Common Stock of
such Restricted Subsidiary on the last day of such period.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness and the interest portion of
any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and
other fees and charges owed with respect to letters of credit and
bankers' acceptance financing; the net costs associated with Interest
Rate Agreements; and Indebtedness that is Guaranteed or secured by ICG or
any of its Restricted Subsidiaries) and all but the principal component
of rentals in respect of Capitalized
-74-
<PAGE>
Lease Obligations paid, accrued or scheduled to be paid or to be accrued
by ICG and its Restricted Subsidiaries during such period; excluding,
however, without duplication, (i) any amount of such interest of any
Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income pursuant
to clause (iii) of the definition thereof (but only in the same
proportion as the net income of such Restricted Subsidiary is excluded
from the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof) and (ii) any premiums, fees and
expenses (and any amortization thereof) payable in connection with the
offering of the 13/1//2% Notes and the warrants issued therewith, the New
Notes and/or the New Preferred Stock, all as determined on a consolidated
basis (without taking into account Unrestricted Subsidiaries) in
conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available
quarterly or annual consolidated balance sheet of ICG and its Restricted
Subsidiaries (which shall be as of a date not more than 90 days prior to
the date of such computation, and which shall not take into account
Unrestricted Subsidiaries), less any amounts attributable to Redeemable
Stock or any equity security convertible into or exchangeable for
Indebtedness, the cost of treasury stock and the principal amount of any
promissory notes receivable from the sale of the Capital Stock of ICG or
any of its Restricted Subsidiaries, each item to be determined in
conformity with GAAP (excluding the effects of foreign currency exchange
adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to
protect ICG or any of its Restricted Subsidiaries against fluctuations in
currency values to or under which ICG or any of its Restricted
Subsidiaries is a party or a beneficiary on the Closing Date or becomes a
party or a beneficiary thereafter.
"FOTI" means Fiber Optic Technologies Inc., a Colorado corporation.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of August 8, 1995, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All
ratios and computations contained in the Indenture shall be computed in
conformity with GAAP applied on a consistent basis, except that
calculations made for purposes of determining compliance with the terms
of the covenants and with other provisions of the Indenture shall be made
without giving effect to (i) the amortization of any expenses incurred in
connection with the offering of the 13/1// 2% Notes and the warrants
issued therewith, the New Notes and/or the New Preferred Stock and (ii)
except as otherwise provided, the amortization of any amounts required or
permitted by Accounting Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of
the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Indebtedness or other
obligation of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided that the term
"Guarantee" shall not include endorsements for collection or deposit in
the ordinary course of business. The term "Guarantee" used as a verb has
a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise,
such Indebtedness, including an Incurrence of Indebtedness by reason of
the acquisition of more than 50% of the Capital Stock of any Person;
provided that neither the accrual of interest nor the accretion of
original issue discount shall be considered an Incurrence of
Indebtedness.
-75-
<PAGE>
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person
for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect
thereto), (iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services, which purchase price is
due more than six months after the date of placing such property in
service or taking delivery and title thereto or the completion of such
services, except Trade Payables, (v) all obligations of such Person as
lessee under Capitalized Leases, (vi) all Indebtedness of other Persons
secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such
asset at such date of determination and (B) the amount of such
Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such
Person to the extent such Indebtedness is Guaranteed by such Person and
(viii) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above
and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, provided
(i) that the amount outstanding at any time of any Indebtedness issued
with original issue discount is the original issue price of such
Indebtedness and (ii) that Indebtedness shall not include any liability
for federal, state, local or other taxes.
"Indebtedness to EBITDA Ratio" means, as at any date of determination,
the ratio of (i) the aggregate amount of Indebtedness of ICG and its
Restricted Subsidiaries on a consolidated basis ("Consolidated
Indebtedness") as at the date of determination (the "Transaction Date")
to (ii) the Consolidated EBITDA of ICG for the then most recent four full
fiscal quarters for which reports have been filed pursuant to the
"Reports" covenant described above (such four full fiscal quarter period
being referred to herein as the "Four Quarter Period"); provided that (x)
pro forma effect shall be given to any Indebtedness Incurred from the
beginning of the Four Quarter Period through the Transaction Date
(including any Indebtedness Incurred on the Transaction Date), to the
extent outstanding on the Transaction Date, (y) if during the period
commencing on the first day of such Four Quarter Period through the
Transaction Date (the "Reference Period"), ICG or any of the Restricted
Subsidiaries shall have engaged in any Asset Sale, Consolidated EBITDA
for such period shall be reduced by an amount equal to the EBITDA (if
positive), or increased by an amount equal to the EBITDA (if negative),
directly attributable to the assets which are the subject of such Asset
Sale and any related retirement of Indebtedness as if such Asset Sale and
related retirement of Indebtedness had occurred on the first day of such
Reference Period or (z) if during such Reference Period ICG or any of the
Restricted Subsidiaries shall have made any Asset Acquisition,
Consolidated EBITDA of ICG shall be calculated on a pro forma basis as if
such Asset Acquisition and any related financing had occurred on the
first day of such Reference Period. In calculating this ratio for
purposes of the Amended Articles, the amount of outstanding Indebtedness
shall be deemed to include the liquidation preference of any preferred
stock then outstanding.
"IntelCom" means IntelCom Group Inc. and its successors and assigns.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of
Guarantee or similar arrangement; but excluding advances to customers in
the ordinary course of business that are, in conformity with GAAP,
recorded as accounts receivable on the balance sheet of ICG or its
Restricted Subsidiaries) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase or
acquisition of Capital Stock, bonds, notes, debentures or other similar
instruments issued by, such Person and shall include the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary. For purposes of the
definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described above, (i) "Investment" shall include the
fair market value of the assets (net of liabilities) of any Restricted
Subsidiary of ICG at the time that such Restricted Subsidiary of ICG is
designated an Unrestricted Subsidiary and shall exclude the fair market
value of the assets (net of liabilities) of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary of ICG and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the
time of such transfer, in each case as determined by the Board of
Directors in good faith.
-76-
<PAGE>
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the
nature thereof, any sale with recourse against the seller or any
Affiliate of the seller, or any agreement to give any security interest).
"MTN" means Maritime Telecommunications Network, Inc., a Colorado
corporation, and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the
extent corresponding to the principal, but not interest, component
thereof) when received in the form of cash or cash equivalents (except to
the extent such obligations are financed or sold with recourse to ICG or
any Restricted Subsidiary of ICG) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net
of (i) brokerage commissions and other fees and expenses (including fees
and expenses of counsel and investment bankers) related to such Asset
Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without
regard to the consolidated results of operations of ICG 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 ICG or any Restricted Subsidiary of
ICG 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 ICG or any Restricted Subsidiary of
ICG) 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 shares of New Preferred
Stock by ICG from the Holders commenced by mailing a notice to the
Transfer Agent and each Holder stating: (i) the covenant pursuant to
which the offer is being made and that all shares of New Preferred Stock
validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business
Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date"); (iii) that any shares of New
Preferred Stock not tendered will continue to accrue dividends pursuant
to its terms; (iv) that, unless ICG defaults in the payment of the
purchase price, any shares of New Preferred Stock accepted for payment
pursuant to the Offer to Purchase shall cease to accrue dividends on and
after the Payment Date; (v) that Holders electing to have an shares of
New Preferred Stock purchased pursuant to the Offer to Purchase will be
required to surrender the shares of New Preferred Stock together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse
side of the shares of New Preferred Stock 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
liquidation preference of the shares of New Preferred Stock delivered for
purchase and a statement that such Holder is withdrawing his election to
have such shares of New Preferred Stock purchased; and (vii) that Holders
whose shares of New Preferred Stock are being purchased only in part will
be issued new shares of New Preferred Stock equal in the liquidation
preference of the shares of New Preferred Stock surrendered; provided
that each share of New Preferred Stock purchased and each new share of
New Preferred Stock issued shall be in a principal amount of $1,000 or
integral multiples thereof. On the Payment Date, ICG shall (i) accept
for payment on a pro rata basis shares of New Preferred Stock or portions
thereof tendered pursuant to an Offer to Purchase; (ii) deposit with the
Paying Agent money sufficient to pay the purchase price of all shares of
New Preferred Stock or portions thereof, so accepted; and (iii) deliver,
or cause to be delivered, to the Transfer Agent all shares of New
Preferred Stock or portions thereof, so accepted together with an
Officers' Certificate specifying the shares of New Preferred Stock or
portions thereof accepted for payment by ICG. The Paying Agent
-77-
<PAGE>
shall promptly mail to the Holders of shares of New Preferred Stock so
accepted, payment in an amount equal to the purchase price, and the
Transfer Agent shall promptly authenticate and mail to such Holders new
shares of New Preferred Stock equal in liquidation preference to any
unpurchased portion of the shares of New Preferred Stock surrendered;0
provided that each share of New Preferred Stock purchased and each new
share of New Preferred Stock issued shall be in a principal amount of
$1,000 or integral multiples thereof. ICG will publicly announce the
results of an Offer to Purchase as soon as practicable after the Payment
Date. The Transfer Agent shall act as the Paying Agent for an Offer to
Purchase. ICG 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 ICG is required to
repurchase shares of New Preferred Stock pursuant to an Offer to
Purchase.
"Ohio LINX" means ICG Ohio LINX, Inc., an Ohio corporation.
"Permitted Investment" means (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment,
become a Restricted Subsidiary or be merged or consolidated with or into
or transfer or convey all or substantially all its assets to, ICG or a
Restricted Subsidiary; provided that such person's primary business is
related, ancillary or complementary to the businesses of ICG and its
Restricted Subsidiaries on the date of such Investment; (ii) a Temporary
Cash Investment; (iii) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be
treated as expenses in accordance with GAAP; (iv) loans or advances to
employees made in the ordinary course of business in accordance with past
practice of ICG or its Restricted Subsidiaries and that do not in the
aggregate exceed $2 million at any time outstanding; (v) stock,
obligations or securities received in satisfaction of judgments; and (vi)
Indebtedness of IntelCom owed to ICG, in an amount not to exceed the
reasonable expenses of IntelCom as a holding company that are actually
incurred, and paid, by IntelCom; provided that such Indebtedness of
IntelCom is evidenced by an unsubordinated promissory note that provides
that it will be paid prior to any mandatory redemption of the New
Preferred Stock if such payment would be necessary to effectuate such
redemption.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for
which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made; (ii) statutory
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other similar Liens arising in the ordinary
course of business and with respect to amounts not yet delinquent or
being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (iv) Liens
incurred or deposits made to secure the performance of tenders, bids,
leases, statutory or regulatory obligations, bankers' acceptances, surety
and appeal bonds, government contracts, performance and return-of-money
bonds and other obligations of a similar nature incurred in the ordinary
course of business (exclusive of obligations for the payment of borrowed
money); (v) easements, rights of way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of ICG
or any of its Restricted Subsidiaries; (vi) Liens (including extensions
and renewals thereof) upon real or personal property acquired after the
Closing Date; provided that (a) such Lien is created solely for the
purpose of securing Indebtedness Incurred, in accordance with the
"Incurrence of Indebtedness and Issuance of New Preferred Stock" covenant
described above, (1) to finance the cost (including the cost of
improvement or construction) of the item of property or assets subject
thereto and such Lien is created prior to, at the time of or within six
months after the later of the acquisition, the completion of construction
or the commencement of full operation of such property or (2) to
refinance any Indebtedness previously so secured, (b) the principal
amount of the Indebtedness secured by such Lien does not exceed 100% of
such cost and (c) any such Lien shall not extend to or cover any property
or assets other than such item of property or assets and any improvements
on such item; (vii) leases or subleases granted to others that do not
materially interfere with the ordinary course of business of ICG 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 ICG or its Restricted Subsidiaries relating to
such property or assets; (ix) any interest or title of a lessor in the
property subject to any Capitalized Lease or operating lease; (x) Liens
arising from filing Uniform Commercial Code financing statements
regarding leases; (xi) Liens on property of, or on shares of
-78-
<PAGE>
stock or Indebtedness of, any corporation existing at the time such
corporation becomes, or becomes a part of, any Restricted Subsidiary;
provided that such Liens do not extend to or cover any property or assets
of ICG or any Restricted Subsidiary other than the property or assets
acquired; (xii) Liens in favor of ICG or any Restricted Subsidiary;
(xiii) Liens arising from the rendering of a final judgment or order
against ICG or any Restricted Subsidiary of ICG that does not give rise
to an Event of Default; (xiv) Liens securing reimbursement obligations
with respect to letters of credit that encumber documents and other
property relating to such letters of credit and the products and proceeds
thereof; (xv) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection with
the importation of goods; (xvi) Liens encumbering customary initial
deposits and margin deposits, and other Liens that are either within the
general parameters customary in the industry and incurred in the ordinary
course of business, in each case, securing Indebtedness under Interest
Rate Agreements and Currency Agreements and forward contracts, options,
future contracts, futures options or similar agreements or arrangements
designed to protect ICG or any of its Restricted Subsidiaries from
fluctuations in the price of commodities; (xvii) Liens arising out of
conditional sale, title retention, consignment or similar arrangements
for the sale of goods entered into by ICG or any of its Restricted
Subsidiaries in the ordinary course of business in accordance with the
past practices of ICG and its Restricted Subsidiaries prior to the
Closing Date; and (xviii) Liens on or sales of receivables.
"Preferred stock" or "preferred stock" means, with respect to any
Person, any and all shares, interests, participations or other
equivalents (however designated, whether voting or non-voting) of such
Person's preferred or preference stock, whether now outstanding or issued
after the date of the Amended Articles, including, without limitation,
all series and classes of such preferred or preference stock.
"Public Equity Offering" means a bona fide underwritten primary public
offering of Common Stock of IntelCom or ICG pursuant to an effective
registration statement under the Securities Act.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed
prior to the mandatory redemption date of the shares of New Preferred
Stock, (ii) redeemable at the option of the holder of such class or
series of Capital Stock at any time prior to the mandatory redemption
date of the shares of New Preferred Stock, or (iii) convertible into or
exchangeable for Capital Stock referred to in clause (i) or (ii) above or
Indebtedness having a scheduled maturity prior to the mandatory
redemption date of the shares of New Preferred Stock; provided that any
Capital Stock that would not constitute Redeemable Stock but for
provisions thereof giving holders thereof the right to require such
Person to repurchase or redeem such Capital Stock upon the occurrence of
a "change of control" occurring prior to the mandatory redemption date of
the shares of New Preferred Stock shall not constitute Redeemable Stock
if the "change of control" provisions applicable to such Capital Stock
are no more favorable to the holders of such Capital Stock than the
provisions contained in the "Change of Control" covenant described above
and such Capital Stock specifically provides that such Person will not
repurchase or redeem any such stock pursuant to such provision prior to
ICG's repurchase of New Preferred Stock as described above under "--
Change of Control."
"Restricted Subsidiary" means any Subsidiary of ICG other than an
Unrestricted Subsidiary.
"New Notes" means the New Notes Due 2006 of ICG, guaranteed by
IntelCom on a senior unsecured basis and issued on the Closing Date.
"Notes Indenture" means the Indenture dated as of the Closing Date
among ICG, IntelCom and the Trustee pursuant to which the New Notes are
issued.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary of ICG that, together with its Subsidiaries, (i)
for the most recent fiscal year of ICG, accounted for more than 10% of
the consolidated revenues of ICG 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 ICG and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of
ICG for such fiscal year.
-79-
<PAGE>
"StarCom" means StarCom International Optics Corporation, a British
Columbia corporation, and its subsidiaries.
"Strategic Investor" means any Person engaged in the
telecommunications business which has a net worth or equity market
capitalization of at least $1 billion.
"Strategic Investor Subordinated Indebtedness" means all Indebtedness
of ICG owed to a Strategic Investor that is contractually subordinate in
right of payment to the shares of New Preferred Stock to at least the
following extent: no payment of principal (or premium, if any) or
interest on or otherwise payable in respect of such Indebtedness may be
made (whether as a result of a default or otherwise) prior to the payment
in full of all of ICG's obligations under the shares of New Preferred
Stock; provided, however, that prior to the payment of such obligations,
interest on Strategic Investor Subordinated Indebtedness may be payable
solely in kind or in common stock (other than Redeemable Stock) of
IntelCom or ICG.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of
America or any agency thereof, (ii) time deposit accounts, certificates
of deposit and money market deposits maturing within 270 days of the date
of acquisition thereof, bankers' acceptances with maturities not
exceeding 270 days, and overnight bank deposits, in each case issued by
or with a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $100
million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by
at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund
sponsored by a registered broker dealer or mutual fund distributor, (iii)
repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii)
above, (iv) commercial paper, maturing not more than 180 days after the
date of acquisition, issued by a corporation (other than an Affiliate of
the Guarantor) organized and in existence under the laws of the United
States of America, any state thereof or any foreign country recognized by
the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard &
Poor's Ratings Group, and (v) securities with maturities of six months or
less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States
of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.
"13 1/2% Notes" means the 13 1/2% Notes Due 2005 of ICG guaranteed by
IntelCom on a senior unsecured basis.
"13 1/2% Notes Indenture" means Indenture dated as of August 8, 1995
among ICG, the Guarantor and the Trustee pursuant to which ICG issued the
13 1/2% Notes.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by ICG or any of its Restricted Subsidiaries or the Issuance
of any Redeemable Stock of ICG, 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 ICG that at the
time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may
designate any Restricted Subsidiary of ICG (including any newly acquired
or newly formed Subsidiary of ICG), other than ICG or a Subsidiary that
has given a Subsidiary Guarantee, to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds
-80-
<PAGE>
any Lien on any property of, ICG or any Restricted Subsidiary; provided
that either (A) the Subsidiary to be so designated has total assets of
$1,000 or less or (B) if such Subsidiary has assets greater than $1,000,
that such designation would be permitted under the "Limitation on
Restricted Payments" covenant described above. The Board of Directors
may designate any Unrestricted Subsidiary to be a Restricted Subsidiary
of ICG; provided that immediately after giving effect to such designation
(x) ICG could Incur $1.00 of additional Indebtedness under the first
paragraph of the "Incurrence of Indebtedness and Issuance of New
Preferred Stock" covenant described above and (y) no Default or Event of
Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the Transfer Agent by
promptly filing with the Transfer Agent a copy of the Board Resolution
giving effect to such designation and an Officers' Certificate certifying
that such designation complied with the foregoing provisions.
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
such Subsidiary if all of the outstanding Capital Stock in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned by such Person or
one or more Wholly Owned Subsidiaries of such Person.
"Zycom" means Zycom Corporation, an Alberta, Canada corporation.
-81-
<PAGE>
DESCRIPTION OF EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be issued under the Exchange
Debenture Indenture among ICG, IntelCom, as guarantor, and Norwest Bank
Colorado, National Association, as trustee or such other trustee as may
qualify under the Trust Indenture Act and be selected by ICG (the
"Trustee"). A copy of the form of Exchange Debenture Indenture is
available from the Company upon request. The terms of the Exchange
Debentures include those stated in the Exchange Debenture Indenture and
those made part of the Exchange Debenture Indenture by reference to the
Trust Indenture Act. Prospective holders of the Exchange Debentures are
referred to the Exchange Debenture Indenture and the Trust Indenture Act
for a statement of such terms. The following summary of certain
provisions of the Exchange Debenture Indenture does not purport to be
complete and is subject to, and is qualified in its entirety by reference
to, the Trust Indenture Act and to all of the provisions of the Exchange
Debenture Indenture, including the definitions of certain terms therein
and those terms made a part of the Exchange Debenture Indenture by
reference to the Trust Indenture Act. The definitions of certain terms
used in the Exchange Debenture Indenture and in the following summary are
set forth below under "--Certain Definitions." References herein to "$"
refers to U.S. dollars.
IntelCom's Board of Directors has adopted a plan under which IntelCom
will become a subsidiary of a new, publicly traded Delaware corporation
("Newco"). If such transaction is completed, references to "IntelCom"
herein shall be deemed to also refer to Newco. In addition, Newco will
fully and unconditionally guarantee ICG's obligations under the Exchange
Debentures on a senior subordinated basis. Upon completion of the
transaction whereby IntelCom becomes a subsidiary of Newco, references
herein to "Guarantor" shall be deemed to also refer to Newco.
GENERAL
The Exchange Debentures will be general unsecured obligations of ICG
and will be limited in aggregate principal amount to the aggregate
liquidation preference of the New Preferred Stock (including shares of
New Preferred Stock issued in payment of dividends), plus accrued and
unpaid dividends, on the date of exchange of the New Preferred Stock into
Exchange Debentures (plus any additional Exchange Debentures issued in
lieu of cash interest as described herein). The Exchange Debentures will
be issued in fully registered form only in denominations of $1,000 and
integral multiples thereof (other than as described in "Description of
New Preferred Stock--Exchange" or with respect to additional Exchange
Debentures issued in lieu of cash interest as described herein). The
Exchange Debentures will be senior subordinated obligations of ICG,
subordinated to all existing and future Senior Indebtedness of ICG and
senior to all subordinated obligations of ICG.
Principal of, and premium, if any, and interest on the Exchange
Debentures will be payable, and the Exchange Debentures may be presented
for registration of transfer or exchange, at the office of the Paying
Agent and Registrar. At ICG's option, interest, to the extent paid in
cash, may be paid by check mailed to the registered address of Holders of
the Exchange Debentures as shown on the register for the Exchange
Debentures. The Trustee will initially act as Paying Agent and
Registrar. ICG may change any Paying Agent and Registrar without prior
notice to Holders of the Exchange Debentures. Holders of the Exchange
Debentures must surrender Exchange Debentures to the Paying Agent to
collect principal payments.
The Exchange Debentures will mature on May 1, 2007. Each Exchange
Debenture will bear interest at the rate of 14/1//4% per annum from the
Exchange Debenture Issue Date or from the most recent interest payment
date to which interest has been paid or provided for. Interest will be
payable semiannually in cash (or, on or prior to May 1, 2001, at the
option of ICG, in additional Exchange Debentures, subject to the
restrictions contained in the Notes Indenture, the 13/1//2% Notes
Indenture and any other agreement of ICG or IntelCom) in arrears on each
of May 1 and November 1 commencing with the first such date after the
Exchange Debenture Issue Date. Interest on the Exchange Debentures will
be computed on the basis of a 360-day year of twelve 30-day months and
the actual number of days elapsed.
Because of ICG's option through May 1, 2001 to pay interest on the
Exchange Debentures by issuing additional Exchange Debentures, any
Exchange Debentures issued prior to that date will be treated as issued
with
-82-
<PAGE>
OID, unless under special rules for interest holidays the amount of OID
is treated as de minimis. See "Certain United States Federal Income Tax
Consequences."
GUARANTEE
ICG's obligations under the Exchange Debentures will be fully and
unconditionally guaranteed (the "Debenture Guarantee") on a senior
subordinated basis by IntelCom (in such context, the "Guarantor");
provided that the Debenture Guarantee shall not be enforceable against
the Guarantor in an amount in excess of the net worth of the Guarantor at
the time that determination of such net worth is, under applicable law,
relevant to the enforceability of such Debenture Guarantee. Such net
worth shall include any claim of the Guarantor against ICG for
reimbursement.
ADDITIONAL AMOUNTS
Any payments made by IntelCom under or with respect to the Exchange
Debentures pursuant to the Debenture Guarantee will be made free and
clear of and without withholding or deduction for or on account of any
present or future tax, duty, levy, impost, assessment or other
governmental charge (including penalties, interest and other liabilities
related thereto) imposed or levied by or on behalf of the Government of
Canada or of any province or territory thereof or by any authority or
agency therein or thereof having power to tax (hereinafter, "Taxes"),
unless IntelCom is required to withhold or deduct Taxes by law or by the
interpretation or administration thereof. If IntelCom is required to
withhold or deduct any amount for or on account of Taxes from any payment
made under or with respect to the Exchange Debentures, IntelCom will pay
such additional amounts ("Additional Amounts") as may be necessary, so
that the net amount received by each Holder of Exchange Debentures
(including Additional Amounts) after such withholding or deduction will
not be less than the amount such Holder would have received if such Taxes
had not been withheld or deducted; provided, however, that no Additional
Amounts will be payable with respect to a payment made to a Holder (an
"Excluded Holder") (i) with which IntelCom does not deal at arm's length
(within the meaning of the Income Tax Act (Canada)) at the time of making
such payment, or (ii) which is subject to such Taxes by reason of its
being connected with Canada or any province or territory thereof
otherwise than solely by reason of the Holder's activity in connection
with purchasing the Exchange Debentures, by the mere holding of Exchange
Debentures or by reason of the receipt of payments thereunder. IntelCom
will upon written request of any Holder (other than an Excluded Holder),
reimburse such Holder, for the amount of (i) any Taxes so levied or
imposed and paid by such Holder as a result of payments made under or
with respect to the Exchange Debentures and (ii) any Taxes so levied or
imposed with respect to any reimbursement under the foregoing clause (i),
but excluding any such Taxes on such Holder's net income so that the net
amount received by such Holder after such reimbursement will not be less
than the net amount the Holder would have received if Taxes on such
reimbursement had not been imposed.
At least 30 days prior to each date on which any payment under or with
respect to the Exchange Debentures is due and payable, if IntelCom will
be obligated to pay Additional Amounts with respect to such payment,
IntelCom will deliver to the Trustee an Officers' Certificate stating the
fact that such Additional Amounts will be payable and the amounts so
payable and will set forth such other information necessary to enable the
Trustee to pay such Additional Amounts to Holders on the payment date.
Whenever either in the Exchange Debenture Indenture, any Exchange
Debenture or in this Memorandum there is mentioned, in any context, the
payment of principal (and premium, if any), Redemption Price, interest or
any other amount payable under or with respect to any Exchange Debenture,
such mention shall be deemed to include mention of the payment of
Additional Amounts to the extent that, in such context, Additional
Amounts are, were or would be payable in respect thereof.
In the event that (i) IntelCom has become or would become obligated to
pay, on the next date on which any amount would be payable under or with
respect to the Exchange Debentures, any Additional Amounts as a result of
certain changes affecting Canadian withholding tax laws, and (ii)
IntelCom cannot reasonably arrange for another obligor to make such
payment so as to avoid the requirement to pay such Additional Amounts,
then IntelCom may redeem all, but not less than all, the Exchange
Debentures at any time at 100% of the principal amount thereof, together
with accrued interest thereon, if any, to the redemption date. See "--
Optional Redemption."
-83-
<PAGE>
SUBORDINATION AND RANKING
The Exchange Debentures will be senior subordinated Indebtedness of
ICG, subordinated to the prior payment when due of the principal of, and
premium, if any, and accrued and unpaid interest on, all existing and
future Senior Indebtedness of ICG and senior to the prior payment when
due of the principal of, and premium, if any, and accrued and unpaid
interest on, all subordinated Indebtedness of ICG. IntelCom's guarantee
of the Exchange Debentures will be senior subordinated Indebtedness of
IntelCom, subordinated to the prior payment when due of the principal of,
and premium, if any, and accrued and unpaid interest on, all existing and
future Senior Guarantor Indebtedness of IntelCom and senior to the prior
payment when due of the principal of, and premium, if any and accrued and
unpaid interest on, all subordinated Indebtedness of IntelCom.
Upon (a) any distribution to creditors of ICG in a liquidation or
dissolution of ICG or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to ICG or its property or (b)
an assignment for the benefit of creditors or any marshalling of ICG's
assets and liabilities, the holders of Senior Indebtedness shall be
entitled to receive payment in full of all Obligations due in respect of
such Senior Indebtedness (including interest after the commencement of
any such proceeding at the rate specified in the applicable Senior
Indebtedness) before holders of the Exchange Debentures shall be entitled
to receive any payment with respect to the Exchange Debentures. Until
all Obligations with respect to Senior Indebtedness are paid in full, any
distribution to which holders of the Exchange Debentures would be
entitled shall be made to holders of Senior Indebtedness.
Notwithstanding the foregoing, holders of the Exchange Debentures may
receive securities that are subordinated, at least to the same extent as
the Exchange Debentures, to Senior Indebtedness and any securities issued
in exchange for Senior Indebtedness.
In addition, ICG may not make any payment upon or in respect of the
Exchange Debentures (except in such subordinated securities) if (a) a
default in the payment of any principal, premium, if any, interest or
other Obligations with respect to any Designated Senior Indebtedness
occurs and is continuing beyond any applicable grace period (whether upon
maturity, as a result of acceleration or otherwise) or (b) any other
default occurs and is continuing with respect to any Designated Senior
Indebtedness that permits holders of such Designated Senior Indebtedness
to accelerate its maturity, and ICG and the Trustee receive a notice of
such default (a "Payment Blockage Notice") from the holders, or from the
trustee, agent or other representative of the holders, of any such
Designated Senior Indebtedness. Payments on the Exchange Debentures may
and shall be resumed upon the earlier of (i) the date upon which the
default is cured or waived or (ii) in the case of a default referred to
in clause (b) above, 179 days after the date on which the applicable
Payment Blockage Notice is received, unless the maturity of any
Designated Senior Indebtedness has been accelerated. No new period of
payment blockage may be commenced within 360 days after the receipt by
the Trustee of any prior Payment Blockage Notice. No nonpayment default
that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice unless such default shall have been
cured or waived for a period of not less than 180 days.
Upon (a) any distribution to creditors of IntelCom in a liquidation or
dissolution of IntelCom or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to IntelCom or its property
or (b) an assignment for the benefit of creditors or any marshalling of
IntelCom's assets and liabilities, the holders of Senior Guarantor
Indebtedness shall be entitled to receive payment in full of all
Obligations due in respect of such Senior Guarantor Indebtedness
(including interest after the commencement of any such proceeding at the
rate specified in the applicable Senior Guarantor Indebtedness) before
holders of the Exchange Debentures shall be entitled to receive any
payment with respect to the Exchange Debentures. Until all Obligations
with respect to Senior Guarantor Indebtedness are paid in full, any
distribution to which holders of the Exchange Debentures would be
entitled shall be made to holders of Senior Guarantor Indebtedness.
Notwithstanding the foregoing, holders of the Exchange Debentures may
receive securities that are subordinated, at least to the same extent as
the Exchange Debentures, to Senior Guarantor Indebtedness and any
securities issued in exchange for Senior Guarantor Indebtedness.
IntelCom may not make any payment upon or in respect of its Debenture
Guarantee (except in subordinated securities described in the second
paragraph above) if (a) a default in the payment of any principal,
premium, if any,
-84-
<PAGE>
interest or other Obligations with respect to any Designated Senior
Guarantor Indebtedness occurs and is continuing beyond any applicable
grace period (whether upon maturity, as a result of acceleration or
otherwise) or (b) any other default occurs and is continuing with respect
to any Designated Senior Guarantor Indebtedness that permits holders of
such Designated Senior Guarantor Indebtedness to accelerate its maturity,
and IntelCom and the Trustee receive a notice of such default (a
"Guarantor Payment Blockage Notice") from the holders, or from the
trustee, agent or other representative of the holders, of any such
Designated Senior Guarantor Indebtedness. Payments on the Exchange
Debentures may and shall be resumed upon the earlier of (i) the date upon
which the default is cured or waived or (ii) in the case of a default
referred to in clause (b) above, 179 days after the date on which the
applicable Guarantor Payment Blockage Notice is received, unless the
maturity of any Designated Senior Guarantor Indebtedness has been
accelerated. No new period of payment blockage may be commenced within
360 days after the receipt by the Trustee of any prior Guarantor Payment
Blockage Notice. No nonpayment default that existed or was continuing on
the date of delivery of any Guarantor Payment Blockage Notice to the
Trustee shall be, or be made, the basis for a subsequent Guarantor
Payment Blockage Notice unless such default shall have been cured or
waived for a period of not less than 180 days.
The Exchange Debenture Indenture will further require that ICG
promptly notify holders of Senior Indebtedness if payment on the Exchange
Debentures is accelerated because of an Event of Default.
"Designated Senior Indebtedness" under the Exchange Debenture
Indenture is defined to mean the Indebtedness specified in clause (i)(A)
of the definition of Senior Indebtedness and any Indebtedness
constituting Senior Indebtedness that, at the date of determination, has
an aggregate principal amount of at least $25 million and that is
specifically designated by ICG in the instrument creating or evidencing
such Senior Indebtedness as "Designated Senior Indebtedness."
"Designated Senior Guarantor Indebtedness" under the Exchange
Debenture Indenture is defined to mean the Indebtedness specified in
clause (i)(A) of the definition of Senior Guarantor Indebtedness and any
Indebtedness constituting Senior Guarantor Indebtedness that, at the date
of determination, has an aggregate principal amount of at least $25
million and that is specifically designated by the Guarantor in the
instrument creating or evidencing such Senior Guarantor Indebtedness as
"Designated Guarantor Senior Indebtedness."
"Senior Guarantor Indebtedness" means (i) Indebtedness of the
Guarantor under its Guarantee of the New Notes and its Guarantee under
the Notes Indenture, its Guarantee of the 13/1//2% Notes and its
Guarantee under the 13/1//2% Notes Indenture and all fees, expenses and
indemnities payable in connection with any of the foregoing and (ii) all
other Indebtedness of the Guarantor (other than the Debenture Guarantee),
including principal and interest on such Indebtedness, unless such
Indebtedness, by its terms or by the terms of any agreement or instrument
pursuant to which such Indebtedness is issued, is pari passu with, or
subordinated in right of payment to, the Debenture Guarantee; provided
that the term "Senior Guarantor Indebtedness" shall not include (a) any
Indebtedness of the Guarantor that, when Incurred and without respect to
any election under Section 1111(b) of the United States Bankruptcy Code,
was without recourse to the Guarantor, (b) any Indebtedness of the
Guarantor to a Subsidiary of the Guarantor or to a joint venture in which
the Guarantor has an interest, (c) any Indebtedness of the Guarantor, to
the extent not permitted by the "Limitation on Indebtedness" or the
"Senior Subordinated Indebtedness" covenants described below, (d) any
repurchase, redemption or other obligation in respect of Redeemable
Stock, (e) any Indebtedness to any employee of the Guarantor or any of
its Subsidiaries, (f) any liability for federal, state, local or other
taxes owed or owing by the Guarantor, (g) the Guarantor's obligations
with respect to the Convertible Subordinated Notes or (h) any trade
payables. Senior Indebtedness will also include interest accruing
subsequent to events of bankruptcy of the Guarantor at the rate provided
for in the document governing such Senior Guarantor Indebtedness, whether
or not such interest is an allowed claim enforceable against the debtor
in a bankruptcy case under federal bankruptcy law.
"Senior Indebtedness" means (i) Indebtedness of ICG under the New
Notes and the Notes Indenture, the 13/1//2% Notes and the 13/1//2 % Notes
Indenture and all fees, expenses and indemnities payable in connection
with any of the foregoing and (ii) all other Indebtedness of ICG (other
than the Exchange Debentures), including principal and interest on such
Indebtedness, unless such Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such Indebtedness is
issued, is pari passu with, or subordinated in right of payment
-85-
<PAGE>
to, the Exchange Debentures; provided that the term "Senior Indebtedness"
shall not include (a) any Indebtedness of ICG that, when Incurred and
without respect to any election under Section 1111(b) of the United
States Bankruptcy Code, was without recourse to ICG, (b) any Indebtedness
of ICG to a Subsidiary of ICG or to a joint venture in which ICG has an
interest, (c) any Indebtedness of ICG, to the extent not permitted by the
"Limitation on Indebtedness" or the "Senior Subordinated Indebtedness"
covenants described below, (d) any repurchase, redemption or other
obligation in respect of Redeemable Stock, (e) any Indebtedness to any
employee of ICG or any of its Subsidiaries, (f) any liability for
federal, state, local or other taxes owed or owing by ICG or (g) any
trade payables. Senior Indebtedness will also include interest accruing
subsequent to events of bankruptcy of ICG at the rate provided for in the
document governing such Senior Indebtedness, whether or not such interest
is an allowed claim enforceable against the debtor in a bankruptcy case
under federal bankruptcy law.
As a result of the subordination provisions described above, in the
event of a liquidation or insolvency, Holders of the Exchange Debentures
may recover less ratably than other creditors of ICG or IntelCom.
IntelCom and ICG are expected to incur substantial amounts of additional
indebtedness in the future, subject to compliance with the limitations
contained in the Notes Indenture, the 13/1//2% Notes Indenture and the
Exchange Debenture Indenture. See "Risk Factors--Substantial
Indebtedness; Ability to Service Debt" and "--Holding Company Reliance on
Subsidiaries' Funds; Priority of Creditors; Subordination of Exchange
Debentures."
OPTIONAL REDEMPTION
The Exchange Debentures will be redeemable at ICG's option on or after
May 1, 2001. Thereafter, the Exchange Debentures will be subject to
redemption at the option of ICG, in whole or in part, at any time upon
not less than 30 nor more than 60 days' prior notice mailed by first
class mail to each Holder's last address as it appears in the Security
Register, at the redemption prices (expressed as a percentage of
principal amount) set forth below, plus accrued and unpaid interest, if
any, to the applicable redemption date (subject to the right of Holders
of record on the relevant Regular Record Date that is on or prior to the
redemption date to receive interest due on an Interest Payment Date), if
redeemed during the 12-month period beginning on May 1 of the years
indicated below:
YEAR PERCENTAGE
2001.................. 107.125%
2002.................. 104.750%
2003.................. 102.375%
2004 and thereafter... 100.000%
In addition, at any time on or prior to May 1, 1999, ICG may, at its
option from time to time, redeem Exchange Debentures having an aggregate
principal amount of up to $52.5 million at a redemption price equal to
114 1/4% of the principal amount thereof, with proceeds of one or more
Public Equity Offerings of Common Stock of (A) ICG or (B) IntelCom,
provided that (i) with respect to the Public Equity Offering referred to
in clause (B) above, cash proceeds of such Public Equity Offering in an
amount sufficient to effect the redemption of Exchange Debentures to be
so redeemed are contributed by IntelCom to ICG prior to such redemption
and used by ICG to effect such redemption and (ii) such redemption occurs
within 180 days after consummation of such Public Equity Offering.
If less than all of the Exchange Debentures are to be redeemed at any
time, the Trustee shall select the Exchange Debentures to be redeemed on
a pro rata basis, by lot or in accordance with any other method the
Trustee considers fair and appropriate (and in such manner as complies
with applicable legal and stock exchange requirements, if any); provided
that no Exchange Debentures with a principal amount of $1,000 or less
shall be redeemed in part. Notice of redemption shall be mailed by first
class mail at least 30 but no more than 60 days before the redemption
date to each Holder of Exchange Debentures to be redeemed at its
registered address. If any Exchange Debenture is to be redeemed in part
only the notice of redemption that related to such Exchange Debenture
shall state the portion of the principal amount to be redeemed. A new
Exchange Debenture in principal
-86-
<PAGE>
amount equal to the unredeemed portion will be issued in the name of the
Holder thereof upon cancellation of the original Exchange Debenture, and
after the redemption date, interest will cease to accrue on the Exchange
Debentures called for redemption.
REPURCHASE OF EXCHANGE DEBENTURES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control ICG will be required
(whether or not funds are available therefor) to make an offer (the
"Change of Control Offer") to each holder of Exchange Debentures to
repurchase all or any part of such holder's Exchange Debentures at a cash
purchase price equal to 101% of the aggregate principal amount thereof,
plus an amount in cash equal to accumulated and unpaid interest, if any,
accrued to the date of purchase. The Change of Control Offer must be
made within 30 days following a Change of Control, must remain open for
at least 30 and not more than 40 days and must comply with the
requirements of Rule 14e-1 under the Exchange Act and any other
applicable securities laws and regulations. Notwithstanding the
foregoing, ICG has agreed not to make a Change of Control Offer if any of
the New Notes or 13/1//2% Notes are outstanding upon the occurrence of a
Change of Control unless all of the New Notes and 13/1//2% Notes tendered
pursuant to the "Change of Control Offers" with respect thereto are
repurchased as a result of such Change of Control, in which case the date
on which all New Notes and 13/1//2% Notes (and any other Indebtedness of
ICG having provisions similar to Section 4.04(x) of the Notes Indenture)
are so repurchased will, under the Exchange Indenture, be deemed to be
the date on which such Change of Control shall have occurred.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act)
becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of Voting Stock having more than 40% of the voting
power of the total Voting Stock of IntelCom on a fully diluted basis;
(ii) individuals who on the Closing Date constitute the Board of
Directors of IntelCom (together with any new directors whose election by
the Board of Directors or whose nomination for election by IntelCom's
stockholders was approved by a vote of at least a majority of the members
of the Board of Directors then in office who either were members of the
Board of Directors on the Closing Date or whose election or nomination
for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board of Directors then in
office; or (iii) all of the Common Stock of ICG is not beneficially owned
by IntelCom; provided, however, that a Change of Control shall be deemed
not to occur solely as a result of a Reorganization permitted by the
Exchange Debenture Indenture.
None of the provisions in the Exchange Debenture Indenture relating to
a purchase upon a Change of Control are waivable by ICG's Board of
Directors. ICG could, in the future, enter into certain transactions,
including certain recapitalizations of ICG, that would not constitute a
Change of Control, but would increase the amount of indebtedness
outstanding at such time. If a Change of Control were to occur, ICG
would be obligated to offer to repurchase all of the New Notes and
13/1//2% Notes prior to making an offer to repurchase Exchange
Debentures, and there can be no assurance that ICG would have sufficient
funds to pay the purchase price for all the Exchange Debentures that ICG
is required to purchase. In the event that ICG were required to purchase
outstanding Exchange Debentures pursuant to a Change of Control Offer,
ICG expects that it would need to seek third-party financing, to the
extent it does not have available funds, to meet its purchase
obligations. However, there can be no assurance that ICG would be able
to obtain such financing. In addition, ICG's ability to purchase
Exchange Debentures may be limited by other then-existing agreements.
CERTAIN COVENANTS
LIMITATION ON INDEBTEDNESS
(a) Under the terms of the Exchange Debenture Indenture, the
Guarantor will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Exchange
Debentures, the Debenture Guarantee and Indebtedness outstanding on the
Exchange Debenture Issue Date); provided that the Guarantor and ICG may
Incur Indebtedness if, after giving effect to the Incurrence of such
Indebtedness and the receipt and application of the proceeds therefrom,
the Indebtedness to EBITDA Ratio would be greater than zero and less than
5:1.
-87-
<PAGE>
Notwithstanding the foregoing, the Guarantor and any Restricted
Subsidiary (except as specified below) may Incur each and all of the
following: (i) Indebtedness of the Guarantor or ICG outstanding at any
time, which Indebtedness generates gross proceeds to the Guarantor or ICG
of up to $900 million, less the gross proceeds of Indebtedness
permanently repaid as provided under the "Limitation on Asset Sales"
covenant described below; (ii) Indebtedness to the Guarantor or any of
its Wholly Owned Restricted Subsidiaries; provided that any subsequent
issuance or transfer of any Capital Stock which results in any such
Wholly Owned Restricted Subsidiary ceasing to be a Wholly Owned
Restricted Subsidiary or any subsequent transfer of such Indebtedness
(other than to the Guarantor or another Wholly Owned Restricted
Subsidiary) shall be deemed, in each case, to constitute an Incurrence of
such Indebtedness not permitted by this clause (ii); (iii) Indebtedness
issued in exchange for, or the net proceeds of which are used to
refinance or refund, then outstanding Indebtedness, other than
Indebtedness Incurred under clause (i), (ii), (v), (vi), (viii), (ix),
(xi) or (xii) of this paragraph, and any refinancings thereof in an
amount not to exceed the amount so refinanced or refunded (plus premiums,
accrued interest, fees and expenses); provided that Indebtedness the
proceeds of which are used to refinance or refund the Exchange Debentures
or Indebtedness that is pari passu with, or subordinated in right of
payment to, the Exchange Debentures or the Debenture Guarantee shall only
be permitted under this clause (iii) if (A) in case the Exchange
Debentures are refinanced in part or the Indebtedness to be refinanced is
pari passu with the Exchange Debentures or the Debenture Guarantee, as
the case may be, such new Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right
of payment to, the remaining Exchange Debentures or the Debenture
Guarantee, as the case may be, (B) in case the Indebtedness to be
refinanced is subordinated in right of payment to the Exchange Debentures
or the Debenture Guarantee, as the case may be, such new Indebtedness, by
its terms or by the terms of any agreement or instrument pursuant to
which such new Indebtedness is issued or remains outstanding, is
expressly made subordinate in right of payment to the Exchange Debentures
or the Debenture Guarantee, as the case may be, at least to the extent
that the Indebtedness to be refinanced is subordinated to the Exchange
Debentures or the Debenture Guarantee, as the case may be and (C) such
new Indebtedness, determined as of the date of Incurrence of such new
Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness to be refinanced or refunded, and the Average Life of such
new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in
no event may Indebtedness of the Guarantor or ICG be refinanced by means
of any Indebtedness of any Restricted Subsidiary of the Guarantor or ICG,
as the case may be, pursuant to this clause (iii); (iv) Indebtedness (A)
in respect of performance, surety or appeal bonds provided in the
ordinary course of business, (B) under Currency Agreements and Interest
Rate Agreements; provided that such agreements do not increase the
Indebtedness of the obligor outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or interest
rates or by reason of fees, indemnities and compensation payable
thereunder; and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or
from Guarantees or letters of credit, surety bonds or performance bonds
securing any obligations of ICG or any of its Restricted Subsidiaries
pursuant to such agreements, in any case Incurred in connection with the
disposition of any business, assets or Restricted Subsidiary of ICG
(other than Guarantees of Indebtedness Incurred by any Person acquiring
all or any portion of such business, assets or Restricted Subsidiary of
ICG for the purpose of financing such acquisition), in a principal amount
at maturity not to exceed the gross proceeds actually received by ICG or
any Restricted Subsidiary in connection with such disposition; (v)
Indebtedness of the Guarantor or, to the extent the proceeds referred to
below are contributed to ICG, ICG, not to exceed, at any one time
outstanding, twice the amount of Net Cash Proceeds received by the
Guarantor after the Closing Date from the issuance and sale of its
Capital Stock (other than Redeemable Stock or preferred stock); provided
that such Indebtedness does not mature prior to the Stated Maturity of
the Exchange Debenture and has an Average Life longer than the Exchange
Debentures; (vi) Strategic Investor Subordinated Indebtedness; (vii)
Indebtedness of the Guarantor or ICG, to the extent the proceeds thereof
are immediately used after the Incurrence thereof to purchase Exchange
Debentures tendered in an Offer to Purchase made as a result of a Change
of Control; (viii) Indebtedness of any Restricted Subsidiary of the
Guarantor Incurred pursuant to any credit agreement (including equipment
leasing or financing agreements) of such Restricted Subsidiary in effect
on August 8, 1995 (or any agreement refinancing Indebtedness under such
credit agreement), up to the amount of the commitment under such credit
agreement on August 8, 1995; (ix) Indebtedness of the Guarantor or ICG,
in an amount not to exceed $100 million at any one time outstanding,
consisting of Capitalized Lease Obligations with respect to assets that
are used or useful in the telecommunications business of the Guarantor or
its Restricted Subsidiaries; (x) Indebtedness incurred to defease the
Exchange Debentures; (xi) Indebtedness of any Person that becomes a
Restricted Subsidiary of the Guarantor after the Closing
-88-
<PAGE>
Date, which Indebtedness exists or for which there is a commitment to
lend at the time such Person becomes a Restricted Subsidiary, and
subsequent Incurrences thereof ("Acquired Indebtedness"), in an accreted
amount not to exceed $50 million at any one time outstanding in aggregate
for all such Restricted Subsidiaries; provided that such Acquired
Indebtedness does not exceed 65% of the consideration (calculated by
including the Acquired Indebtedness as part of such consideration) for
the acquisition of such Person; and (xii) Indebtedness of the Guarantor
or ICG, in an amount not to exceed $30 million at any one time
outstanding, consisting of letters of credit and similar arrangements
used to support obligations of the Guarantor or any of its Restricted
Subsidiaries with respect to the acquisition of (by purchase, lease or
otherwise), construction of, or improvements on, assets that will be used
or useful in the telecommunications business of the Guarantor or its
Restricted Subsidiaries.
(b) For purposes of determining any particular amount of Indebtedness
under this "Limitation on Indebtedness" covenant, Guarantees, Liens or
obligations with respect to letters of credit supporting Indebtedness
otherwise included in the determination of such particular amount shall
not be included. For purposes of determining compliance with this
"Limitation on Indebtedness" covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the types of
Indebtedness or Redeemable Stock described in the above clauses, ICG, in
its sole discretion, shall classify such item of Indebtedness or
Redeemable Stock and only be required to include the amount and type of
such Indebtedness Redeemable Stock in one of such clauses.
LIMITATION ON RESTRICTED PAYMENTS
So long as any of the Exchange Debentures are outstanding, the
Guarantor will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any
distribution on its Capital Stock (other than dividends or distributions
payable solely in shares of its or such Restricted Subsidiary's Capital
Stock (other than Redeemable Stock) of the same class held by such
holders or in options, warrants or other rights to acquire such shares of
Capital Stock) held by Persons other than the Guarantor or any of its
Restricted Subsidiaries (and other than pro rata dividends or
distributions on Common Stock of Restricted Subsidiaries), (ii) purchase,
redeem, retire or otherwise acquire for value any shares of Capital Stock
of the Guarantor or any Restricted Subsidiary (including options,
warrants or other rights to acquire such shares of Capital Stock) held by
Persons other than the Guarantor or any of its Wholly Owned Restricted
Subsidiaries (except for Capital Stock of MTN, StarCom, Ohio LINX, FOTI
and Zycom to the extent the consideration therefor consists solely of
Common Stock (other than Redeemable Stock) of the Guarantor transferred
in compliance with the Securities Act), (iii) make any voluntary or
optional principal payment, or voluntary or optional redemption,
repurchase, defeasance, or other acquisition or retirement for value, of
Indebtedness of ICG or the Guarantor that is subordinated in right of
payment to the Exchange Debentures or the Debenture Guarantee, as the
case may be; or (iv) make any Investment, other than a Permitted
Investment, in any Person (such payments or any other actions described
in clauses (i) through (iv) being collectively "Restricted Payments") if,
at the time of, and after giving effect to, the proposed Restricted
Payment: (A) a Default or Event of Default shall have occurred and be
continuing, (B) the Guarantor could not Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant or (C) the aggregate amount expended for all
===
Restricted Payments (the amount so expended, if other than in cash, to be
determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a Board Resolution) after the date
of the Exchange Debenture Indenture shall exceed the sum of (1) 50% of
the aggregate amount of the Adjusted Consolidated Net Income (or, if the
Adjusted Consolidated Net Income is a loss, minus 100% of such amount)
(determined by excluding income resulting from transfers of assets by the
Guarantor or a Restricted Subsidiary to an Unrestricted Subsidiary)
accrued on a cumulative basis during the period (taken as one accounting
period) beginning on the first day of the fiscal quarter immediately
following the Closing Date and ending on the last day of the last fiscal
quarter preceding the Transaction Date for which reports have been filed
pursuant to the "Reports" covenant plus (2) the aggregate Net Cash
Proceeds received by the Guarantor after the Closing Date from the
issuance and sale permitted by the Exchange Debenture Indenture of its
Capital Stock (other than Redeemable Stock) to a Person who is not a
Subsidiary of the Guarantor, or from the issuance to a Person who is not
a Subsidiary of the Guarantor of any options, warrants or other rights to
acquire Capital Stock of the Guarantor (in each case, exclusive of any
Redeemable Stock or any options, warrants or other rights that are
redeemable at the option of the holder, or are required to be redeemed,
prior to the Stated Maturity of the Exchange Debentures) plus (3) an
amount equal to the net reduction in Investments (other than reductions
in Permitted Investments) in any Person resulting from payments of
interest on Indebtedness, dividends, repayments of loans or
-89-
<PAGE>
advances, or other transfers of assets, in each case to the Guarantor or
any Restricted Subsidiary (except to the extent any such payment is
included in the calculation of Adjusted Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments"), not
to exceed the amount of Investments previously made by the Guarantor and
its Restricted Subsidiaries in such Person.
The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with
the foregoing paragraph; (ii) the redemption, repurchase, defeasance or
other acquisition or retirement for value of Indebtedness that is
subordinated in right of payment to the Exchange Debentures or the
Debenture Guarantee, as the case may be, including premium, if any, and
accrued and unpaid interest, with the proceeds of, or in exchange for,
Indebtedness Incurred under clause (iii) of the second paragraph of the
"Limitation on Indebtedness" covenant; (iii) the repurchase, redemption
or other acquisition of Capital Stock of the Guarantor or ICG (or
options, warrants or other rights to acquire such Capital Stock) and with
respect to any New Preferred Stock, the payment of accrued dividends
thereon, in exchange for, or out of the proceeds of a substantially
concurrent issuance or sale of, shares of Capital Stock (other than
Redeemable Stock) of the Guarantor or ICG; provided that the redemption
of any preferred stock and the payment of accrued dividends thereon
pursuant to any mandatory redemption feature thereof and any redemption
of any other Capital Stock and with respect to any New Preferred Stock,
the payment of accrued dividends thereon (or options, warrants or other
rights to acquire such Capital Stock) shall be deemed to be
"substantially concurrent" with such issuance and sale if the required
notice with respect to such redemption is irrevocably given by a date
which is no later than five Business Days after receipt of the proceeds
of such issuance and sale and such redemption and payment is consummated
within the period provided for in the documents providing for the
redemption of such preferred stock or the documents governing the
redemption of such other Capital Stock, as the case may be; (iv) the
acquisition of Indebtedness of ICG or the Guarantor which is subordinated
in right of payment to the Exchange Debentures or the Debenture
Guarantee, as the case may be, in exchange for, or out of the proceeds
of, a substantially concurrent offering of, shares of the Capital Stock
of the Guarantor (other than Redeemable Stock); (v) payments or
distributions, in the nature of satisfaction of dissenters' rights,
pursuant to or in connection with a consolidation, merger or transfer of
assets that complies with the provisions of the Exchange Debenture
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of ICG or the Guarantor;
(vi) Investments, not to exceed $10 million in aggregate, each evidenced
by a senior promissory note payable to ICG that provides that it will
become due and payable prior to (or, in the case of acceleration,
concurrently with) any required repayment (including pursuant to an Offer
to Purchase in connection with a Change of Control) of the Exchange
Debentures; (vii) Investments, not to exceed $5 million in the aggregate,
that meet the requirements of clause (vi) above; provided that the Board
of Directors of the Guarantor shall have determined, in good faith, that
each such Investment under this clause (vii) will enable the Guarantor,
ICG or one of their Restricted Subsidiaries to obtain additional business
that it might not be able to obtain without the making of such
Investment; (viii) with respect to preferred stock permitted to be issued
and sold by the "Limitation on Issuance and Sale of Capital Stock of
Restricted Subsidiaries" covenant, the payment (A) of dividends on such
preferred stock in additional shares of preferred stock and (B) of cash
dividends on such preferred stock and accrued interest on unpaid
dividends, in each case after May 1, 2001; (ix) the repurchase, in the
event of a Change of Control, of preferred stock of ICG or the Guarantor
and Indebtedness of ICG or the Guarantor into which such preferred stock
has been exchanged; provided that prior to repurchasing such preferred
stock or Indebtedness, ICG or the Guarantor, as the case may be, shall
have made a Change of Control Offer to repurchase the Exchange Debentures
in accordance with the terms of the Exchange Debenture Indenture (and an
offer to repurchase other Indebtedness, if required by the terms thereof,
in accordance with the indenture or other document governing such other
Indebtedness) and shall have accepted and paid for any Exchange
Debentures (and other Indebtedness) properly tendered in connection with
such Change of Control Offer for the Exchange Debentures or change of
control offer for such other Indebtedness; and (x) the issuance of
preferred stock permitted to be issued under the Exchange Debenture
Indenture in exchange for Indebtedness; provided that the Incurrence of
such Indebtedness complies with the "Limitation on Indebtedness"
covenant; provided that, except in the case of clauses (i) and (iii), no
Default or Event of Default shall have occurred and be continuing or
occur as a consequence of the actions or payments set forth therein.
-90-
<PAGE>
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clauses (ii), (viii)(A)
and (x) thereof), and the Net Cash Proceeds from any issuance of Capital
Stock referred to in clause (iii) or (iv) shall be included in
calculating whether the conditions of clause (C) of the first paragraph
of this "Limitation on Restricted Payments" covenant have been met with
respect to any subsequent Restricted Payments. Notwithstanding the
foregoing, in the event the proceeds of an issuance of Capital Stock of
the Guarantor are used for the redemption, repurchase or other
acquisition of the Exchange Debentures, or Indebtedness that is pari
passu with or senior to the Exchange Debentures, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first
paragraph of this "Limitation on Restricted Payments" covenant only to
the extent such proceeds are not used for such redemption, repurchase or
other acquisition of such Indebtedness.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING
RESTRICTED SUBSIDIARIES
So long as any of the Exchange Debentures are outstanding, the
Guarantor will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by the Guarantor or any other Restricted
Subsidiary, (ii) pay any Indebtedness owed to the Guarantor or any other
Restricted Subsidiary, (iii) make loans or advances to the Guarantor or
any other Restricted Subsidiary or (iv) transfer any of its property or
assets to the Guarantor or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Exchange Debenture Issue Date in the
Exchange Debenture Indenture or any other agreements in effect on the
Exchange Debenture Issue Date, and any extensions, refinancings, renewals
or replacements of such agreements; provided that the encumbrances and
restrictions in any such extensions, refinancings, renewals or
replacements are no less favorable in any material respect to the Holders
than those encumbrances or restrictions that are then in effect and that
are being extended, refinanced, renewed or replaced; (ii) existing under
or by reason of applicable law; (iii) existing with respect to any Person
or the property or assets of such Person acquired by the Guarantor or any
Restricted Subsidiary, existing at the time of such acquisition and not
incurred in contemplation thereof, which encumbrances or restrictions are
not applicable to any Person or the property or assets of any Person
other than such Person or the property or assets of such Person so
acquired; (iv) in the case of clause (iv) of the first paragraph of this
"Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries" covenant, (A) that restrict in a customary
manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or
asset, (B) existing by virtue of any transfer of, agreement to transfer,
option or right with respect to, or Lien on, any property or assets of
the Guarantor or any Restricted Subsidiary not otherwise prohibited by
the Exchange Debenture Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that
do not, individually or in the aggregate, detract from the value of
property or assets of the Guarantor or any Restricted Subsidiary in any
manner material to the Guarantor or any Restricted Subsidiary; (v) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement
that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary; or (vi) imposed pursuant to preferred stock
of ICG issued pursuant to clause (vi) of the "Limitation on Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant, or exchange
debentures or exchange notes of ICG issued in exchange therefor; provided
that such restrictions (A) may include a prohibition (x) on payments on
Capital Stock upon liquidation, winding-up and dissolution of ICG and (y)
on the payment of dividends on and the making of any distribution on, or
the purchase, redemption, retirement or other acquisition for value of,
Capital Stock of ICG if dividends or another amounts on such preferred
stock are unpaid and (B) any restrictions imposed pursuant to preferred
stock of ICG other than pursuant to clause (A) shall be no more
restrictive than the restrictions contained in the Exchange Debenture
Indenture (assuming that references to the Guarantor in the Exchange
Debenture Indenture were replaced with references to ICG). Nothing
contained in this "Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant shall prevent the Guarantor
or any Restricted Subsidiary from (1) creating, incurring, assuming or
suffering to exist any Liens otherwise permitted in the "Limitation on
Liens" covenant or (2) restricting the sale or other disposition of
property or assets of the Guarantor or any of its Restricted Subsidiaries
that secure Indebtedness of the Guarantor or any of its Restricted
Subsidiaries.
-91-
<PAGE>
LIMITATION ON ISSUANCES AND SALE OF CAPITAL STOCK OF RESTRICTED
SUBSIDIARIES
Under the terms of the Exchange Debenture Indenture, the Guarantor
will not sell, and will not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell, any shares of Capital Stock of a Restricted
Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Guarantor or a Wholly
Owned Restricted Subsidiary; (ii) issuances or sales to foreign nationals
of shares of Capital Stock of foreign Restricted Subsidiaries, to the
extent required by applicable law; (iii) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no
longer constitute a Restricted Subsidiary; (iv) with respect to Common
Stock of MTN, StarCom and Zycom; provided that the proceeds of any such
sale under clause (iv) shall be applied in accordance with clause (A) or
(B) of the first paragraph of the "Limitation on Asset Sales" covenant
described below; (v) with respect to Common Stock of FOTI; provided that
FOTI shall not retain any net proceeds from such sales or issuances in
excess of $10 million in the aggregate and any net proceeds in excess of
such $10 million shall be received by, or paid promptly by FOTI to, the
Guarantor, ICG or any Wholly Owned Restricted Subsidiary of the
Guarantor; and (vi) with respect to (A) preferred stock of ICG having an
initial liquidation preference of up to $250 million and (B) any
preferred stock of ICG issued as dividends on such preferred stock;
provided that such preferred stock does not require the payment of cash
dividends prior to May 1, 2001.
LIMITATION ON ISSUANCES OF GUARANTEES BY RESTRICTED SUBSIDIARIES
The Guarantor will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of ICG or any Indebtedness of
the Guarantor ("Guaranteed Indebtedness"), unless (i) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture
to the Exchange Debenture Indenture providing for a Guarantee (a
"Subsidiary Guarantee") of payment of the Exchange Debentures by such
Restricted Subsidiary and (ii) such Restricted Subsidiary waives and will
not in any manner whatsoever claim or take the benefit or advantage of,
any rights of reimbursement, indemnity or subrogation or any other rights
against the Guarantor, ICG or any other Restricted Subsidiary as a result
of any payment by such Restricted Subsidiary under its Subsidiary
Guarantee; provided that this paragraph shall not be applicable to any
Guarantee of any Restricted Subsidiary that (x) existed at the time such
Person became a Restricted Subsidiary and (y) was not Incurred in
connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary. If the Guaranteed Indebtedness is (A) pari passu
with the Exchange Debentures or the Debenture Guarantee, then the
Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the
Exchange Debentures or the Debenture Guarantee, then the Guarantee of
such Guaranteed Indebtedness shall be subordinated to the Subsidiary
Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Exchange Debentures or the Debenture Guarantee, as
the case may be.
If, on or prior to the Exchange Debenture Issue Date, any Restricted
Subsidiary shall have Guaranteed any Guaranteed Indebtedness, the
Guarantor shall cause such Restricted Subsidiary to grant a Subsidiary
Guarantee meeting the requirements of the preceding paragraph. Such
Subsidiary Guarantee shall be granted on the Exchange Debenture Issue
Date.
Notwithstanding the foregoing, any Subsidiary Guarantee by a
Restricted Subsidiary shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon (i) any
sale, exchange or transfer, to any Person not an Affiliate of the
Guarantor, of all of ICG'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 Exchange
Debenture Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a
discharge or release by or as a result of payment under such Guarantee.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
Under the terms of the Exchange Debenture Indenture, the Guarantor
will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or
assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of
the Guarantor or with any
-92-
<PAGE>
Affiliate of the Guarantor or any Restricted Subsidiary, except upon fair
and reasonable terms no less favorable to the Guarantor or such
Restricted Subsidiary than could be obtained, at the time of such
transaction or at the time of the execution of the agreement providing
therefor, in a comparable arm's-length transaction with a Person that is
not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of
the Board of Directors or (B) for which the Guarantor or a Restricted
Subsidiary delivers to the Trustee a written opinion of a nationally
recognized investment banking firm stating that the transaction is fair
to the Guarantor or such Restricted Subsidiary from a financial point of
view; (ii) any transaction solely between the Guarantor and any of its
Wholly Owned Restricted Subsidiaries or solely between Wholly Owned
Restricted Subsidiaries; (iii) the payment of reasonable and customary
regular fees to directors of the Guarantor or ICG who are not employees
of the Guarantor or ICG; (iv) any payments or other transactions pursuant
to any tax-sharing agreement between the Guarantor and any other Person
with which the Guarantor files a consolidated tax return or with which
the Guarantor is part of a consolidated group for tax purposes; or (v)
any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant. Notwithstanding the foregoing, any transaction
covered by the first paragraph of this "Limitation on Transactions with
Shareholders and Affiliates" covenant and not covered by clauses (ii)
through (iv) of this paragraph, the aggregate amount of which exceeds $2
million in value, must be approved or determined to be fair in the manner
provided for in clause (i)(A) or (B) above.
LIMITATION ON LIENS
Under the terms of the Exchange Debenture Indenture, the Guarantor
will not, and will not permit any Restricted Subsidiary to, create,
incur, assume or suffer to exist any Lien on any of its assets or
properties of any character, or any shares of Capital Stock or
Indebtedness of any Restricted Subsidiary, without making effective
provision for all of the Exchange Debentures (or, in the case of a Lien
on assets or properties of the Guarantor, the Debenture Guarantee) and
all other amounts due under the Exchange Debenture Indenture to be
directly secured equally and ratably with (or, if the obligation or
liability to be secured by such Lien is subordinated in right of payment
to the Exchange Debentures or the Debenture Guarantee, prior to) the
obligation or liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date; (ii) Liens granted after the Closing Date on any assets or
Capital Stock of ICG 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 Guarantor or a
Wholly Owned Restricted Subsidiary to secure Indebtedness owing to the
Guarantor or such other Restricted Subsidiary; (iv) Liens securing
Indebtedness which is Incurred to refinance secured Indebtedness which is
permitted to be Incurred under clause (iii) of the second paragraph of
the "Limitation on Indebtedness" covenant; provided that such Liens do
not extend to or cover any property or assets of the Guarantor, ICG or
any Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; (v) Liens with respect to assets or
properties of any Person that becomes a Restricted Subsidiary after the
Closing Date; provided that such Liens do not extend to or cover any
assets or properties of the Guarantor or any of its Restricted
Subsidiaries other than the assets or properties of such Person subject
to such Lien on the date such Person becomes a Restricted Subsidiary; and
provided further that such Liens are not incurred in contemplation of, or
in connection with, such Person becoming a Restricted Subsidiary; (vi)
Permitted Liens; (vii) Liens securing Senior Indebtedness or Senior
Guarantor Indebtedness; or (viii) Liens, solely in favor of Acquired
Indebtedness, on Capital Stock of Persons that become Restricted
Subsidiaries of the Guarantor after the Closing Date.
MERGER, CONSOLIDATION AND SALE OF ASSETS
Neither ICG nor the Guarantor shall consolidate with, merge with or
into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or
substantially an entirety in one transaction or a series of related
transactions) to, any Person (other than a consolidation or merger with
or into a Wholly Owned Restricted Subsidiary with a positive net worth;
provided that, in connection with any such merger or consolidation, no
consideration (other than Common Stock in the surviving Person, ICG or
the Guarantor) shall be issued or distributed to the stockholders of ICG
or the Guarantor) or permit any Person to merge with or into
-93-
<PAGE>
ICG or the Guarantor unless: (i) ICG or the Guarantor shall be the
continuing Person, or the Person (if other than ICG or the Guarantor)
formed by such consolidation or into which ICG or the Guarantor is merged
or that acquired or leased such property and assets of ICG or the
Guarantor shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and
shall expressly assume, by a supplemental indenture, executed and
delivered to the Trustee, all of the obligations of ICG or the Guarantor,
as the case may be, and under the Exchange Debenture Indenture; (ii)
immediately after giving effect to such transaction, no Default or Event
of Default shall have occurred and be continuing; (iii) immediately after
giving effect to such transaction on a pro forma basis, ICG or the
Guarantor, as the case may be, or any Person becoming the successor
obligor of the Exchange Debentures or the Debenture Guarantee, as the
case may be, shall have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of ICG or the Guarantor, as the case may be,
immediately prior to such transaction; (iv) immediately after giving
effect to such transaction on a pro forma basis ICG, or any Person
becoming the successor obligor of the Exchange Debentures, as the case
may be, could Incur at least $1.00 of Indebtedness under the first
paragraph of the "Limitation on Indebtedness" covenant; and (v) ICG
delivers to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clauses (iii) and
(iv) above) and an Opinion of Counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided
for herein relating to such transaction have been complied with;
provided, however, that clauses (iii) and (iv) above do not apply if, in
the good faith determination of the Board of Directors of the Guarantor,
whose determination shall be evidenced by a Board Resolution, the
principal purpose of such transaction is part of a plan to change the
jurisdiction of incorporation of ICG or the Guarantor to a state of the
United States; and provided further that any such transaction shall not
have as one of its purposes the evasion of the foregoing limitations.
LIMITATION ON ASSET SALES
Under the terms of the Exchange Debenture Indenture, the Guarantor
will not, and will not permit any Restricted Subsidiary to, consummate
any Asset Sale, unless (i) the consideration received by the Guarantor or
such Restricted Subsidiary is at least equal to the fair market value of
the assets sold or disposed of and (ii) at least 75% of the consideration
received consists of cash or Temporary Cash Investments. In the event
and to the extent that the Net Cash Proceeds received by the Guarantor or
its Restricted Subsidiaries from one or more Asset Sales occurring on or
after the Closing Date in any period of 12 consecutive months exceed 10%
of Adjusted Consolidated Net Tangible Assets (determined as of the date
closest to the commencement of such 12-month period for which a
consolidated balance sheet of ICG and its Subsidiaries has been
prepared), then the Guarantor shall or shall cause the relevant
Restricted Subsidiary to (i) within six months after the date Net Cash
Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible
Assets (A) apply an amount equal to such excess Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Guarantor or ICG, or
Indebtedness of any Restricted Subsidiary other than ICG, in each case
owing to a Person other than the Guarantor or any of its Restricted
Subsidiaries or (B) invest an equal amount, or the amount not so applied
pursuant to clause (A) (or enter into a definitive agreement committing
to so invest within six months after the date of such agreement), in
property or assets of a nature or type or that are used in a business (or
in a company having property and assets of a nature or type, or engaged
in a business) similar or related to the nature or type of the property
and assets of, or the business of, the Guarantor and its Restricted
Subsidiaries existing on the date of such investment (as determined in
good faith by the Board of Directors, whose determination shall be
conclusive and evidenced by a Board Resolution) and (ii) apply (no later
than the end of the six-month period referred to in clause (i)) such
excess Net Cash Proceeds (to the extent not applied pursuant to clause
(i)) as provided in the following paragraphs of this "Limitation on Asset
Sales" covenant. The amount of such excess Net Cash Proceeds required to
be applied (or to be committed to be applied) during such six-month
period as set forth in clause (i) of the preceding sentence and not
applied as so required by the end of such period shall constitute "Excess
Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant
to this "Limitation on Asset Sales" covenant totals at least $10 million,
ICG must commence, not later than the seventy-fifth Business Day
following the first day of such month, and consummate an Offer to
Purchase from the Holders on a pro rata basis an aggregate principal
amount of Exchange Debentures equal to the Excess Proceeds on such date,
at a purchase price equal to 101% of the aggregate principal amount of
the Exchange Debentures, plus, in each case, accrued interest (if any) to
the date of purchase.
-94-
<PAGE>
SENIOR SUBORDINATED INDEBTEDNESS
Neither the Guarantor nor ICG will incur any Indebtedness, other than
the Exchange Debentures or the Debenture Guarantee, respectively, that is
expressly made subordinated in right of payment to any Senior
Indebtedness or Senior Guarantor Indebtedness, unless such Indebtedness,
by its terms and by the terms of any agreement or instrument pursuant to
which such Indebtedness is outstanding is expressly made pari passu with,
or subordinate in right of payment to, the Exchange Debentures or the
Debenture Guarantee, as the case may be, pursuant to provisions
substantially similar to those contained in Article Eleven of the
Exchange Debenture Indenture; provided that the foregoing limitations
shall not apply to distinctions between categories of Senior Indebtedness
that exist by reason of any Liens or Guarantees arising or created in
respect of some but not all Senior Indebtedness.
REPORTS
So long as any Exchange Debentures are outstanding, ICG and the
Guarantor shall file with the Commission the annual reports, quarterly
reports and the information, documents and other reports required to be
filed by ICG with the Commission pursuant to Sections 13 or 15 of the
Exchange Act, whether or not ICG has or is required to have a class of
securities registered under the Exchange Act, at the time it is or would
be required to file the same with the Commission and, within 15 days
after ICG is or would be required to file such reports, information or
documents with the Commission, shall mail such reports, information and
documents to the Trustee and to holders of the Exchange Debentures.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Exchange Debenture Indenture: (a) default in the payment of principal of
(or premium, if any, on) any Exchange Debenture when the same becomes due
and payable at maturity, upon acceleration, redemption or otherwise
whether or not such payment is prohibited by Article Eleven of the
Exchange Debenture Indenture; (b) default in the payment of interest on
any Exchange Debenture when the same becomes due and payable, and such
default continues for a period of 30 days whether or not such payment is
prohibited by Article Eleven of the Exchange Debenture Indenture; (c) ICG
or the Guarantor defaults in the performance of or breaches any other
covenant or agreement of ICG or the Guarantor in the Exchange Debenture
Indenture or under the Exchange Debentures and such default or breach
continues for a period of 30 consecutive days after written notice to ICG
by the Trustee or the Holders of 25% or more in aggregate principal
amount of the Exchange Debentures; (d) there occurs with respect to any
issue or issues of Indebtedness of ICG, the Guarantor or any Significant
Subsidiary having an outstanding principal amount at maturity of $10
million or more in the aggregate for all such issues of all such Persons,
whether such Indebtedness now exists or shall hereafter be created, (I)
an event of default that has caused the holder thereof to declare such
Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness has not been discharged in full or such acceleration has not
been rescinded or annulled within 30 days of such acceleration and/or
(II) the failure to make a principal payment at the final (but not any
interim) fixed maturity and such defaulted payment shall not have been
made, waived or extended within 30 days of such payment default; (e) any
final judgment or order (not covered by insurance) for the payment of
money in excess of $10 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against
ICG, the Guarantor or any Significant Subsidiary and shall not be paid or
discharged, and there shall be any period of 30 consecutive days
following entry of the final judgment or order that causes the aggregate
amount for all such final judgments or orders outstanding and not paid or
discharged against all such Persons to exceed $10 million during which a
stay of enforcement of such final judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; (f) a court having
jurisdiction in the premises enters a decree or order for (A) relief in
respect of ICG, the Guarantor or any Significant Subsidiary in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of ICG, the Guarantor or any Significant Subsidiary or for all
or substantially all of the property and assets of ICG, the Guarantor or
any Significant Subsidiary or (C) the winding up or liquidation of the
affairs of ICG, the Guarantor or any Significant Subsidiary and, in each
case, such decree or order shall remain unstayed and in effect for a
period of 30 consecutive days; or
-95-
<PAGE>
(g) ICG, the Guarantor or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents
to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of ICG,
the Guarantor or any Significant Subsidiary or for all or substantially
all of the property and assets of ICG, the Guarantor or any Significant
Subsidiary or (C) effects any general assignment for the benefit of
creditors.
If an Event of Default (other than an Event of Default specified in
clause (f) or (g) above that occurs with respect to ICG or the Guarantor)
occurs and is continuing under the Exchange Debenture Indenture, the
Trustee or the Holders of at least 25% in aggregate principal amount of
the Exchange Debentures, then outstanding, by written notice to ICG (and
to the Trustee if such notice is given by the Holders), may, and the
Trustee at the request of such Holders shall, declare the principal
amount of, premium, if any, and accrued interest, if any, on the Exchange
Debentures to be immediately due and payable. Upon a declaration of
acceleration, such principal amount, premium, if any, and accrued
interest, if any, shall be immediately due and payable. In the event of
a declaration of acceleration because an Event of Default set forth in
clause (d) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event
of default triggering such Event of Default pursuant to clause (d) shall
be remedied or cured by ICG, the Guarantor or the relevant Significant
Subsidiary or waived by the holders of the relevant Indebtedness within
60 days after the declaration of acceleration with respect thereto. If
an Event of Default specified in clause (f) or (g) above occurs with
respect to ICG or the Guarantor, the principal amount of, premium, if
any, and accrued interest, if any, on the Exchange Debentures then
outstanding shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any
Holder. The Holders of at least a majority in principal amount of the
outstanding Exchange Debentures by written notice to ICG and to the
Trustee, may waive all past defaults and rescind and annul a declaration
of acceleration and its consequences if, among other things, (i) all
existing Events of Default, other than the nonpayment of the principal
of, premium, if any, and accrued interest on the Exchange Debentures that
have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction. For information
as to the waiver of defaults, see "--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of
the outstanding Exchange Debentures may direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee. However, the
Trustee may refuse to follow any direction that conflicts with law or the
Exchange Debenture Indenture, that may involve the Trustee in personal
liability, or that the Trustee determines in good faith may be unduly
prejudicial to the rights of Holders of Exchange Debentures not joining
in the giving of such direction and may take any other action it deems
proper that is not inconsistent with any such direction received from
Holders of Exchange Debentures. A Holder may not pursue any remedy with
respect to the Exchange Debenture Indenture or the Exchange Debentures
unless: (i) the Holder gives the Trustee written notice of a continuing
Event of Default; (ii) the Holders of at least 25% in aggregate principal
amount of outstanding Exchange Debentures make a written request to the
Trustee to pursue the remedy; (iii) such Holder or Holders offer the
Trustee indemnity satisfactory to the Trustee against any costs,
liability or expense; (iv) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer of indemnity;
and (v) during such 60-day period, the Holders of a majority in aggregate
principal amount of the outstanding Exchange Debentures do not give the
Trustee a direction that is inconsistent with the request. However, such
limitations do not apply to the right of any Holder of an Exchange
Debenture to receive payment of the principal of, premium, if any, or
accrued interest on, such Exchange Debenture or to bring suit for the
enforcement of any such payment, on or after the due date expressed in
the Exchange Debentures, which right shall not be impaired or affected
without the consent of the Holder.
The Exchange Debenture Indenture will require certain officers of ICG
and the Guarantor to certify, on or before a date not more than 90 days
after the end of each fiscal year of the Guarantor, that a review has
been conducted of the activities of ICG, or the Guarantor, as the case
may be, and its Restricted Subsidiaries and ICG's, or the Guarantor's,
and its Restricted Subsidiaries' performance under the Exchange Debenture
Indenture and that ICG and the Guarantor have fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any
such obligation, specifying each such default and the nature and status
thereof. ICG and the Guarantor will also
-96-
<PAGE>
be obligated to notify the Trustee of any default or defaults in the
performance of any covenants or agreements under the Exchange Debenture
Indenture.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
ICG may, at its option and at any time, elect to have its obligations
discharged with respect to the outstanding Exchange Debentures ("legal
defeasance"). Such legal defeasance means that ICG shall be deemed to
have paid and discharged the entire indebtedness represented by the
outstanding Exchange Debentures, except for (a) the rights of Holders of
outstanding Exchange Debentures to receive payments in respect of the
principal of, and premium, if any, and interest on, such Exchange
Debentures when such payments are due, or on the redemption date, as the
case may be, (b) ICG's obligations with respect to the Exchange
Debentures concerning issuing temporary Exchange Debentures, registration
of Exchange Debentures, mutilated, destroyed, lost or stolen Exchange
Debentures and the maintenance of an office or agency for payment and
money for security payments held in trust, (c) the rights, powers, trust,
duties and immunities of the Trustee, and ICG's obligations in connection
therewith and (d) the legal defeasance provisions of the Exchange
Debenture Indenture. In addition, ICG may, at its option and at any
time, elect to have the obligations of ICG released with respect to
certain covenants that are described in the Exchange Debenture Indenture
("covenant defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with
respect to the Exchange Debentures. In the event covenant defeasance
occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with
respect to the Exchange Debentures.
In order to exercise either legal defeasance or covenant defeasance,
(i) ICG must irrevocably deposit with the Trustee, in trust, for the
benefit of the holders of the Exchange Debentures, cash in U.S. dollars,
non-callable U.S. government obligations, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants selected by the
Trustee, to pay the principal of, and premium, if any, and interest on,
the outstanding Exchange Debentures on the stated maturity or on the
applicable optional redemption date, as the case may be, of such
principal or installment of principal of, or premium, if any, or interest
on, the outstanding Exchange Debentures; (ii) in the case of legal
defeasance, ICG shall have delivered to the Trustee an opinion of counsel
in the United States reasonably acceptable to the Trustee confirming that
(A) ICG has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the New Preferred Stock Issue Date,
there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel
shall confirm that, the holders of the outstanding Exchange Debentures
will not recognize income, gain or loss for federal income tax purposes
as a result of such legal defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times
as would have been the case if such legal defeasance had not occurred;
(iii) in the case of covenant defeasance, ICG shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that the holders of the outstanding Exchange
Debentures will not recognize income, gain or loss for federal income tax
purposes as a result of such covenant defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had
not occurred; (iv) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit or, insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time
in the period ending on the 123rd day after the date of deposit; (v) such
legal defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under, the Exchange Debenture
Indenture or any other material agreement or instrument to which ICG is a
party or by which ICG is bound; (vi) ICG shall have delivered to the
Trustee an Officers' Certificate stating that the deposit was not made by
ICG with the intent of preferring the holders of Exchange Debentures over
the other creditors of ICG or with the intent of defeating, hindering,
delaying or defrauding creditors of the Company or others; and (vii) ICG
shall have delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent relating
to the legal defeasance or the covenant defeasance have been complied
with.
MODIFICATION AND WAIVER
-97-
<PAGE>
Modifications and amendments of the Exchange Debenture Indenture may
be made by ICG, the Guarantor and the Trustee with the consent of the
Holders of not less than a majority in aggregate principal amount of the
outstanding Exchange Debentures; provided, however, that no such
modification or amendment may, without consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any Exchange Debenture, (ii) reduce the
principal amount of, or any premium, if any, payable upon the redemption
of, or the rate of interest on, any Exchange Debenture, (iii) adversely
affect the right of repayment at the option of any Holder of any Exchange
Debenture, (iv) change the currency in which principal of, or premium, if
any, or interest on, any Exchange Debenture is payable, (v) impair the
right to institute suit for the enforcement of any payment on or after
the Stated Maturity (or, in the case of a redemption, on or after the
Redemption Date) of any Exchange Debenture, (vi) waive a default in the
payment of principal of, premium, if any, or interest on the Exchange
Debenture, (vii) reduce the percentage in principal amount of outstanding
Exchange Debentures the consent of whose Holders is necessary for waiver
of compliance with certain provisions of the Exchange Debenture Indenture
or for waiver of certain defaults, (viii) release the Guarantor from its
Debenture Guarantee or (ix) modify any of the provisions of Article
Eleven of the Exchange Debenture Indenture in a manner adverse to the
Holders.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS,
DIRECTORS, OR EMPLOYEES
The Exchange Debenture Indenture provides that no recourse for the
payment of the principal of, premium, if any, or interest on any of the
Exchange Debentures or for any claim based thereon or otherwise in
respect thereof, and no recourse under or upon any obligation, covenant
or agreement of ICG or the Guarantor in the Exchange Debenture Indenture,
or in any of the Exchange Debentures or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator,
shareholder, officer, director, employee or controlling person of ICG or
the Guarantor or of any successor Person thereof. Each Holder, by
accepting the Exchange Debentures, waives and releases all such
liability.
CONCERNING THE TRUSTEE
The Exchange Debenture Indenture provides that, except during the
continuance of a Default, the Trustee will not be liable, except for the
performance of such duties as are specifically set forth in such Exchange
Debenture Indenture. If an Event of Default has occurred and is
continuing, the Trustee will use the same degree of care and skill in its
exercise as a prudent person would exercise under the circumstances in
the conduct of such person's own affairs.
The Exchange Debenture Indenture and provisions of the Trust Indenture
Act of 1939, as amended, incorporated by reference therein contain
limitations on the rights of the Trustee, should it become a creditor of
ICG or the Guarantor, to obtain payment of claims in certain cases or to
realize on certain property received by it in respect of any such claims,
as security or otherwise. The Trustee is permitted to engage in other
transactions; provided, however, that if it acquires any conflicting
interest, it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Exchange
Debenture Indenture. Reference is made to the Exchange Debenture
Indenture for the full definition of such terms, as well as any other
capitalized terms used herein for which no definition is provided.
"Adjusted Consolidated Net Income" means, for any period, the
aggregate net income (or loss) of the Guarantor and its Restricted
Subsidiaries for such period determined in conformity with GAAP; provided
that the following items shall be excluded in computing Adjusted
Consolidated Net Income (without duplication): (i) the net income of any
Person (other than net income attributable to a Restricted Subsidiary) in
which any Person (other than the Guarantor or any of its Restricted
Subsidiaries) has a joint interest and the net income of any Unrestricted
Subsidiary, except to the extent of the amount of dividends or other
distributions actually paid to the Guarantor or any of its Restricted
Subsidiaries by such other Person or such Unrestricted Subsidiary during
such period; (ii) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of the "Limitation on Restricted Payments" covenant described
above (and in such case, except to
-98-
<PAGE>
the extent includable pursuant to clause (i) above), the net income (or
loss) of any Person accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with the Guarantor or any of
its Restricted Subsidiaries or all or substantially all of the property
and assets of such Person are acquired by the Guarantor or any of its
Restricted Subsidiaries; (iii) the net income of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary of such net income is
not at the time permitted by the operation of the terms of its charter or
any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Restricted Subsidiary; (iv)
any gains or losses (on an after-tax basis) attributable to Asset Sales;
(v) except for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described above, any amount
paid or accrued as dividends on preferred stock of the Guarantor or any
Restricted Subsidiary owned by Persons other than the Guarantor and any
of its Restricted Subsidiaries; and (vi) all extraordinary gains and
extraordinary losses.
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Guarantor and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the
extent resulting from write-ups of capital assets (excluding write-ups in
connection with accounting for acquisitions in conformity with GAAP),
after deducting therefrom (i) all current liabilities of the Guarantor
and its Restricted Subsidiaries (excluding intercompany items) and (ii)
all goodwill, trade names, trademarks, patents, unamortized debt discount
and expense and other like intangibles, all as set forth on the most
recently available quarterly or annual consolidated balance sheet of the
Guarantor and its Restricted Subsidiaries, prepared in conformity with
GAAP.
"Affiliate" means, as applied to any Person, any other Person directly
or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as applied to any
Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract
or otherwise; provided that, with respect to the Guarantor and any of its
Subsidiaries, the term "Affiliate" shall be deemed to include William W.
Becker, Lawrence L. Becker and any person related by blood or marriage to
either of them.
"Asset Acquisition" means (i) an investment by the Guarantor or any of
its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Guarantor or shall be
merged into or consolidated with the Guarantor or any of its Restricted
Subsidiaries; provided that such Person's primary business is related,
ancillary or complementary to the businesses of the Guarantor and its
Restricted Subsidiaries on the date of such investment or (ii) an
acquisition by the Guarantor or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Guarantor or any of its
Restricted Subsidiaries that constitute substantially all of a division
or line of business of such Person; provided that the property and assets
acquired are related, ancillary or complementary to the businesses of the
Guarantor and its Restricted Subsidiaries on the date of such
acquisition.
"Asset Disposition" means the sale or other disposition by the
Guarantor or any of its Restricted Subsidiaries (other than to the
Guarantor or another Restricted Subsidiary of the Guarantor) of (i) all
or substantially all of the Capital Stock of any Restricted Subsidiary of
the Guarantor or (ii) all or substantially all of the assets that
constitute a division or line of business of the Guarantor or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transactions) in one
transaction or a series of related transactions by the Guarantor or any
of its Restricted Subsidiaries to any Person other than the Guarantor or
any of its Restricted Subsidiaries of (i) all or any of the Capital Stock
of any Restricted Subsidiary, (ii) all or substantially all of the
property and assets of an operating unit or business of the Guarantor or
any of its Restricted Subsidiaries or (iii) any other property and assets
of the Guarantor or any of its Restricted Subsidiaries outside the
ordinary course of business of the Guarantor or such Restricted
Subsidiary and, in each case, that is not governed by the provisions of
the Exchange Debenture Indenture applicable to mergers, consolidations
and sales of assets of the Guarantor; provided that the meaning of "Asset
Sale"
-99-
<PAGE>
shall not include (A) sales or other dispositions of inventory,
receivables and other current assets, and (B) dispositions of assets of
the Guarantor or any of its Restricted Subsidiaries, in substantially
simultaneous exchanges for consideration consisting of any combination of
cash, Temporary Cash Investments and assets that are used or useful in
the telecommunications business of the Guarantor or its Restricted
Subsidiaries, if such consideration has an aggregate fair market value
substantially equal to the fair market value of the assets so disposed
of; provided, however, that fair market value shall be determined in good
faith by the Board of Directors of ICG, whose determination shall be
conclusive and evidenced by a Board Resolution delivered to the Trustee;
and provided further that any cash or Temporary Cash Investments received
by the Guarantor or any of its Restricted Subsidiaries pursuant to any
transaction described in clause (B) above shall be applied in accordance
with clause (A) or (B) of the first paragraph of the "Limitation on Asset
Sales" covenant described above.
"Average Life" means, at any date of determination with respect to any
debt security, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from such date of determination to
the dates of each successive scheduled principal payment of such debt
security and (b) the amount of such principal payment by (ii) the sum of
all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether now
outstanding or issued after the date of the Exchange Debenture Indenture,
including, without limitation, all Common Stock and preferred stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in
conformity with GAAP, is required to be capitalized on the balance sheet
of such Person; and "Capitalized Lease Obligations" means the discounted
present value of the rental obligations under such lease.
"Closing Date" means the date the New Preferred Stock is originally
issued under the Amended Articles.
"Consolidated EBITDA" means, for any period, the sum of the amounts
for such period of (i) Adjusted Consolidated Net Income, (ii)
Consolidated Interest Expense, (iii) income taxes, to the extent such
amount was deducted in calculating Adjusted Consolidated Net Income
(other than income taxes (either positive or negative) attributable to
extraordinary and non-recurring gains or losses or sales of assets), (iv)
depreciation expense, to the extent such amount was deducted in
calculating Adjusted Consolidated Net Income, (v) amortization expense,
to the extent such amount was deducted in calculating Adjusted
Consolidated Net Income, and (vi) all other non-cash items reducing
Adjusted Consolidated Net Income (other than items that will require cash
payments and for which an accrual or reserve is, or is required by GAAP
to be, made), less all non-cash items increasing Adjusted Consolidated
Net Income, all as determined on a consolidated basis for the Guarantor
and its Restricted Subsidiaries in conformity with GAAP; provided that,
if any Restricted Subsidiary is not a Wholly Owned Restricted Subsidiary,
Consolidated EBITDA shall be reduced (to the extent not otherwise reduced
in accordance with GAAP) by an amount equal to (A) the amount of the
Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the quotient of (1) the number of shares of
outstanding Common Stock of such Restricted Subsidiary not owned on the
last day of such period by the Guarantor or any of its Restricted
Subsidiaries divided by (2) the total number of shares of outstanding
Common Stock of such Restricted Subsidiary on the last day of such
period.
"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including amortization of
original issue discount on any Indebtedness and the interest portion of
any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and
other fees and charges owed with respect to letters of credit and
bankers' acceptance financing; the net costs associated with Interest
Rate Agreements; and Indebtedness that is Guaranteed or secured by the
Guarantor or any of its Restricted Subsidiaries) and all but the
principal component of rentals in respect of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by the
Guarantor and its Restricted Subsidiaries during such period; excluding,
however, without duplication, (i) any amount of such interest of any
Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of
-100-
<PAGE>
Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of
such Restricted Subsidiary is excluded from the calculation of Adjusted
Consolidated Net Income pursuant to clause (iii) of the definition
thereof) and (ii) any premiums, fees and expenses (and any amortization
thereof) payable in connection with the offering of the 13/1//2% Notes
and the warrants issued therewith, the New Notes and/or the New Preferred
Stock, all as determined on a consolidated basis (without taking into
account Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination,
stockholders' equity as set forth on the most recently available
quarterly or annual consolidated balance sheet of the Guarantor and its
Restricted Subsidiaries (which shall be as of a date not more than 90
days prior to the date of such computation, and which shall not take into
account Unrestricted Subsidiaries), less any amounts attributable to
Redeemable Stock or any equity security convertible into or exchangeable
for Indebtedness, the cost of treasury stock and the principal amount of
any promissory notes receivable from the sale of the Capital Stock of the
Guarantor or any of its Restricted Subsidiaries, each item to be
determined in conformity with GAAP (excluding the effects of foreign
currency exchange adjustments under Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 52).
"Convertible Subordinated Notes" means the 8% Convertible Subordinated
Notes and the 7% Convertible Subordinated Notes of IntelCom.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to
protect the Guarantor or any of its Restricted Subsidiaries against
fluctuations in currency values to or under which the Guarantor or any of
its Restricted Subsidiaries is a party or a beneficiary on the date of
the Exchange Debenture Indenture or becomes a party or a beneficiary
thereafter.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Exchange Debenture Issue Date" means the date the Exchange Debentures
are originally issued under the Exchange Debenture Indenture.
"FOTI" means Fiber Optic Technologies Inc., a Colorado corporation.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect as of August 8, 1995, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as
approved by a significant segment of the accounting profession. All
ratios and computations contained in the Exchange Debenture Indenture
shall be computed in conformity with GAAP applied on a consistent basis,
except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the Exchange
Debenture Indenture shall be made without giving effect to (i) the
amortization of any expenses incurred in connection with the offering of
the 13/1//2% Notes and the warrants issued therewith, the New Notes
and/or the New Preferred Stock and (ii) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting
Principles Board Opinion Nos. 16 and 17.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of
the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Indebtedness or other
obligation of such other Person (whether arising by virtue of partnership
arrangements, or by agreements to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of
assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided that the term
"Guarantee" shall not include endorsements for collection or deposit in
the ordinary course of business. The term "Guarantee" used as a verb has
a corresponding meaning.
-101-
<PAGE>
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect
to, or become responsible for, the payment of, contingently or otherwise,
such Indebtedness, including an Incurrence of Indebtedness by reason of
the acquisition of more than 50% of the Capital Stock of any Person;
provided that neither the accrual of interest nor the accretion of
original issue discount shall be considered an Incurrence of
Indebtedness. The term "Incurrence" has a corresponding meaning.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person
for borrowed money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii) all
obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect
thereto), (iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services, which purchase price is
due more than six months after the date of placing such property in
service or taking delivery and title thereto or the completion of such
services, except Trade Payables, (v) all obligations of such Person as
lessee under Capitalized Leases, (vi) all Indebtedness of other Persons
secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such
asset at such date of determination and (B) the amount of such
Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such
Person to the extent such Indebtedness is Guaranteed by such Person and
(viii) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements. The
amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above
and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, provided
(i) that the amount outstanding at any time of any Indebtedness issued
with original issue discount is the original issue price of such
Indebtedness and (ii) that Indebtedness shall not include any liability
for federal, state, local or other taxes.
"Indebtedness to EBITDA Ratio" means, as at any date of determination,
the ratio of (i) the aggregate amount of Indebtedness of the Guarantor,
ICG and their Restricted Subsidiaries on a consolidated basis
("Consolidated Indebtedness") as at the Transaction Date to (ii) the
Consolidated EBITDA of the Guarantor for the then most recent four full
fiscal quarters for which reports have been filed pursuant to the
"Reports" covenant described above (such four full fiscal quarter period
being referred to herein as the "Four Quarter Period"); provided that (x)
pro forma effect shall be given to any Indebtedness Incurred from the
beginning of the Four Quarter Period through the Transaction Date
(including any Indebtedness Incurred on the Transaction Date), to the
extent outstanding on the Transaction Date, (y) if during the period
commencing on the first day of such Four Quarter Period through the
Transaction Date (the "Reference Period"), the Guarantor, ICG or any of
the Restricted Subsidiaries shall have engaged in any Asset Sale,
Consolidated EBITDA for such period shall be reduced by an amount equal
to the EBITDA (if positive), or increased by an amount equal to the
EBITDA (if negative), directly attributable to the assets which are the
subject of such Asset Sale and any related retirement of Indebtedness as
if such Asset Sale and related retirement of Indebtedness had occurred on
the first day of such Reference Period or (z) if during such Reference
Period the Guarantor, ICG or any of the Restricted Subsidiaries shall
have made any Asset Acquisition, Consolidated EBITDA of the Guarantor
shall be calculated on a pro forma basis as if such Asset Acquisition and
any related financing had occurred on the first day of such Reference
Period. In calculating this ratio for purposes of the Amended Articles,
the amount of outstanding Indebtedness shall be deemed to include the
liquidation preference of any preferred stock then outstanding.
"IntelCom" means IntelCom Group Inc. and its successors and assigns.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of
Guarantee or similar arrangement; but excluding advances to customers in
the ordinary course of business that are, in conformity with GAAP,
recorded as accounts receivable on the balance sheet of the Guarantor or
its Restricted Subsidiaries) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property
or services for the account or use of others), or any purchase or
acquisition of Capital Stock, bonds, notes, debentures or other similar
instruments issued by, such Person and shall include the designation of a
Restricted Subsidiary as an Unrestricted Subsidiary. For purposes of the
definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described above, (i) "Investment" shall include the
fair market value of the assets (net of liabilities) of any Restricted
Subsidiary of the Guarantor at
-102-
<PAGE>
the time that such Restricted Subsidiary of the Guarantor is designated
an Unrestricted Subsidiary and shall exclude the fair market value of the
assets (net of liabilities) of any Unrestricted Subsidiary at the time
that such Unrestricted Subsidiary is designated a Restricted Subsidiary
of the Guarantor and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the
time of such transfer, in each case as determined by the Board of
Directors in good faith.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the
nature thereof, any sale with recourse against the seller or any
Affiliate of the seller, or any agreement to give any security interest).
"MTN" means Maritime Telecommunications Network, Inc., a Colorado
corporation, and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the
extent corresponding to the principal, but not interest, component
thereof) when received in the form of cash or cash equivalents (except to
the extent such obligations are financed or sold with recourse to the
Guarantor or any Restricted Subsidiary of the Guarantor) and proceeds
from the conversion of other property received when converted to cash or
cash equivalents, net of (i) brokerage commissions and other fees and
expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes (whether or not
such taxes will actually be paid or are payable) as a result of such
Asset Sale without regard to the consolidated results of operations of
the Guarantor and its Restricted Subsidiaries, taken as a whole, (iii)
payments made to repay Indebtedness or any other obligation outstanding
at the time of such Asset Sale that either (A) is secured by a Lien on
the property or assets sold or (B) is required to be paid as a result of
such sale and (iv) appropriate amounts to be provided by the Guarantor or
any Restricted Subsidiary of the Guarantor as a reserve against any
liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as
determined in conformity with GAAP and (b) with respect to any issuance
or sale of Capital Stock, the proceeds of such issuance or sale in the
form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are
financed or sold with recourse to the Guarantor or any Restricted
Subsidiary of the Guarantor) and proceeds from the conversion of other
property received when converted to cash or cash equivalents, net of
attorney's fees, accountants' fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultant and other fees
incurred in connection with such issuance or sale and net of taxes paid
or payable as a result thereof.
"Offer to Purchase" means an offer to purchase Exchange Debentures by
ICG from the Holders commenced by mailing a notice to the Trustee and
each Holder stating: (i) the covenant pursuant to which the offer is
being made and that all Exchange Debentures validly tendered will be
accepted for payment on a pro rata basis; (ii) the purchase price and the
date of purchase (which shall be a Business Day no earlier than 30 days
nor later than 60 days from the date such notice is mailed) (the "Payment
Date"); (iii) that any Exchange Debenture not tendered will continue to
accrue interest pursuant to its terms; (iv) that, unless ICG defaults in
the payment of the purchase price, any Exchange Debenture accepted for
payment pursuant to the Offer to Purchase shall cease to accrue interest
on and after the Payment Date; (v) that Holders electing to have an
Exchange Debenture purchased pursuant to the Offer to Purchase will be
required to surrender the Exchange Debenture, together with the form
entitled "Option of the Holder to Elect Purchase" on the reverse side of
the Exchange Debenture completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business
Day immediately preceding the Payment Date; (vi) that Holders will be
entitled to withdraw their election if the Paying Agent receives, not
later than the close of business on the third Business Day immediately
preceding the Payment Date, a telegram, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of Exchange
Debentures delivered for purchase and a statement that such Holder is
withdrawing his election to have such Exchange Debentures purchased; and
(vii) that Holders whose Exchange Debentures are being purchased only in
part will be issued new Exchange Debentures equal in principal amount to
the unpurchased portion of the Exchange Debentures surrendered; provided
that each Exchange Debenture purchased and each new Exchange Debenture
issued shall be in a principal amount of $1,000 or integral multiples
thereof. On the Payment Date, ICG shall (i) accept for payment on a pro
-103-
<PAGE>
rata basis Exchange Debentures or portions thereof tendered pursuant to
an Offer to Purchase; (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Exchange Debentures or portions thereof,
so accepted; and (iii) deliver, or cause to be delivered, to the Trustee
or Transfer Agent, as the case may be, all Exchange Debentures or
portions thereof, so accepted together with an Officers' Certificate
specifying the Exchange Debentures or portions thereof accepted for
payment by ICG. The Paying Agent shall promptly mail to the Holders of
Exchange Debentures so accepted, payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail to
such Holders a new Exchange Debenture equal in principal amount to any
unpurchased portion of the Exchange Debenture surrendered; provided that
each Exchange Debenture purchased and each new Exchange Debenture issued
shall be in a principal amount of $1,000 or integral multiples thereof.
ICG 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. ICG 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
ICG is required to repurchase Exchange Debentures pursuant to an Offer to
Purchase.
"Ohio LINX" means ICG Ohio LINX, Inc., an Ohio corporation.
"Permitted Investment" means (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment,
become a Restricted Subsidiary or be merged or consolidated with or into
or transfer or convey all or substantially all its assets to, the
Guarantor or a Restricted Subsidiary; provided that such person's primary
business is related, ancillary or complementary to the businesses of the
Guarantor and its Restricted Subsidiaries on the date of such Investment;
(ii) a Temporary Cash Investment; (iii) payroll, travel and similar
advances to cover matters that are expected at the time of such advances
ultimately to be treated as expenses in accordance with GAAP; (iv) loans
or advances to employees made in the ordinary course of business in
accordance with past practice of the Guarantor or its Restricted
Subsidiaries and that do not in the aggregate exceed $2 million at any
time outstanding; and (v) stock, obligations or securities received in
satisfaction of judgments.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for
which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made; (ii) statutory
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other similar Liens arising in the ordinary
course of business and with respect to amounts not yet delinquent or
being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (iv) Liens
incurred or deposits made to secure the performance of tenders, bids,
leases, statutory or regulatory obligations, bankers' acceptances, surety
and appeal bonds, government contracts, performance and return-of-money
bonds and other obligations of a similar nature incurred in the ordinary
course of business (exclusive of obligations for the payment of borrowed
money); (v) easements, rights of way, municipal and zoning ordinances and
similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of the
Guarantor or any of its Restricted Subsidiaries; (vi) Liens (including
extensions and renewals thereof) upon real or personal property acquired
after the Closing Date; provided that (a) such Lien is created solely for
the purpose of securing Indebtedness Incurred, in accordance with the
"Limitation on Indebtedness" covenant described above, (1) to finance the
cost (including the cost of improvement or construction) of the item of
property or assets subject thereto and such Lien is created prior to, at
the time of or within six months after the later of the acquisition, the
completion of construction or the commencement of full operation of such
property or (2) to refinance any Indebtedness previously so secured, (b)
the principal amount of the Indebtedness secured by such Lien does not
exceed 100% of such cost and (c) any such Lien shall not extend to or
cover any property or assets other than such item of property or assets
and any improvements on such item; (vii) leases or subleases granted to
others that do not materially interfere with the ordinary course of
business of the Guarantor and its Restricted Subsidiaries, taken as a
whole; (viii) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of the Guarantor
or its Restricted Subsidiaries relating to such property or assets; (ix)
any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease; (x) Liens arising from filing
Uniform Commercial Code financing statements regarding leases; (xi) Liens
on property of, or on shares of stock
-104-
<PAGE>
or Indebtedness of, any corporation existing at the time such corporation
becomes, or becomes a part of, any Restricted Subsidiary; provided that
such Liens do not extend to or cover any property or assets of the
Guarantor or any Restricted Subsidiary other than the property or assets
acquired; (xii) Liens in favor of the Guarantor or any Restricted
Subsidiary; (xiii) Liens arising from the rendering of a final judgment
or order against the Guarantor or any Restricted Subsidiary of the
Guarantor that does not give rise to an Event of Default; (xiv) Liens
securing reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit
and the products and proceeds thereof; (xv) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods; (xvi) Liens
encumbering customary initial deposits and margin deposits, and other
Liens that are either within the general parameters customary in the
industry and incurred in the ordinary course of business, in each case,
securing Indebtedness under Interest Rate Agreements and Currency
Agreements and forward contracts, options, future contracts, futures
options or similar agreements or arrangements designed to protect the
Guarantor or any of its Restricted Subsidiaries from fluctuations in the
price of commodities; (xvii) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods
entered into by the Guarantor or any of its Restricted Subsidiaries in
the ordinary course of business in accordance with the past practices of
the Guarantor and its Restricted Subsidiaries prior to the Closing Date;
and (xviii) Liens on or sales of receivables.
"Preferred stock" or "preferred stock" means, with respect to any
Person, any and all shares, interests, participations or other
equivalents (however designated, whether voting or non-voting) of such
Person's preferred or preference stock, whether now outstanding or issued
after the date of the Exchange Debenture Indenture, including, without
limitation, all series and classes of such preferred or preference stock.
"Public Equity Offering" means a bona fide underwritten primary public
offering of Common Stock of ICG or IntelCom pursuant to an effective
registration statement under the Securities Act.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Exchange Debentures, (ii) redeemable
at the option of the holder of such class or series of Capital Stock at
any time prior to the Stated Maturity of the Exchange Debentures, or
(iii) convertible into or exchangeable for Capital Stock referred to in
clause (i) or (ii) above or Indebtedness having a scheduled maturity
prior to the Stated Maturity of the Exchange Debentures; provided that
any Capital Stock that would not constitute Redeemable Stock but for
provisions thereof giving holders thereof the right to require such
Person to repurchase or redeem such Capital Stock upon the occurrence of
an "asset sale" or "change of control" occurring prior to the Stated
Maturity of the Exchange Debentures shall not constitute Redeemable Stock
if the "asset sale" or "change of control" provisions applicable to such
Capital Stock are no more favorable to the holders of such Capital Stock
than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Exchange Debentures upon a Change of Control" covenants
described above and such Capital Stock specifically provides that such
Person will not repurchase or redeem any such stock pursuant to such
provision prior to the Guarantor's or ICG's repurchase of such Exchange
Debentures, as are required to be repurchased pursuant to the "Limitation
on Asset Sales" and "Repurchase of Exchange Debentures upon a Change of
Control" covenants described above.
"Restricted Subsidiary" means any Subsidiary of the Guarantor other
than an Unrestricted Subsidiary.
"New Notes" means the New Notes Due 2006 of ICG, guaranteed by
IntelCom on a senior unsecured basis and issued on the Closing Date.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary of the Guarantor that, together with its
Subsidiaries, (i) for the most recent fiscal year of the Guarantor,
accounted for more than 10% of the consolidated revenues of the Guarantor
and its Restricted Subsidiaries or (ii) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the
Guarantor and its Restricted Subsidiaries, all as set forth on the most
recently available consolidated financial statements of the Guarantor for
such fiscal year.
"StarCom" means StarCom International Optics Corporation, a British
Columbia corporation, and its subsidiaries.
-105-
<PAGE>
"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and
(ii) with respect to any scheduled installment of principal of or
interest on any debt security, the date specified in such debt security
as the fixed date on which such installment is due and payable.
"Strategic Investor" means any Person engaged in the
telecommunications business which has a net worth or equity market
capitalization of at least $1 billion.
"Strategic Investor Subordinated Indebtedness" means all Indebtedness
of ICG owed to a Strategic Investor that is contractually subordinate in
right of payment to the Exchange Debentures to at least the following
extent: no payment of principal (or premium, if any) or interest on or
otherwise payable in respect of such Indebtedness may be made (whether as
a result of a default or otherwise) prior to the payment in full of all
of the Guarantor's and ICG's obligations under the Exchange Debentures;
provided, however, that prior to the payment of such obligations,
interest on Strategic Investor Subordinated Indebtedness may be payable
solely in kind or in Common Stock (other than Redeemable Stock) of the
Guarantor.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the
outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or
obligations fully and unconditionally guaranteed by the United States of
America or any agency thereof, (ii) time deposit accounts, certificates
of deposit and money market deposits maturing within 270 days of the date
of acquisition thereof, bankers' acceptances with maturities not
exceeding 270 days, and overnight bank deposits, in each case issued by
or with a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has
capital, surplus and undivided profits aggregating in excess of $100
million (or the foreign currency equivalent thereof) and has outstanding
debt which is rated "A" (or such similar equivalent rating) or higher by
at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund
sponsored by a registered broker dealer or mutual fund distributor, (iii)
repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (i) above entered
into with a bank meeting the qualifications described in clause (ii)
above, (iv) commercial paper, maturing not more than 180 days after the
date of acquisition, issued by a corporation (other than an Affiliate of
the Guarantor) organized and in existence under the laws of the United
States of America, any state thereof or any foreign country recognized by
the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's
Investors Service, Inc. or "A-1" (or higher) according to Standard &
Poor's Ratings Group, and (v) securities with maturities of six months or
less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States
of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Ratings Group or Moody's
Investors Service, Inc.
"13 1/2% Notes" means the 13 1/2% Notes Due 2005 of ICG guaranteed by
IntelCom on a senior unsecured basis.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Guarantor or any of its Restricted Subsidiaries, the
date such Indebtedness is to be Incurred and, with respect to any
Restricted Payment, the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Guarantor
that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and
(ii) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors may designate any Restricted Subsidiary of the Guarantor
(including any newly acquired or newly formed Subsidiary of the
Guarantor), other than ICG or a Subsidiary that has given a Subsidiary
Guarantee, to be an Unrestricted Subsidiary unless such Subsidiary owns
any Capital Stock of, or owns or holds any Lien on any property of, the
Guarantor or any Restricted Subsidiary;
-106-
<PAGE>
provided that either (A) the Subsidiary to be so designated has total
assets of $1,000 or less or (B) if such Subsidiary has assets greater
than $1,000, that such designation would be permitted under the
"Limitation on Restricted Payments" covenant described above. The Board
of Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary of the Guarantor; provided that immediately after giving
effect to such designation (x) the Guarantor could Incur $1.00 of
additional Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant described above and (y) no Default or Event of
Default shall have occurred and be continuing. Any such designation by
the Board of Directors shall be evidenced to the Trustee by promptly
filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Voting Stock" means, with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person,
such Subsidiary if all of the outstanding Capital Stock in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned by such Person or
one or more Wholly Owned Subsidiaries of such Person.
"Zycom" means Zycom Corporation, an Alberta, Canada corporation.
-107-
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
Reid & Priest LLP, counsel to the Company, has advised the Company
that the following summary expresses their opinion as to the material
anticipated federal income tax consequences of the purchase, ownership
and disposition of the New Notes, the New Preferred Stock and the
Exchange Debentures. Except where noted, it deals only with New Notes,
New Preferred Stock and Exchange Debentures held as capital assets by
United States Holders and does not deal with special situations, such as
those of dealers in securities or currencies, financial institutions,
life insurance companies, persons holding New Notes, New Preferred Stock
or Exchange Debentures as a part of a hedging or conversion transaction
or a straddle or United States Holders whose "functional currency" is not
the U.S. dollar. It does not describe any federal income tax
consequences of the purchase, ownership or disposition of the New
Preferred Stock or the Exchange Debentures by Non-United States Holders,
as defined below, because the Old Preferred Stock and Exchange Debentures
were not sold in the Private Offering to persons other than United States
Holders. Furthermore, the discussion below is based upon the provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), and
regulations, including final Treasury regulations addressing debt
instruments issued with original issue discount (the "OID Regulations"),
rulings and judicial decisions thereunder as of the date hereof, and such
authorities may be repealed, revoked or modified so as to result in
federal income tax consequences different from those discussed below.
ALL PROSPECTIVE PURCHASERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE NEW NOTES, THE NEW PREFERRED
STOCK OR THE EXCHANGE DEBENTURES.
EXCHANGE OF NEW PREFERRED STOCK OR NEW NOTES
An exchange of the New Preferred Stock for the Old Preferred Stock, or
the New Notes for the Old Notes should not constitute a taxable event for
federal income tax purposes because the New Preferred Stock should not be
considered to differ materially in kind or extent from the Old Preferred
Stock and the New Notes should not be considered to differ materially in
kind or extent from the Old Notes. Rather, the New Preferred Stock
received by a holder should be treated as a continuation of the Old
Preferred Stock in the hands of such holder and the New Notes should be
treated as a continuation of the Old Notes in the hands of such holder.
As a result, holders who exchange their Old Preferred Stock for New
Preferred Stock or their Old Notes for New Notes should not recognize any
income, gain or loss for federal income tax purposes with respect to such
exchange. The following discussion assumes that an exchange of New
Preferred Stock for Old Preferred Stock or an exchange of New Notes for
Old Notes will not be treated as an exchange for federal income tax
purposes.
TAX CONSEQUENCES TO UNITED STATES HOLDERS
As used herein, a "United States Holder" means a beneficial owner that
is a citizen or resident of the United States, a corporation, partnership
or other entity created or organized in or under the laws of the United
States or any political subdivision thereof, or an estate or trust the
income of which is subject to United States federal income taxation
regardless of its source. 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.
DIVIDENDS ON THE NEW PREFERRED STOCK
Distributions of cash or of additional New Preferred Stock on the New
Preferred Stock will be treated as dividends to United States Holders to
the extent of the Company's current and accumulated earnings and profits
as determined under federal income tax principles. The amount of the
Company's earnings and profits at any time will depend upon the future
actions and financial performance of the Company. The amount of a
distribution of additional New Preferred Stock will equal the fair market
value New Preferred Stock distributed on the date of the distribution.
The Company believes that it does not presently have any current or
accumulated earnings and profits.
-108-
<PAGE>
Consequently, unless the Company generates earnings and profits in the
future, distributions with respect to the New Preferred Stock may not
qualify as dividends for federal income tax purposes. To the extent that
the amount of a distribution on the New Preferred Stock exceeds the
Company's current and accumulated earnings and profits, such
distributions will be treated as a nontaxable return of capital and will
be applied against and reduce the adjusted tax basis of the New Preferred
Stock in the hands of each United States Holder (but not below zero),
thus increasing the amount of any gain (or reducing the amount of any
loss) which would otherwise be realized by such United States Holder upon
the sale or other taxable disposition of such New Preferred Stock. The
amount of any such distribution which exceeds the adjusted tax basis of
the New Preferred Stock in the hands of the United States Holder will be
treated as capital gain and will be either long-term or short-term
capital gain depending on the United States Holder's holding period for
the New Preferred Stock.
Under Section 243 of the Code, corporate United States Holders
generally will be able to deduct 70% of the amount of any distribution
qualifying as a dividend. There are, however, many exceptions and
restrictions relating to the availability of such dividends-received
deduction. Section 246A of the Code reduces the dividends-received
deduction allowed to a corporate United States Holder that has incurred
indebtedness "directly attributable" to its investment in portfolio
stock. Section 246(c) of the Code requires that, in order to be eligible
for the dividends-received deduction, a corporate United States Holder
must generally hold the shares of New Preferred Stock for a 46-day
minimum holding period or a 91-day period in certain circumstances. A
taxpayer's holding period for these purposes is suspended during any
period in which a United States Holder has certain options or contractual
obligations with respect to substantially identical stock or holds one or
more other positions with respect to substantially identical stock that
diminishes the risk of loss from holding the New Preferred Stock. A
recent legislative proposal would (i) reduce the dividends-received
deduction from 70% to 50%, and (ii) modify the manner in which the 46- or
91-day minimum holding period is determined. It is unclear whether and
in what form such proposal will be enacted.
Under Section 1059 of the Code a corporate United States Holder is
required to reduce its tax basis (but not below zero) in the New
Preferred Stock by the nontaxed portion of any "extraordinary dividend"
if such stock has not been held for more than two years before the
earliest of the date such dividend is declared, announced or agreed to.
Generally, the nontaxed portion of an extraordinary dividend is the
amount excluded from income by operation of the dividends-received
deduction provisions of Section 243 of the Code. An extraordinary
dividend on the New Preferred Stock generally would be a dividend that
(i) equals or exceeds 5% of the corporate United States Holder's adjusted
tax basis in the New Preferred Stock, treating all dividends having ex-
dividend dates within an 85-day period as one dividend or (ii) exceeds
20% of the corporate United States Holder's adjusted tax basis in such
stock, treating all dividends having ex-dividend dates within a 365-day
period as one dividend. In determining whether a dividend paid on the
New Preferred Stock is an extraordinary dividend, a corporate United
States Holder may elect to substitute the fair market value of the New
Preferred Stock for such United States Holder's tax basis for purposes of
applying these tests, provided such fair market value is established to
the satisfaction of the Secretary of Treasury (the "Secretary") as of the
day before the ex-dividend date. An extraordinary dividend also
currently includes any amount treated as a dividend in the case of a
redemption that is either non-pro rata as to all stockholders or in
partial liquidation of the Company, regardless of the stockholder's
holding period and regardless of the size of the dividend, including a
redemption pursuant to ICG's right to redeem the New Preferred Stock for
cash or exchange the New Preferred Stock for Exchange Debentures. If any
part of the nontaxed portion of an extraordinary dividend is not applied
to reduce the corporate United States Holder's tax basis as a result of
the limitation on reducing such basis below zero, such part will be
treated as gain upon sale or exchange of the New Preferred Stock.
However, recently introduced legislation would require gain on the
nontaxed portion of an extraordinary dividend to be recognized at the
time when the extraordinary dividend is paid rather than at the time of
the sale or exchange of the New Preferred Stock. It is unclear whether
and in what form such legislation will be enacted. Special rules exist
with respect to extraordinary dividends for "qualified preferred
dividends." A qualified preferred dividend is any fixed dividend payable
with respect to any share of stock which (i) provides for fixed preferred
dividends payable not less frequently than annually and (ii) is not in
arrears as to dividends at the time the United States Holder acquires
such stock. A qualified preferred dividend does not include any dividend
payable with respect to any share of stock if the actual rate of return
of such stock exceeds 15%. Section 1059 does not apply to qualified
preferred dividends if the corporate United States Holder holds such
stock for more than five years. If the United States Holder disposes of
such stock before it has been held for more than five years, the
-109-
<PAGE>
amount subject to extraordinary dividend treatment with respect to
qualified preferred dividends is limited to the excess of the actual rate
of return over the stated rate of return. Actual or stated rates of
return are the actual or stated dividends expressed as a percentage of
the lesser of (1) the United States Holder's tax basis in such stock or
(2) the liquidation preference of such stock. CORPORATE UNITED STATES
HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE
POSSIBLE APPLICATION OF SECTION 1059 TO THEIR OWNERSHIP AND DISPOSITION
OF THE NEW PREFERRED STOCK.
A corporate United States Holder's liability for alternative minimum
tax may be affected by the portion of the dividends received which such
corporate United States Holder deducts in computing taxable income. This
results from the fact that corporate stockholders are required to
increase alternative minimum taxable income by 75% of the excess of
current earnings and profits (with certain adjustments) over alternative
minimum taxable income (determined without regard to earnings and profit
adjustments or the alternative tax net operating loss deduction).
REDEMPTION PREMIUM
Under Section 305(c) of the Code and the applicable Treasury
regulations thereunder, if the redemption price of New Preferred Stock
exceeds its issue price, the difference ("redemption premium") may be
taxable as a constructive distribution of additional New Preferred Stock
to the United States Holder (treated as a dividend to the extent of the
Company's current and accumulated earnings and profits and otherwise
subject to the treatment described above for distributions) over a
certain period. Because the New Preferred Stock provides for an optional
right of redemption by the Company at a price in excess of the issue
price, United States Holders could be required to recognize such
redemption premium under a constant interest rate method similar to that
described below for accruing OID (see "--Original Issue Discount") if,
based on all of the facts and circumstances, the optional redemption is
more likely than not to occur. If stock may be redeemed at more than one
time, the time and price at which such redemption is most likely to occur
must be determined based on all of the facts and circumstances.
Applicable Treasury regulations provide a "safe harbor" under which a
right to redeem will not be treated as more likely than not to occur if
(i) the issuer and the United States Holder are not related within the
meaning of the Treasury regulations; (ii) there are no plans,
arrangements or agreements that effectively require or are intended to
compel the issuer to redeem the stock (disregarding, for this purpose, a
separate mandatory redemption) and (iii) exercise of the right to redeem
would not reduce the yield of the stock, as determined under the Treasury
regulations. Further, the Treasury regulations provide that such
redemption premium is not taxable as a constructive distribution if it is
solely in the nature of a penalty for premature redemption. A redemption
premium is solely in the nature of a penalty for premature redemption if
it is paid as a result of changes in economic or market conditions over
which neither the issuer nor the holder have control. Regardless of
whether the optional redemption is more likely than not to occur or
whether the redemption premium is solely in the nature of a penalty for
premature redemption, constructive dividend treatment will not result if
the redemption premium does not exceed a de minimis amount. Based on the
Treasury regulations, the Company intends to take the position that the
existence of the Company's optional redemption right does not result in a
constructive distribution to the United States Holders.
REDEMPTION AND EXCHANGE FOR EXCHANGE DEBENTURES
A redemption of shares of the New Preferred Stock for cash or an
exchange of the New Preferred Stock for Exchange Debentures will be a
taxable transaction on which a United States Holder will generally
recognize capital gain or loss (except to the extent of amounts received
on the exchange that are attributable to declared dividends, which will
be treated in the same manner as distributions described above) provided
that the redemption (i) results in complete termination of the holder's
stock interest in ICG or (ii) results in a "meaningful reduction" in a
United States Holder's stock interest in the Company. Whether a
redemption will result in a meaningful reduction depends on the
particular holder's facts and circumstances. In determining whether a
United States Holder's interest in ICG has been reduced or terminated,
the holder is deemed, under the constructive ownership rules of Section
302(c) of the Code, to own any shares of ICG stock that are owned, or
deemed owned, by certain related persons and entities and any shares that
such holder, or related person or entity, has the right to acquire by
exercise of an option. If the redemption of the New Preferred Stock does
not result in a complete termination or meaningful reduction, as
described above, the transaction would be treated as a distribution of
cash or Exchange Debentures, as the case may be. Such distribution will
be treated in the same manner as distributions described above. However,
corporate
-110-
<PAGE>
holders should be aware that to the extent such distribution is treated
as a dividend it would be an extraordinary dividend under Section 1059 of
the Code. If the redemption of the New Preferred Stock does result in a
complete termination or meaningful reduction, the gain or loss recognized
on such exchange will generally be equal to the difference between the
amount realized by the United States Holder of the New Preferred Stock
and such United States Holder's adjusted tax basis in the New Preferred
Stock surrendered in the redemption.
In the case of a redemption for cash, the amount realized will be the
cash received on the redemption. In the case of an exchange of New
Preferred Stock for Exchange Debentures, the amount realized on receipt
of the Exchange Debenture would be equal to the "issue price" of the
Exchange Debenture. Thus, the amount realized on the exchange will be
equal to the issue price of the Exchange Debentures plus any cash
received on the exchange (other than cash received with respect to
declared dividends). The issue price of an Exchange Debenture would be
equal to its fair market value if as of the exchange date the Exchange
Debentures or the New Preferred Stock are traded on an established
securities market on or at any time during the 60-day period ending 30
days after the exchange date. If neither the New Preferred Stock nor the
Exchange Debentures are so traded, the issue price of the Exchange
Debentures would be the stated principal amount of the Exchange
Debentures provided that the yield on the Exchange Debentures is equal to
or greater than the "applicable federal rate" in effect at the time the
Exchange Debenture is issued. If the yield on the Exchange Debentures is
less than such applicable federal rate, its issue price under Section
1274 of the Code would be equal to the present value as of the issue date
of all payments to be made on the Exchange Debentures, discounted at the
applicable federal rate. It cannot be determined at the present time
whether the New Preferred Stock or the Exchange Debentures will be, at
the relevant time, traded on an established securities market within the
meaning of the Proposed Regulations.
Depending upon a United States Holder's particular circumstances, the
tax consequences of holding Exchange Debentures may be less advantageous
than the tax consequences of holding New Preferred Stock because, for
example, payments of interest on the Exchange Debentures will not be
eligible for any dividends-received deduction that may be available to
corporate United States Holders and because, as discussed below, the
Exchange Debentures will be issued with OID.
PAYMENTS OF INTEREST ON THE NEW NOTES AND EXCHANGE DEBENTURES
The stated interest on a New Note and, if issued with OID, an Exchange
Debenture will not be treated as interest for federal income tax
purposes, but instead will be subject to the OID rules described below.
If the Exchange Debentures are not issued with OID, then interest on an
Exchange Debenture generally will be includible in a United States
Holder's income as ordinary income under the Holder's method of
accounting.
In the event IntelCom makes payments to a United States Holder
pursuant to the Note Guarantee or the Debenture Guarantee, such Holder
will be required to include in income, as ordinary income, not only
amounts received but also any additional amounts payable for Canadian
withholding taxes.
ORIGINAL ISSUE DISCOUNT
The New Notes were, and the Exchange Debentures, if issued in exchange
for New Preferred Stock, may be, issued with OID, as further discussed
below. United States Holders of New Notes or Exchange Debentures issued
with OID will be subject to special tax accounting rules, as described in
greater detail below. Holders of such New Notes or Exchange Debentures
should be aware that they generally must include OID in gross income for
federal income tax purposes on an annual basis under a constant yield
accrual method. As a result, Holders will include OID in income in
advance of the receipt of cash attributable to that income. However,
United States Holders of New Notes or Exchange Debentures issued with OID
generally will not be required to include separately in income cash
payments received on such Notes or Debentures, even if denominated as
interest, to the extent such payments do not constitute qualified stated
interest (as defined below). The New Notes and Exchange Debentures
issued with OID will be referred to as "Original Issue Discount
Debentures." The Company will report to United States Holders of New
Notes on a timely basis the reportable amount of OID and interest income
based on its understanding of applicable law and, if any Exchange
Debentures are issued with OID, the Company will report such amounts to
-111-
<PAGE>
United States Holders of such Debentures. STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE CONSEQUENCES OF OWNING EXCHANGE
DEBENTURES.
The amount of OID, if any, on a debt instrument is the excess of its
"stated redemption price at maturity" over its "issue price," subject to
a statutorily defined de minimis exception. The "issue price" of a debt
instrument issued for cash is equal to the first price (excluding sales
to bond houses and brokers) at which price a substantial amount of such
debt instruments was sold. The "stated redemption price at maturity" of
a debt instrument is the sum of its principal amount plus all other
payments required thereunder, other than payments of "qualified stated
interest" (defined generally as stated interest that is unconditionally
payable in cash or in property (other than the debt instruments of the
issuer), at least annually at a single fixed rate that appropriately
takes into account the length of intervals between payments).
Because interest on the New Notes is not payable until November 1,
2001, the stated interest on the New Notes will not be treated as
qualified stated interest. In addition, the New Notes were issued at a
price that was less than the stated principal amount. As a result, the
New Notes will be treated as having been issued with OID equal to the
excess of their stated redemption price at maturity (which will be equal
to the sum of the principal amount plus all payments of stated interest)
over the issue price of the Old Notes (which will be equal to the initial
price at which a substantial amount of Old Notes were sold (excluding
sales to bond houses and brokers)).
In the event that an exchange offer is not consummated or shelf
==
registration is not declared effective prior to the date that is six
months after the Closing Date then, as liquidated damages, additional
interest payable in cash ("Additional Interest") shall become payable
with respect to the New Notes. Treasury regulations provide that in the
case of a debt instrument such as a New Note that provides for an
alternative payment schedule applicable upon the occurrence of one or
more contingencies, the yield and maturity of such debt instrument for
purposes of calculating the amount of OID are determined by assuming that
the payments will be made according to the stated payment schedule of the
debt instrument unless, based on all the facts and circumstances as of
the closing date, it is more likely than not that payments will not be
made in accordance with the stated payment schedule of the debt
instrument. ICG has determined that it is more likely than not that
Additional Interest will not be required to be paid. As a result, ICG
will calculate OID with respect to the New Notes by assuming that no
Additional Interest will be paid. This determination by ICG is generally
binding on all holders of New Notes, unless a Holder explicitly discloses
on a statement attached to such Holder's timely filed United States
federal income tax return for the taxable year that includes the
acquisition date of the Note that its determination of yield and maturity
is different from that of ICG. The yield to maturity of the New Notes
is, rounded to two decimal places, 12.50%, based on the issue price and
computed on the basis of semiannual compounding. The above yield does
not take into account any Additional Interest. There can be no assurance
that forthcoming regulations will not require that such amounts be
included in computing the yield to maturity. If Additional Interest does
become payable, then solely for purposes of the accrual of OID, the yield
and maturity of the New Notes will be redetermined by treating the New
Notes as reissued on the date the exchange offer requirement is not met
for an amount equal to its adjusted issue price on that date.
Because ICG has the option through May 1, 2001 to pay interest on the
Exchange Debentures by issuing additional Exchange Debentures, if any
Exchange Debentures are issued on or prior to that date none of the
stated interest on the Exchange Debentures would be treated as qualified
stated interest unless under special rules for interest holidays the
amount of OID is treated as de minimis. Any Exchange Debentures so
issued would be treated as having been issued with OID equal to the
excess of their stated redemption price at maturity (which will be equal
to the sum of the principal amount plus all payments of stated interest)
over their issue price (which will be as described under the "--
Redemption and Exchange for Exchange Debenture", above). Any additional
Exchange Debentures issued in lieu of cash would not be treated as debt
instruments separate from the Exchange Debentures upon which they were
issued, but instead are aggregated with such Exchange Debentures.
The right to issue additional Exchange Debentures in lieu of paying
cash interest through May 1, 2001 is treated for purposes of the original
issue discount provisions of the Code as an option to defer the interest
payments on the Exchange Debentures until maturity. Treasury regulations
provide that in the case of a debt instrument that provides the issuer
with an unconditional option or options exercisable during the term of
the debt instrument that,
-112-
<PAGE>
if exercised, require payments to be made on the debt instrument under an
alternative payment schedule, the yield and maturity of such debt
instrument for purposes of calculating OID are determined by assuming the
issuer exercises or does not exercise the option in a manner that
minimizes the yield on the debt instrument.
If the issue price of the Exchange Debentures is equal to their
principal amount, the yield to maturity of the Exchange Debentures if the
option to pay interest with additional Exchange Debentures is exercised
will be equal to the yield to maturity if the option is not exercised.
Accordingly, for purposes of calculating OID, it would be assumed that
ICG will not exercise the option because exercise of the option will not
minimize the yield. If the option was in fact subsequently exercised and
additional Exchange Debentures were issued by ICG in lieu of cash, such
additional Exchange Debentures would be aggregated with the Exchange
Debentures upon which they were issued, and OID would be calculated for
the remainder of the term of the Exchange Debentures based upon an
adjusted issue price which includes the principal amount of the
additional Exchange Debentures. As a result of such exercise, United
States Holders of Exchange Debentures would include OID in income in
advance of the receipt of cash, regardless of such Holders' regular
methods of accounting.
If the issue price of the Exchange Debentures is less than their
principal amount, the yield to maturity of the Exchange Debentures, if
the option to pay interest with additional Exchange Debentures is
exercised, will be less than the yield to maturity if the option is not
exercised. Accordingly, for purposes of calculating OID, it would be
assumed that ICG will exercise the option because to do so will minimize
the yield. If ICG does in fact exercise its option and issues additional
Exchange Debentures in lieu of cash, United States Holders of Exchange
Debentures will include OID in income in advance of the receipt of cash,
regardless of such Holders' regular methods of accounting. If ICG
subsequently makes a cash payment instead of exercising its option and
issuing an additional Exchange Debenture, the cash payment made will be
treated as a prepayment of the Exchange Debentures, partially retiring
such Exchange Debentures on a pro rata basis on the date of such payment.
Such retirement would be a taxable exchange to the Holder of the Exchange
Debenture.
If the Exchange Debentures are issued after May 1, 2001, ICG would not
have the option to pay interest with additional Exchange Debentures. In
such event, (i) all interest payments on any Exchange Debenture issued
will be qualified stated interest, (ii) the redemption price at maturity
of any Exchange Debenture will be equal to its principal amount, and
(iii) any Exchange Debenture will therefore be issued with OID only to
the extent its principal amount exceeds its issue price (provided that
such excess is not de minimis).
The amount of OID includible in income by the initial United States
Holder of an Original Issue Discount Debenture is the sum of the "daily
portions" of OID with respect to the Original Issue Discount Debenture
for each day during the taxable year or portion of the taxable year in
which such United States Holder held such Debenture ("accrued OID"). The
daily portion is determined by allocating to each day in any "accrual
period" a pro rata portion of the OID allocable to that accrual period.
The "accrual period" for an Original Issue Discount Debenture may be of
any length and may vary in length over the term of the Original Issue
Discount Debenture, provided that each accrual period is no longer than
one year and each scheduled payment of principal or interest occurs on
the first day or the final day of an accrual period. The amount of OID
allocable to any accrual period is an amount equal to the excess, if any,
of (a) the product of the Original Issue Discount Debenture's adjusted
issue price at the beginning of such accrual period and its yield to
maturity (determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual
period) over (b) the sum of any qualified stated interest allocable to
the accrual period. OID allocable to a final 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, 12.50%. Special rules will apply for
calculating OID for an initial short accrual period. The "adjusted issue
price" of an Original Issue Discount Debenture at the beginning of any
accrual period is equal to its issue price increased by the accrued OID
for each prior accrual period (determined without regard to the
amortization of any acquisition or bond premium, as described below) and
reduced by any payments made on such Debenture (other than qualified
stated interest) on or before the first day of the accrual period.
Both the New Notes and the Exchange Debentures may be redeemed prior
to their Stated Maturity at the option of the Company. For purposes of
computing the yield of such instrument, ICG will be deemed to exercise
-113-
<PAGE>
or not exercise its option to redeem the Original Issue Discount
Debentures in a manner that minimizes the yield on the Original Issue
Discount Debentures. It is not anticipated that ICG's ability to redeem
prior to stated maturity would affect the yield of such instrument.
In the event of a change of control, ICG will be required to offer to
repurchase all of the New Notes and the Exchange Debentures. The right
of holders to require repurchase upon a Change of Control will not affect
the yield or maturity date of (i) the New Notes or any Exchange
Debentures issued before August 13, 1996 unless, based on all the facts
and circumstances as of the issue date, it is more likely than not that
such an event giving rise to the repurchase will occur or (ii) any
Exchange Debentures issued on or after August 13, 1996, provided that,
based on all the facts and circumstances as of the issue date, the
payment schedule on such Exchange Debentures that does not reflect a
change of control is significantly more likely than not to occur.
ICG does not intend to treat the change of control provisions of the New
Notes or the Exchange Debentures as affecting the computation of the
yield to maturity of any New Notes or Exchange Debentures.
United States Holders may elect to treat all interest on any New Note
or Exchange Debenture as OID and calculate the amount includible in gross
income under the constant yield method described above. For the purposes
of this election, interest includes stated interest, acquisition
discount, OID, de minimis OID, market discount, de minimis market
discount and unstated interest, as adjusted by any amortizable bond
premium or acquisition premium. The election is to be made for the
taxable year in which the United States Holder acquired the New Note or
Exchange Debenture, and may not be revoked without the consent of the
Internal Revenue Service (the "IRS"). UNITED STATES HOLDERS SHOULD
CONSULT WITH THEIR OWN TAX ADVISORS ABOUT THIS ELECTION.
MARKET DISCOUNT ON RESALE OF NEW NOTES OR EXCHANGE DEBENTURES
If a United States Holder purchases an Exchange Debenture (other than
an Original Issue Discount Debenture) for an amount less than its stated
redemption price at maturity or, in the case of an Original Issue
Discount Debenture, for an amount that is less than its adjusted issue
price, the amount of the difference will be treated as "market discount"
for federal income tax purposes, unless such difference is less than a
specified de minimis amount. However, with respect to a United States
Holder who purchases a New Note at original issuance, such instrument
will not be treated as issued with market discount unless it is purchased
for less than its issue price and the difference between the purchase
price and the issue price is greater than a specified de minimis amount.
Under the market discount rules, a United States Holder will be required
to treat any principal payment on a New Note or an Exchange Debenture, or
any gain on the sale, exchange, retirement or other disposition of, a New
Note or an Exchange Debenture as ordinary income to the extent of the
market discount which has not previously been included in income and is
treated as having accrued on such New Note or Exchange Debenture at the
time of such payment or disposition. In addition, the United States
Holder may be required to defer, until the maturity of the New Note or
the Exchange Debenture or its earlier disposition in a taxable
transaction, the deduction of all or a portion of the interest expense on
any indebtedness incurred or continued to purchase or carry such New Note
or Exchange Debenture.
Any market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the New Note
or the Exchange Debenture, unless the United States Holder elects to
accrue on a constant interest method. A United States Holder of a New
Note or the Exchange Debenture may elect to include market discount in
income currently as it accrues (on either a ratable or constant interest
method), in which case the rule described above regarding deferral of
interest deductions will not apply. This election to include market
discount in income currently, once made, applies to all market discount
obligations acquired on or after the first taxable year to which the
election applies and may not be revoked without the consent of the IRS.
-114-
<PAGE>
ACQUISITION PREMIUM; AMORTIZABLE BOND PREMIUM
A United States Holder that purchases a New Note or an Exchange
Debenture for an amount that is greater than its adjusted issue price but
equal to or less than the sum of all amounts payable on the New Note or
Exchange Debenture after the purchase date, other than qualified stated
interest, will be considered to have purchased such New Note or Exchange
Debenture at an "acquisition premium." Under the acquisition premium
rules, the amount of OID, if any, which such United States Holder must
include in its gross income with respect to such New Note or Exchange
Debenture for any taxable year will be reduced by the portion of such
acquisition premium properly allocable to such year.
If at the time the New Preferred Stock is exchanged for Exchange
Debentures or at the time a subsequent United States Holder purchases
Exchange Debentures, the United States Holder's tax basis in any such
Exchange Debenture exceeds the sum of all amounts payable on the Exchange
Debenture after the exchange date or purchase date, other than qualified
stated interest, such excess may constitute "premium" and such United
States Holder will not be required to include any OID in income. A
United States Holder generally may elect to amortize bond premium over
the remaining term of the Exchange Debenture on a constant yield method.
The amount amortized in any year will be treated as a reduction of the
United States Holder's interest income from the Exchange Debenture. Bond
premium on an Exchange Debenture held by a United States Holder that does
not make such an election will decrease the gain or increase the loss
otherwise recognized on disposition of the Exchange Debenture. The
election to amortize bond premium on a constant yield method once made
applies to all debt obligations held or subsequently acquired by the
electing United States Holder on or after the first day of the first
taxable year to which the election applies and may not be revoked without
the consent of the IRS.
REDEMPTION, SALE OR EXCHANGE OF NEW NOTES OR EXCHANGE DEBENTURES
The adjusted tax basis of a United States Holder who receives Exchange
Debentures in exchange for New Preferred Stock will, in general, be equal
to the issue price of such Exchange Debentures, increased by OID and
market discount previously included in income by the United States Holder
and reduced by any amortized premium and any cash payments on the
Exchange Debentures other than qualified stated interest. A United
States Holder's tax basis in a New Note will, in general, be the United
States Holder's cost therefor, increased by market discount previously
included in income by the United States Holder and reduced by any
amortized premium and any cash payments on the New Notes. Upon the
redemption, sale, exchange or retirement of a New Note or Exchange
Debenture, a United States Holder will recognize gain or loss equal to
the difference between the amount realized upon the redemption, sale,
exchange or retirement (less any accrued qualified stated interest, not
previously taken into account, which will be taxable as such) and the
adjusted tax basis of the New Note or Exchange Debenture. Such gain or
loss will be capital gain or loss and will be long-term capital gain or
loss if at the time of redemption, sale, exchange or retirement the New
Note or Exchange Debenture has been held for more than one year.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATIONS
If the yield to maturity on Original Issue Discount Debentures equals
or exceeds the sum of (x) the "applicable federal rate" (as determined
under Section 1274(d) of the Code) in effect for the month in which the
Original Issue Discount Debentures are issued (the "AFR") and (y) 5% and
the OID on such Original Issue Discount Debentures is "significant," the
Original Issue Discount Debentures will be considered "applicable high
yield discount obligations" ("AHYDOs") under Section 163(i) of the Code.
The "applicable federal rate" is 6.4% for long-term debt instruments
issued in April 1996. Consequently, the Company will not be allowed to
take a deduction for interest (including OID) accrued on the Original
Issue Discount Debentures for U.S. federal income tax purposes until such
time as the Company actually pays such interest (including OID) in cash
or in other property (other than stock or debt of the Company or a person
deemed to be related to the Company under Section 453(f)(1) of the Code).
Moreover, if the yield to maturity on the Original Issue Discount
Debenture exceeds the sum of (x) the AFR and (y) 6% (such excess shall be
referred to hereinafter as the "Disqualified Yield"), the deduction for
interest (including OID) accrued on the Original Issue Discount
Debentures will be permanently disallowed (regardless of
-115-
<PAGE>
whether the Company actually pays such interest or OID in cash or in
other property) for U.S. federal income tax purposes to the extent such
interest or OID is attributable to the Disqualified Yield on the Original
Issue Discount Debentures ("Dividend-Equivalent Interest"). For purposes
of the dividends-received deduction, such Dividend-Equivalent Interest
will be treated as a dividend to the extent it is deemed to have been
paid out of the Company's current or accumulated earnings and profits.
Due to their maturity date, yield to maturity, and amount of OID, the
New Notes will be subject to the applicable high yield discount
obligation rules described above. As a result, ICG will not be permitted
to deduct any OID on such New Notes until such OID is paid. In addition,
with respect to corporate United States Holders, the Dividend Equivalent
Interest will be treated as a dividend for purposes of the dividends-
received deduction under Section 243 of the Code to the extent of ICG's
current and accumulated earnings and profits and will not be deductible
by ICG. To the extent that ICG's earnings and profits are insufficient,
any portion of the Dividend Equivalent Interest that would have otherwise
been treated as a dividend for purposes of the dividends-received
deduction will continue to be taxed as OID income in accordance with the
rules described above under the heading "Original Issue Discount."
Because the amount of OID, if any, attributable to the Exchange
Debentures will be determined at such time such Exchange Debentures are
issued and the AFR at the time such Exchange Debentures are issued in
exchange for New Preferred Stock is not predictable, it is impossible to
determine at the present time whether an Exchange Debenture will be
treated as an AHYDO.
ADDITIONAL LIMITATION ON DEDUCTION OF INTEREST BY ICG
Under Section 163(j) of the Code, no deduction is allowed for
"disqualified interest" paid or accrued by a corporation during a taxable
year if (i) such corporation has "excess interest expense" (as defined by
the Code generally to mean the excess, if any, of the corporation's net
interest expense over 50% of the "adjusted taxable income" of the
corporation) for the taxable year, and (ii) the ratio of debt to equity
of such corporation exceeds 1.5:1. "Disqualified Interest" includes any
interest paid or accrued by a corporation with respect to debt that is
guaranteed by a foreign person that is related to such corporation to the
extent that no gross basis United States tax is imposed with respect to
such interest. ICG expects that Section 163(j) of the Code may apply, at
least initially, to interest paid or accrued by ICG with respect to the
New Notes because (1) the New Notes are guaranteed by IntelCom (a foreign
person that is related to ICG and its Subsidiaries), (2) it is
anticipated that there will be no gross basis U.S. tax imposed on
interest paid or accrued with respect to the New Notes, and (3) the ratio
of debt to equity of ICG presently exceeds 1.5:1. As a result, the
ability of ICG to deduct interest paid or accrued with respect to the New
Notes may be substantially limited by Section 163(j) of the Code.
Because the Exchange Debentures are not being issued currently, it is
impossible to determine at the present time whether an Exchange Debenture
will be subject to the limitation of Section 163(j).
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of dividends, principal, interest, OID, and premium and to the
proceeds of sales of New Notes, Exchange Debentures and New Preferred
Stock made to United States Holders other than certain exempt recipients
(such as corporations). A 31% backup withholding tax will apply to such
payments if the United States Holder fails to provide a taxpayer
identification number or certification of foreign or other exempt status
or fails to report in full dividend and interest income.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against such United States Holder's U.S.
federal income tax liability provided the required information is
furnished to the IRS.
-116-
<PAGE>
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 (i) that the
beneficial owner does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of the Company
entitled to vote within the meaning of Section 871(h)(3) of the Code and
the regulations thereunder, (ii) the beneficial owner is not a controlled
foreign corporation that is related to the Company through stock
ownership, (iii) the beneficial owner 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) the beneficial owner satisfies the statement requirement
(described generally below) set forth in Section 871(h) and Section
881(c) of the Code and the regulations thereunder.
To satisfy the requirement referred to in (iv) above, the beneficial
owner of such New Note, or 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 Internal Revenue
Service 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.
The Company will not withhold federal income tax on interest paid to a
Non-United States Holder if it receives the Service's Form 4224 from that
Non-United States Holder, establishing that such income is effectively
connected with the conduct of a trade or business in the United States,
unless the Company has knowledge to the contrary. Interest (including
OID) or redemption premium paid to a Non-United States Holder (other than
a partnership) that is effectively connected with the conduct by the
holder of a trade or business in the United States is generally taxed at
the graduated rates that are applicable to United States persons. In the
case of a Non-United States Holder that is a corporation, such
effectively connected income may also be subject to the United States
federal branch profits tax (which is generally imposed on a foreign
corporation on the deemed repatriation from the United States of
effectively connected earnings and profits) at a 30% rate (unless the
rate is reduced or eliminated by an applicable income tax treaty and the
holder is a qualified resident of the treaty country). In the case of a
partnership that has foreign partners (i.e., persons who would be Non-
United States Holders if they held the New Notes directly), such
effectively connected income allocable to the foreign partner would
generally be subject to United States federal withholding tax (regardless
of whether such income is, in fact, distributed to such foreign partner)
at a 35% rate, if the foreign partner is a corporation, or at a 39.6%
rate, if the foreign partner is not a corporation. Any foreign partner
of such a partnership would be entitled to a credit against his United
States federal income tax for his share of the withholding tax paid by
the partnership.
SALE, EXCHANGE, REDEMPTION OR OTHER DISPOSITION 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, redemption or other disposition 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, or (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.
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
-117-
<PAGE>
federal branch profits tax (which is generally imposed on a foreign
corporation on the deemed repatriation from the United States of
effectively connected earnings and profits) at a 30% rate (unless the
rate is reduced or eliminated by an applicable income tax treaty and the
holder is a qualified resident of the treaty country). In the case of a
partnership that has foreign partners (i.e., persons who would be Non-
United States Holders if they held the New Notes, directly), such
effectively connected income allocable to the foreign partner would
generally be subject to United States federal withholding tax (regardless
of whether such income is, in fact, distributed to such foreign partner)
at a 35% rate, if the foreign partner is a corporation, or at a 39.6%
rate, if the foreign partner is not a corporation. Any foreign partner
of such a partnership would be entitled to a credit against his United
States federal income tax for his share of the withholding tax paid by
the partnership. If an individual Non-United States Holder falls under
clause (ii) above, he will be subject to a flat 30% tax on the gain
derived from the sale or other disposition, which may be offset by United
States capital losses recognized within the same taxable year as such
sale or other disposition (notwithstanding the fact that he is not
considered a resident of the United States).
FEDERAL ESTATE AND GIFT 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.
Any Non-United States Holder will not be subject to United States
federal gift tax on a transfer of New Notes, unless such person is an
individual who is a domiciliary of the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
No information reporting or backup withholding will be required with
respect to payments made by the Company or any paying agent to Non-United
States Holders if a statement described in (iv) under "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.
In addition, backup withholding and information reporting will not
apply if payments of principal, interest, OID or premium on a New Note
are paid or collected by a foreign office of a custodian, nominee or
other foreign agent on behalf of the beneficial owner of such New Note,
or if a foreign office of a broker (as defined in applicable Treasury
regulations) pays the proceeds of the sale of a New Note to the owner
thereof. If, however, such nominee, custodian, agent or broker is, for
United States federal income tax purposes, a U.S. person, a controlled
foreign corporation or a foreign person that derives 50% or more of its
gross income for certain periods from the conduct of a trade or business
in the United States, such payments will not be subject to backup
withholding but will be subject to information reporting, unless (I) such
custodian, nominee, agent or broker has documentary evidence in its
records that the beneficial owner is not a U.S. person and certain other
conditions are met or (2) the beneficial owner otherwise establishes an
exemption. Temporary Treasury regulations provide that the Treasury is
considering whether backup withholding will apply with respect to such
payments of principal, interest or the proceeds of a sale that are not
subject to backup withholding under the current regulations.
Payments of principal, interest, OID and premium on a New Note, paid
to the beneficial owner of a New Note by a United States office of a
custodian, nominee or agent, or the payment by the United States office
of a broker of the proceeds of sale of a New Note will be subject to both
backup withholding and information reporting unless the beneficial owner
provides the statement referred to in (iv) under "Non-United States
Holders--Interest and OID on New Notes" and the payor does not have
actual knowledge that the beneficial owner is a United States person or
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against such Holder's U.S. federal income
tax liability provided the required information is furnished to the IRS.
-118-
<PAGE>
PLAN OF DISTRIBUTION
Except as described below, a broker-dealer may not participate in the
Exchange Offers in connection with a distribution of the New Notes or the
New Preferred Stock. Each broker-dealer that receives New Notes or New
Preferred Stock for its own account pursuant to the Exchange Offers must
acknowledge that it will deliver a prospectus in connection with any
resale of such New Notes or New Preferred Stock. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes or New Preferred
Stock received in exchange for Old Notes or Old Preferred Stock where
such Old Notes or Old Preferred Stock were acquired as a result of
market-making activities or other trading activities. The Company has
agreed that for a period of 90 days after the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In addition,
until October 26, 1996 all dealers effecting transactions in the New
Notes or New Preferred Stock may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes
or New Preferred Stock by broker-dealers. New Notes or New Preferred
Stock received by broker-dealers for their own account pursuant to the
Exchange Offers may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the
writing of options on the New Notes or New Preferred Stock or a
combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or
to or through brokers or dealers who may receive compensation in the form
of commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Notes or New Preferred Stock. Any broker-
dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offers and any broker or dealer that
participates in a distribution of such New Notes or New Preferred Stock
may be deemed to be an "underwriter" within the meaning of the Securities
Act and any profit on any such resale of New Notes or New Preferred Stock
and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities
Act.
The Company has agreed to pay all expenses incident to the Exchange
Offers other than commissions or concessions of any brokers or dealers
and expenses of counsel for the holders of the New Notes or New Preferred
Stock and will indemnify the holders of the New Notes and the New
Preferred Stock (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes and the New Preferred Stock offered
hereby will be passed upon by Reid & Priest LLP, New York, New York. The
validity of the New Note Guarantee will be passed upon by Tupper Jonsson
& Yeadon, Vancouver, British Columbia, Canada.
EXPERTS
The consolidated financial statements and financial statement
schedules of IntelCom as of September 30, 1995 and 1994, and for each of
the years in the three-year period ended September 30, 1995, have been
incorporated by reference herein and in the Registration Statement, in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
-119-
<PAGE>
INDEX TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTELCOM GROUP INC.
Pro Forma Condensed Consolidated Financial Statements (unaudited)....... F- 2
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1996
(unaudited)............................................................ F- 3
Pro Forma Condensed Consolidated Statement of Operations for the year
ended September 30, 1995 (unaudited)................................... F- 4
Pro Forma Condensed Consolidated Statement of Operations for the six
months ended March 31, 1996 (unaudited)................................ F- 5
Notes to Pro Forma Condensed Consolidated Financial Statements
(unaudited)............................................................ F- 6
</TABLE>
F-1
<PAGE>
INTELCOM GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In December 1995, the Company received approximately $21.1 million from the
purchaser of four of its teleports in partial payment for the assets and entered
into a management agreement with the purchaser whereby the purchaser assumed
control over the teleport operations. Upon FCC approval of the transaction the
Company completed the sale in March 1996 and received an additional $.4 million
due to certain closing adjustments. Total proceeds received were $21.5 million
and the Company recognized a loss of approximately $.8 million on the sale.
Revenue associated with these operations was approximately $3.5 million, $5.9
million, $9.1 million, $4.5 million and $2.5 million for the fiscal years ended
September 30, 1993, 1994, 1995 and the six months ended March 31, 1995 and 1996,
respectively. The Company has reported the results of operations from these
assets through December 31, 1995.
On April 30, 1996, ICG completed a private offering (the "Private Offering")
of 12 1/2% Senior Discount Notes (the "12 1/2% Notes") and of 14 1/4%
Exchangeable Preferred Stock (the "Preferred Stock") for gross proceeds of
$300.0 million and $150.0 million, respectively. Net proceeds from the Private
Offering after costs of approximately $17.0 million were approximately $433.0
million.
The 12 1/2% Notes are unsecured senior obligations of ICG (guaranteed by
IntelCom) that mature on May 1, 2006, at a maturity value of $550.3 million.
Interest will accrue at 12 1/2% per annum beginning May 1, 2001, and is
payable each May 1 and November 1 commencing November 1, 2001.
The Preferred Stock consists of 150,000 shares that bear a cumulative
dividend at the rate of 14 1/4% per annum. The dividend is payable quarterly
in arrears each February 1, May 1, August 1 and November 1 commencing August
1, 1996. Through May 1, 2001, the dividend is payable at the option of ICG in
cash or additional shares of Preferred Stock. ICG may exchange the Preferred
Stock into 14 1/4% Senior Subordinated Exchange Debentures at any time after
the exchange is permitted by certain indenture restrictions. The Preferred
Stock is subject to mandatory redemption on May 1, 2007.
Approximately $35.3 million of the proceeds from the Private Offering were
used to redeem the 12% Redeemable Preferred Stock of ICG (the "Redeemable
Preferred Stock") issued in August 1995 ($30.0 million), pay accrued preferred
dividend ($2.6 million) and to repurchase 916,666 IntelCom warrants ($2.7
million) issued in connection with the Redeemable Preferred Stock. The Company
recognized a charge of approximately $12.3 million for the excess of the
redemption price of the Redeemable Preferred Stock over the carrying amount at
April 30, 1996 and a charge of approximately $11.5 million for the payment
with respect to consents to amendments to the 13 1/2% Notes Indenture to
permit the Private Offering which, together, will be reflected in the
Company's results of operations for the three months ended June 30, 1996.
The accompanying unaudited Pro Forma Condensed Consolidated Balance Sheet as
of March 31, 1996, includes the historical balance sheet of the Company and
the Pro Forma effect of the Private Offering. The unaudited Pro Forma
Condensed Consolidated Statements of Operations for the year ended September
30, 1995 and the six months ended March 31, 1996 include the historical
results of operations for the Company and the Pro Forma effects of the sale of
the teleports and the Private Offering as if they occurred at the beginning
of the periods presented.
The unaudited Pro Forma Condensed Consolidated Financial Statements should
be read in conjunction with the historical audited financial statements and
related notes thereto of the Company included elsewhere herein. The unaudited
Condensed Consolidated Pro Forma Financial Statements are not necessarily
indicative of the results that actually would have occurred had the Pro Forma
transactions been consummated at the dates indicated, nor are they necessarily
indicative of future operating results or financial position of the Company.
F-2
<PAGE>
INTELCOM GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRIVATE
HISTORICAL OFFERING PRO FORMA
---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................ $ 139,485 $387,867 (c) $ 527,352
Other current assets..................... 59,532 -- 59,532
--------- -------- ---------
Total current assets................. 199,017 387,867 586,884
Property and equipment, net.............. 275,942 -- 275,942
Other non-current assets................. 91,608 9,741 (d) 101,349
--------- -------- ---------
$ 566,567 $397,608 $ 964,175
========= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities...................... $ 46,081 $ -- $ 46,081
Long-term debt, net of discount, less
current portion......................... 393,704 300,029 (a) 693,733
Deferred credits and other liabilities... 68,086 -- 68,086
--------- -------- ---------
Total liabilities.................... 507,871 300,029 807,900
Minority interest........................ 3,612 -- 3,612
Redeemable preferred stock of subsidiary
($30,000 liquidation value)............. 19,571 (19,571) (b) --
Preferred stock of ICG (redeemable)
($150,000 liquidation value)............ -- 144,380 (e) 144,380
Shareholders' equity:
Common shares.......................... 205,284 -- 205,284
Additional paid-in capital............. 26,520 (2,673)(f) 23,847
Foreign currency translation
adjustment............................ (330) -- (330)
Accumulated deficit.................... (195,961) (24,557)(a)(b) (220,518)
--------- -------- ---------
Total shareholders' equity........... 35,513 (27,230) 8,283
--------- -------- ---------
$ 566,567 $397,608 $ 964,175
========= ======== =========
</TABLE>
F-3
<PAGE>
INTELCOM GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1995
-----------------------------------------------------
SALE OF PRIVATE
HISTORICAL TELEPORTS (2) OFFERING PRO FORMA
---------- ------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Telecom services........ $ 32,330 $ -- $ -- $ 32,330
Network services........ 58,778 -- -- 58,778
Satellite services...... 20,502 (9,142) -- 11,360
-------- ------- -------- ---------
Total revenue......... 111,610 (9,142) -- 102,468
-------- ------- -------- ---------
Cost of services.......... 76,778 (5,804) -- 70,974
Selling, general and
administrative expenses.. 65,022 (3,774) -- 61,248
Depreciation and
amortization............. 16,624 (2,214) -- 14,410
-------- ------- -------- ---------
Operating expenses.... 158,424 (11,792) -- 146,632
-------- ------- -------- ---------
Operating loss........ (46,814) 2,650 -- (44,164)
Other income (expense):
Interest expense........ (24,368) 402 (49,978)(a) (73,944)
Other, net.............. (4,999) 5 (34,126)(b) (39,120)
-------- ------- -------- ---------
Net loss.............. (76,181) 3,057 (84,104) (157,228)
Preferred stock dividend.. (467) -- -- (467)
-------- ------- -------- ---------
Net loss attributable
to common sharehold-
ers.................. $(76,648) $ 3,057 $(84,104) $(157,695)
======== ======= ======== =========
Loss per common share. $ (3.25) $ 0.13 $ (3.56) $ (6.68)
======== ======= ======== =========
Weighted average number of
common shares
outstanding.............. 23,604 23,604 23,604 23,604
</TABLE>
F-4
<PAGE>
INTELCOM GROUP INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, 1996
-----------------------------------------------
SALE OF PRIVATE PRO FORMA
HISTORICAL TELEPORTS(2) OFFERING OFFERING
---------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue:
Telecom services............. $ 31,148 $ -- $ -- $ 31,148
Network services............. 29,691 -- -- 29,691
Satellite services........... 10,504 (2,478) -- 8,026
-------- ------ -------- ---------
Total revenue.............. 71,343 (2,478) -- 68,865
-------- ------ -------- ---------
Cost of services............... 49,824 (1,696) -- 48,128
Selling, general and
administrative expenses....... 40,239 (1,493) -- 38,746
Depreciation and amortization.. 12,361 (653) -- 11,708
-------- ------ -------- ---------
Operating expenses......... 102,424 (3,842) -- 98,582
-------- ------ -------- ---------
Operating loss............. (31,081) 1,364 -- (29,717)
Other income (expense):
Interest expense............. (29,432) 90 (30,739)(a) (60,081)
Other, net................... (1,070) -- (21,900)(b) (22,970)
-------- ------ -------- ---------
Loss before income taxes
and cumulative effect of
change in accounting...... (61,583) 1,454 (52,639) (112,768)
Income tax benefit/(expense)... 4,482 -- -- 4,482
-------- ------ -------- ---------
Net loss before cumulative
effect of change in
accounting................ (57,101) 1,454 (52,639) (108,286)
Cumulative effect of change of
accounting.................... (3,453) -- -- (3,453)
-------- ------ -------- ---------
Net loss................... (60,554) 1,454 (52,639) (111,739)
Preferred dividend............. (1,027) -- -- (1,027)
-------- ------ -------- ---------
Net loss attributable to
common shareholders....... $(61,581) $1,454 $(52,639) $(112,766)
======== ====== ======== =========
Loss per common share...... $ (2.42) $ 0.06 $ (2.07) $ (4.43)
======== ====== ======== =========
Weighted average number of
common shares outstanding..... 25,471 25,471 25,471 25,471
</TABLE>
F-5
<PAGE>
INTELCOM GROUP INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION:
Pro Forma information reflects the sale of the teleports and the completion
of the Private Offering. The Company's historical balance sheet as March 31,
1996 includes the effects of the sale of the teleports.
The accompanying unaudited Pro Forma Condensed Consolidated Balance Sheet as
of March 31, 1996 includes the historical balance sheet of the Company and the
Pro Forma effect of the Private Offering. The unaudited Pro Forma Condensed
Consolidated Statements of Operations for the year ended September 30, 1995
and the six months ended March 31, 1996 include the historical results of
operations for the Company and the Pro Forma effects of the sale of the
teleports and the Private Offering as if they occurred at the beginning of
the periods presented.
(2) SALE OF TELEPORTS
The Pro Forma adjustments for the sale of the teleports eliminates the
revenue, operating expenses and other income (expense) relating to the
teleport operations for the periods indicated. The sale of the Company's
teleports is reflected in the actual balance sheet as of March 31, 1996.
(3) PRIVATE OFFERING AND PRO FORMA ADJUSTMENTS
The Pro Forma adjustments for the Private Offering reflect (i) the receipt
of the net proceeds from the Private Placement and interest on the $300.0
million gross proceeds of the 12 1/2% notes and preferred stock dividends on
$150.0 million liquidation preference of Preferred Stock, without giving
effect to any interest income on available cash or the capitalization of any
interest associated with construction in progress, (ii) amortization of debt
issuance costs and accretion of preferred stock issuance costs associated with
the Private Offering over ten and eleven years, respectively, (iii) the
redemption of $30.0 million of Redeemable Preferred Stock, payment of accrued
dividends and the related $12.3 million charge for the excess of the
redemption price as of April 30, 1996 over the carrying amount, (iv) the
repurchase of 916,666 redeemable warrants presented, and (v) the payment with
respect to consents to amendments to the 13 1/2% Notes Indenture to permit the
Private Placement, as if such events had occurred at the beginning of the
periods presented or for balance sheet purposes, on the balance sheet date.
Pro Forma adjustments for the Private Offering are as follows:
(a) The note discount on the 12 1/2% Notes will be accreted using the interest
method on the $300.0 million gross proceeds; debt issuance costs are
amortized over the ten year period to maturity of the notes as a charge to
interest expense. In addition, the payment with respect to consents to
amendments to the 13 1/2% Notes Indenture to permit the Private Offering
is recorded as interest expense.
(b) Upon the redemption of the $30,000,000 of Redeemable Preferred Stock,
the Company paid accrued dividends of approximately $2.6 million and
recognized a charge of approximately $12.3 million for the excess of
the redemption price over the carrying amount as of April 30, 1996. In
addition, the adjustment reflects the accrual of a cumulative 14 1/4%
dividend on the Preferred Stock reduced by the historical 12% dividend
that had been incurred on the Redeemable Preferred Stock. Costs
associated with the issuance of the Preferred Stock will be accreted
over the eleven years from date issued until mandatorily redeemable.
(c) To reflect the net proceeds of the Private Offering, the repurchase of
the Redeemable Preferred Stock, the payment of accrued preferred
dividends, the repurchase of 916,666 redeemable warrants and the
payment with respect to consents to amendments to the 13 1/2% Notes
Indenture to permit the Private Offering.
F-6
<PAGE>
INTELCOM GROUP INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(d) Debt issuance costs are capitalized in other non-current assets and
amortized over the ten year period to maturity of the notes as a charge
to interest expense.
(e) The Preferred Stock is net of costs associated with the issuance of the
Preferred Stock, which will be accreted over the eleven years from date
issued until mandatorily redeemable.
(f) The cost of the repurchase of 916,666 redeemable warrants of
approximately $2.7 million is reflected as an adjustment to additional
paid-in capital as the repurchase price is less than the value
allocated to the warrants at the date issued.
F-7
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, and, if given or
made, such information or representations must not be relied upon as having been
authorized. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it related or any offer to sell or the solicitation of an offer to buy
such securities in any circumstances in which such offer or solicitation is
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
TABLE OF CONTENTS
AVAILABLE INFORMATION.................. -4-
INFORMATION INCORPORATED BY REFERENCE.. -4-
PROSPECTUS SUMMARY..................... -6-
RISK FACTORS........................... -21-
THE EXCHANGE OFFERS.................... -28-
DESCRIPTION OF NEW NOTES............... -36-
DESCRIPTION OF NEW PREFERRED STOCK..... -60-
DESCRIPTION OF EXCHANGE DEBENTURES..... -83-
PLAN OF DISTRIBUTION...................-120-
LEGAL MATTERS..........................-120-
EXPERTS................................-120-
INDEX TO PROFORMA CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS............................. F-1
INTELCOM GROUP (U.S.A.), INC.
INTELCOM GROUP INC.
-------------
PROSPECTUS
-------------