AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 1996
REGISTRATION NO. 333-
==========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM S-3 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-----------------------
INTELCOM GROUP INC.
(Exact name of registrant as specified in its charter)
#11-1155 NORTH SERVICE ROAD WEST
OAKVILLE, ONTARIO CANADA L6M 3E3
905-469-0686
(Address, including zip code, and telephone
number, including area code, of Registrant's
principal executive offices)
CANADA 4813, 4899 N/A
(Jurisdiction of (Primary Standard (I.R.S. Employer
incorporation) Industrial Classification Identification Number)
Code Number)
------------------------
JOHN D. FIELD, EXECUTIVE VICE PRESIDENT
C/O INTELCOM GROUP (U.S.A.), INC.
9605 E. MAROON CIRCLE
P.O. BOX 6742
ENGLEWOOD, COLORADO 80155-6742
(303) 572-5960
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
-----------------------
with a copy to:
LEONARD GUBAR, ESQ.
REID & PRIEST LLP
40 WEST 57TH STREET
NEW YORK, NEW YORK 10019
(212) 603-2000
-----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
DURING THE TWO YEARS FOLLOWING THE DATE ON WHICH THE REGISTRATION STATEMENT
BECOMES EFFECTIVE.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE
OFFERED ON A DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE
SECURITIES ACT OF 1933, OTHER THAN SECURITIES OFFERED ONLY IN CONNECTION
WITH DIVIDEND OR INTEREST REINVESTMENT PLANS, CHECK THE FOLLOWING BOX. [X]
CALCULATION OF REGISTRATION FEE
=========================================================================
PROPOSED
TITLE OF EACH PROPOSED MAXIMUM
CLASS OF AMOUNT TO MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE OFFERING OFFERING REGISTRATION
BE REGISTERED REGISTERED PRICE(1) PRICE(1) FEE
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Notes(2) 1,671.25 $1,000.00 $1,671,250.00 $576.30
--------------------------------------------------------------------------
Common Shares,
no par
value(3)(4) 126,500 $20.375 $2,577,437.50 $888.77
--------------------------------------------------------------------------
Common Shares,
no par
value(5)(6) 20,506 $20.375 $417,809.75 $144.07
--------------------------------------------------------------------------
Common Shares,
no par
value(7) 454,447 $20.375 $9,259,357.63 $3,192.88
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Total -- -- -- $4,802.02(8)
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(1) Estimated solely for purposes of calculating the registration fee.
(2) 7% Simple Interest Redeemable Convertible Subordinated Notes due 1998
(the "October Interest Notes") to be sold by Selling Noteholders.
(3) To be sold by Selling Noteholders after conversion of $1,671,250
principal amount of October Interest Notes and compound interest on
October Interest Notes accrued up to but not including April
30, 1996.
(4) Common Shares issuable upon conversion of $1,671,250 principal
amount of October Interest Notes and compound interest on October
Interest Notes accrued up to but not including April 30, 1996 after
resale by Selling Noteholders.
(5) To be sold by holders as a result of the conversion of 8% Simple
Interest Convertible Subordinated Notes due 1998 (the "September
Interest Notes").
(6) Common Shares issued upon conversion of September Interest Notes
after resale by holders thereof.
(7) Includes 67,060 Common Shares to be sold by Selling Securityholders
after exercise of outstanding warrants, 13,724 Common Shares
to be sold by Selling Securityholders after issuance by the Company
in satisfaction of certain obligations, and 373,663 Common Shares to
be sold by Selling Securityholders.
(8) Pursuant to Rule 429, the following securities are being carried over
by the Company's Registration Statements Nos. 33-65910 and 33-75636;
(i) $47,750,000 principal amount of 7% Redeemable Convertible
Subordinated Payable-in-Kind Notes due 1998 (the "October Notes");
(ii) $6,685,000 principal amount of October Interest Notes;
(iii) 3,024,166 Common Shares issuable upon conversion of the October
Notes and the October Interest Notes; (iv) 1,338,462 Common Shares
issuable upon conversion of $18,000,000 principal amount of September
Notes and upon conversion of $2,932,000 principal amount of September
Interest Notes; (v) 235,873 Common Shares issuable upon exercise of
outstanding warrants; (vi) 132,200 Common Shares issuable in
satisfaction of certain obligations of the Company; and (vii)
11,128,990 Common Shares held by certain shareholders. The carried
over filing fees for the foregoing securities equal $59,577.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE
WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
PURSUANT TO RULE 429(A) OF THE SECURITIES ACT OF 1933, THE PROSPECTUS
FILED AS PART OF THIS REGISTRATION STATEMENT RELATES TO REGISTRATION
STATEMENT NOS. 33-75636 AND 33-65910.
==========================================================================
<PAGE>
INTELCOM GROUP INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
S-K Location in
Item Item Item Prospectus
---- ---- ---- -----------
1 Item Forepart of Registration
501 Statement and Outside Front
Cover Page of Prospectus Cover Page
2 Item Inside Front and Outside Inside Front and
502 Back Cover Pages of Outside Back Cover
Prospectus Pages
3 Item Summary Information, Risk Summary; Risk
503 Factors and Ratio of Factors
Earnings to Fixed Charges
4 Item Use of Proceeds Use of Proceeds
504
5 Item Determination of Offering Plan of Distribution
505 Price
6 Item Dilution Not Applicable
506
7 Item Selling Security Holders Selling Security
507 Holders
8 Item Plan of Distribution Plan of Distribution
508
9 Item Description of Securities to Description of
202 be Registered Securities
10 Item Interests of Named Experts Experts; Legal
509 and Counsel Matters
11 Material Changes Recent Developments
12 Incorporation of Certain Information
Information by Reference Incorporated by
Reference; Available
Information
13 Item Disclosure of Commission Not Applicable
510 Position on Indemnification
for Securities Act
Liabilities
<PAGE>
INTELCOM GROUP INC.
$47,750,000 OF 7% REDEEMABLE CONVERTIBLE
SUBORDINATED PAYABLE-IN-KIND NOTES DUE 1998
(INTEREST PAYABLE IN KIND ON APRIL 30 AND OCTOBER 30)
$8,356,250 OF 7% SIMPLE INTEREST REDEEMABLE CONVERTIBLE
SUBORDINATED NOTES DUE 1998
(INTEREST PAYABLE UPON MATURITY, CONVERSION OR REDEMPTION)
8,190,348 COMMON SHARES
This Prospectus relates to the resale by the holders named herein (see
"Selling Security Holders") of up to: (i) $47,750,000 principal amount of
7% Redeemable Convertible Subordinated Payable-in-Kind Notes due 1998
("October Notes"); (ii) $8,356,250 principal amount of 7% Simple Interest
Redeemable Convertible Subordinated Notes due 1998 which may be issued in
lieu of cash interest payments on the October Notes (the "October Interest
Notes"); (iii) 3,117,013 Common Shares without par value ("Common Shares")
of IntelCom Group Inc. (the "Company" or "IntelCom") issuable upon
conversion of the October Notes and October Interest Notes; (iv) 33,653
Common Shares issuable upon conversion of the compound interest on the
October Interest Notes accrued up to but not including April 30, 1996;
(v) 1,358,968 Common Shares issued upon conversion of $18,000,000
principal amount of 8% Convertible Subordinated Payable-in-Kind Notes
due 1998 (the "September Notes") and upon conversion of $3,200,000
principal amount of 8% Simple Interest Convertible Subordinated Notes
due 1998 which were issued in lieu of cash interest payments on the
September Notes (the "September Interest Notes"); (vi) 302,933 Common
Shares issuable upon exercise of outstanding warrants; (vii) 13,724
Common Shares issuable in satisfaction of certain obligations of
IntelCom; and (viii) 3,364,057 Common Shares held by certain
shareholders. This Prospectus also relates to the issuance of 3,150,666
Common Shares to subsequent holders of the October Notes and the October
Interest Notes upon conversion of those Notes.
The October Notes and the October Interest Notes (collectively, the
"Notes") are unsecured subordinated obligations of the Company which will
mature on October 30, 1998. The Company is a holding company that conducts
substantially all of its business through subsidiaries. The Notes are
obligations solely of the Company and none of the Company's subsidiaries
are obligated to pay the Notes. The Notes are effectively subordinated to
all liabilities of the Company's subsidiaries, including trade payables.
On March 31, 1996, the Notes were subordinated to approximately $437.5
million of liabilities of the Company and its subsidiaries (excluding
intercompany payables to IntelCom Group (U.S.A.), Inc.). There is no
restriction on the amount of indebtedness senior to the Notes that the
Company and its subsidiaries may incur in the future. The original terms
of the October Notes provided for simple interest at 7% per annum, payable
semi-annually on April 30 and October 30, which the Company may pay by
issuing October Interest Notes, and which would have been payable upon the
earlier of conversion, redemption or maturity. The Board of Directors of
the Company adopted a resolution (the "Board Resolution") pursuant to which
the interest payable by the Company with respect to the October Interest
Notes upon redemption or conversion thereof would equal the accrued and
unpaid interest on the October Interest Notes as if such interest had been
calculated on a semi-annual compound basis on April 30 and October 30 of
each year from the date of issuance to the date fixed for redemption or
conversion of the Notes. The Notes are convertible into Company Common
Shares for $18.00 per Common Share, subject to potential adjustment.
The Company has notified the holders of the Notes of its intent to redeem
the Notes. There currently is no public market for the Notes and the
Company does not anticipate that a public market will develop. See
"Summary" and "Description of Securities."
The Common Shares to be resold hereby will be offered at market price
into the existing trading market for the Common Shares on or through the
facilities of a national or Canadian securities exchange. The Common
Shares are traded on the American Stock Exchange under the symbol "ICG" and
on the Vancouver Stock Exchange under the symbol "INL." On July 23, 1996,
the closing price of the Common Shares on the American Stock Exchange was
$20.00 per share. See "Price Range of Common Shares."
The Company will pay the expenses of registration and no underwriter
has been engaged for this offering. The Company will not receive any
proceeds from the resale of the Notes or the Common Shares by the Selling
Security Holders.
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, WHICH BEGINS ON PAGE
14.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY __, 1996
<PAGE>
The Selling Security Holders intend to sell their Common Shares and
Notes, if not converted, directly through agents, dealers, or underwriters,
in the over-the-counter market, or otherwise, on terms and conditions
determined at the time of sale by the Selling Security Holders or as a
result of private negotiations between buyer and seller. Expenses of any
such sale will be borne by the parties as they may agree. Sales of the
securities may be made pursuant to this Prospectus or pursuant to Rule 144
adopted under the Securities Act of 1933, as amended (the "Securities
Act"). No underwriting arrangements exist as of the date of this
Prospectus. Upon being advised of any underwriting arrangements that may
be entered into by a Selling Security Holder after the date of this
Prospectus, the Company will prepare a supplement to this Prospectus to
disclose such arrangements. It is anticipated that the selling price per
Common Share will be at, or between, the "bid" and "asked" prices of the
Company's Common Shares as reported on the American Stock Exchange
immediately preceding the sale. There currently is no public trading
market for the Notes.
<PAGE>
THE COMPANY
IntelCom Group Inc., a Canadian federal corporation ("IntelCom" or the
"Company"), has its principal executive offices at #11-1155 North Service
Road West, Oakville, Ontario, Canada L6M 3E3 and its telephone number is
(905) 469-0686. The executive offices of the Company's principal
subsidiary, IntelCom Group (U.S.A.), Inc., a Colorado corporation ("ICG"),
are located at 9605 E. Maroon Circle, P.O. Box 6742, Englewood, Colorado
80155-6742 and its telephone number is (303) 572-5960.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance with the Exchange Act files periodic reports and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed by the Company
with the Commission can be inspected and copied (at prescribed rates) at
the Commission's Public Reference Section, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of
the Commission located at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, 13th Floor,
New York, New York 10048. In addition, reports, proxy statements and other
information concerning the Company can be inspected and copied at the
offices of the American Stock Exchange, Inc. 86 Trinity Place, New York,
New York 10006.
The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement"), under the Securities Act with
respect to the securities offered hereby. This Prospectus, which is part
of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibits and schedules thereto,
certain items of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the securities offered hereby, reference is hereby made to the
Registration Statement and such exhibits and schedules. The Registration
Statement, including the exhibits and schedules thereto, may be inspected
at, and copies thereof may be obtained at prescribed rates from, the public
reference facilities of the Commission set forth above.
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed by the Company 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 fiscal 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 11, 1996 (File No. 1-
11052).
6. Current Report on Form 8-K dated April 29, 1996 (File No. 1-
11052).
7. Current Report on Form 8-K dated June 5, 1996 (File No. 1-
11052).
8. Description of the Company's Common Shares contained in Form 20-
F, Item 14, filed February 28, 1992.
All documents subsequently filed by the Company 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 6472, Englewood, Colorado 80155-6742, Attn: Investor Relations
(telephone number (303) 572-5960).
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" or "IntelCom"
means the combined business operations of IntelCom and its subsidiaries,
including ICG; 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.
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 431,000 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 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 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, 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, 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 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. The shareholders of IntelCom will consider and vote on this
plan on July 30, 1996 at the Annual and Special Meeting of Shareholders.
FINANCING
In April 1996, the Company completed a private placement of (i) $550.3
million principal amount of 12 1/2% Senior Discount Notes due 2006 issued
by ICG (the "12 1/2% Notes"), for gross proceeds of $300.0 million, which
are guaranteed on a senior unsecured basis by IntelCom (the "12 1/2% Note
Guarantee"), and (ii) 150,000 shares of 14 1/4% Exchangeable Preferred
Stock (the "ICG Preferred Stock"), for gross proceeds of $150.0 million
(the "1996 Private Offering"). The net proceeds from the 1996 Private
Offering totaled $433.0 million after transaction fees and expenses of
$17.0 million. Of the net proceeds, $35.3 million was used to redeem the
redeemable preferred stock issued in a private placement of 300,000 shares
of preferred stock of ICG bearing an annual dividend of $12 per share (the
"Redeemable Preferred Stock") and to purchase 458,333 Series A Warrants
("Series A Warrants") and 458,333 Series B Warrants ("Series B Warrants",
together with the Series A Warrants, the "Redeemable Warrants") previously
issued by ICG, and approximately $397.7 million will be used for capital
expenditures and to fund net operating losses over the next 21 months.
The Company believes that its liquidity has improved because the
13 1/2% Senior Discount Notes due 2005 issued by ICG (the "13 1/2% Notes")
in August 1995 and the 12 1/2% Notes do not require the payment of cash
interest prior to 2001 and do not require payment of principal until
maturity in 2005 and 2006, respectively, and dividends on the ICG Preferred
Stock are payable in additional ICG Preferred Stock through May 1, 2001.
Management believes that the net proceeds from (i) the 1996 Private
Offering, (ii) amounts expected to be available through vendor financing
arrangements and (iii) the funds remaining from the August 1995 private
offering of approximately (A) $300.0 million of units (the "Units"),
comprised of the 13 1/2% Notes in the aggregate principal amount of
approximately $584.3 million, which are guaranteed on a senior unsecured
basis by IntelCom (the 13 1/2% Note Guarantee"), and warrants to purchase
1,928,190 Common Shares issued by IntelCom at an exercise price of $12.51
per share (the "IntelCom Warrants") and (B) the Redeemable Preferred Stock
(the "1995 Private 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.
THE OFFERING
Securities offered hereby:
Selling Noteholders . . . . . . $56,106,250 Principal Amount of Notes
Selling Security Holders . . . 8,190,348 Common Shares(1)
Common Shares outstanding
after the Offering . . . . . . . 32,021,295 Common Shares(1)(2)
American Stock Exchange Symbol . . ICG
Vancouver Stock Exchange Symbol. . INL
Use of Proceeds . . . . . . . . . The Company will receive no proceeds
from this Offering.
----------
(1) Assumes (i) conversion of the total principal amount of all Notes
(3,117,013 Common Shares) and compound interest on the October
Interest Notes accrued up to but not including April 30, 1996
(33,653 Common Shares), (ii) the exercise of warrants (302,933
Common Shares), and (iii) the issuance of all Common Shares to be
issued in connection with certain Company obligations (13,724
Common Shares) and includes Common Shares issued upon conversion
of the September Notes and the September Interest Notes (1,358,968
Common Shares) and Common Shares held by certain shareholders
(3,364,057 Common Shares).
(2) Does not include 6,595,898 Common Shares issuable pursuant to (i)
IntelCom Warrants (1,928,190) Common Shares, which are exercisable
after August 8, 1996), (ii) Series A Warrants (250,000 Common
Shares), (iii) Series B Warrants (250,000 Common Shares), and (iv)
options (4,167,708, of which 2,536,108 are currently exercisable).
DESCRIPTION OF THE NOTES
The October Notes were issued primarily to institutional investors on
October 27, 1993, in a private financing of the Company. The aggregate
principal amount of the October Notes is $47,750,000. The original terms
of the October Notes provided for simple interest at 7% per annum, payable
semi-annually on April 30 and October 30, which would have been payable
upon the earlier of conversion, redemption or maturity. The Company may
select to accrue and defer interest by issuing the October Interest Notes
in lieu of cash interest. At April 30, 1996, the Company had issued
October Interest Notes in the aggregate principal amount of $8,356,250
which represents the first five semi-annual interest payments on the
October Notes. Pursuant to the Board Resolution, the interest payable
by the Company with respect to the October Interest Notes upon
redemption or conversion thereof would equal the accrued and unpaid
interest on the October Interest Notes as if such interest had been
calculated on a semi-annual compound basis on April 30 and October 30
of each year from the date of issuance to the date fixed for redemption
or conversion of the Notes. The Company also provided that the interest
on the October Interest Notes accrued up to but not including April 30,
1996 would be convertible into Common Shares, which will result in the
issuance of an additional 33,653 Common Shares. The Company has
notified the holders of the Notes of its intent to redeem the Notes by
July 26, 1996. The October Notes and the October Interest Notes
(collectively, the "Notes") are each subject to a separate Indenture
between the Company, as issuer, and Bankers Trust Company, as trustee
(collectively, the "Indentures"). There currently is no public market for
the October Notes and the October Interest Notes and the Company does not
anticipate that a public market will develop.
The Notes are unsecured subordinated obligations of the Company which
will mature on October 30, 1998. The Company is a holding company that
conducts substantially all of its business through subsidiaries. The Notes
are obligations solely of the Company and none of the Company's
subsidiaries are obligated to pay amounts due pursuant to the Notes. The
Notes are effectively subordinated to all liabilities of the Company's
subsidiaries, including trade payables. On March 31, 1996, the Notes were
subordinated to approximately $437.5 million of liabilities of the Company
and its subsidiaries (excluding intercompany payables to ICG). Under the
Indentures for the Notes, there are no restrictions on the amount of
indebtedness senior to the Notes that the Company and its subsidiaries may
incur in the future. The Indentures do not protect holders of Notes
against a sudden and dramatic decline in credit quality of the Company
resulting from any takeover, recapitalization or similar restructuring.
The Notes are convertible into Common Shares of the Company for $18.00
per Common Share. That conversion price may be adjusted to reflect certain
events such as dividends and distributions to holders of Common Shares,
stock splits or reverse stock splits. The conversion price will not be
adjusted for the issuance of new Common Shares, new securities convertible
into Common Shares, or for payments of dividends on the Common Shares. As
of the date of this Prospectus, the conversion price had not been adjusted.
See "Description of Securities" and "Certain Tax Considerations" for a
more detailed discussion of the Notes.
SUMMARY HISTORICAL AND PRO FORMA INFORMATION(1)
(IN THOUSANDS, EXCEPT STATISTICAL DATA)
YEARS ENDED SEPTEMBER 30,
------------------------------------
ACTUAL PRO FORMA
------ ---------
1993 1994 1995 1995(3)
---- ---- ---- ---------
STATEMENT OF OPERATIONS
DATA(2):
Revenue:
Telecom services . . $ 4,803 $ 14,854 $ 32,330 $ 32,330
Network services . . 21,006 36,019 58,778 58,778
Satellite services . 3,520 8,121 20,502 11,360
Other . . . . . . . 147 118 -- --
------- ------- ------- -------
Total revenue . 29,476 59,112 111,610 102,468
Operating loss . . . . . (3,660) (15,266) (46,814) (44,164)
Interest expense . . . . (2,523) (8,481) (24,368) (73,994)
Net loss . . . . . . . . (4,609) (23,868) (76,181) (157,228)
Preferred stock dividend -- -- (467) (467)
------- ------- ------- -------
Net loss attributable to $(4,609) $(23,868) $(76,648) $(157,695)
common shareholders . . . ======= ======== ======== =========
Loss per common share . . $(0.39) $(1.56) $(3.25) $(6.68)
======= ======= ======= =======
Weighted average number
of common shares
outstanding . . . . . . 11,671 15,342 23,604 23,604
OTHER DATA: . . . . . . .
EBITDA(4) . . . . . . . . $(187) $(7,068) $(30,190) $(29,754)
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(5) . . . . . . -- -- -- --
SIX MONTHS ENDED MARCH 31,
------------------------------------
ACTUAL PRO FORMA
------ ---------
1995 1996(2) 1996(3)
---- ------- -------
STATEMENT OF OPERATIONS
DATA(2):
Revenue:
Telecom services . . $ 12,833 $ 31,148 $ 31,148
Network services . . 28,789 29,691 29,691
Satellite services . 8,934 10,504 8,026
Other . . . . . . . -- -- --
------- ------- -------
Total revenue . 50,556 71,343 68,865
Operating loss . . . . . (17,289) (31,081) (29,717)
Interest expense . . . . (6,197) (29,432) (60,081)
Net loss . . . . . . . . (23,041) (60,554) (111,739)
------- ------- --------
Preferred stock dividend -- (1,027) (1,027)
------- ------- -------
Net loss attributable to $(23,041) $(61,581) $(112,766)
common shareholders . . ======= ======= =======
Loss per common share . . $(1.01) $(2.42) $(4.43)
------- ======= =======
Weighted average number
of common shares
outstanding . . . . . . 22,746 25,471 25,471
OTHER DATA: . . . . . . .
EBITDA(4) . . . . . . . . $(10,182) $(18,720) $(18,009)
Ratio of earnings to
combined fixed charges
and preferred stock
dividends(5) . . . . . -- -- --
SIX MONTHS
YEARS ENDED ENDED
SEPTEMBER 30, MARCH 31
------------------- ------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
STATISTICAL DATA(6):
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 97 226 1,375 1,028 1,728
connected . . . .
Customer circuits in service 50,044 224,072 430,535 287,167 510,755
(VGEs) . . . . . . . . . .
Switches operational . . . . -- 1 13 6 13
Switched minutes of use -- 2 283 42 597
(millions) . . . . . . . .
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
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 -- -- 1,424 251 2,084
(thousands) . . . . . .
(Accompanying notes are on the following page)
<PAGE>
MARCH 31, 1996
--------------
ACTUAL(2) PRO FORMA(3)
--------- ------------
BALANCE SHEET DATA:
Working capital $152,936 $527,352
Total assets 556,567 964,175
Notes payable and current portion of long-term 9,199 9,199
debt and capital lease obligations
Long-term debt and capital lease obligations, 459,096 759,125
less current portion
Redeemable Preferred Stock of ICG ($30.0 19,571 --
million liquidation value)
Preferred Stock of ICG (redeemable)($150.0 -- 144,380
million liquidation value)
Shareholders' equity 35,513 8,283
-----------
(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 1996 Private Offering
and interest expense on $300.0 million gross proceeds of the 12 1/2%
Notes and preferred stock dividends on $150.0 million liquidation
preference of ICG 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 Indenture governing the
13 1/2% Notes (the 13 1/2% Notes Indenture") to permit the 1996
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 nine months ended June 30, 1996.
(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.
(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 1996
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.
RISK FACTORS
An investment in the Notes or the Common Shares 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 Company.
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 year 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 principal and interest payments on the Notes. See "Summary
Historical and Pro Forma Information," including 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 1996
Private Offering, the funds remaining from the 1995 Private 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.
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 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.
SUBSTANTIAL INDEBTEDNESS; ABILITY TO SERVICE DEBT
At March 31, 1996 on a pro forma basis giving effect to the 1996
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 12 1/2% Notes will
cause an increase in indebtedness of approximately $518.5 million by
May 1, 2001. In addition, the ICG Preferred Stock and the 14 1/4%
Subordinated Exchange Debentures due May 1, 2007 (the "Exchange
Debentures") issuable in exchange for the ICG Preferred Stock, if issued,
may pay dividends or interest through the issuance of additional shares of
ICG Preferred Stock or Exchange Debentures, as the case may be, through
May 1, 2001. The 13 1/2% Notes Indenture, the First Amended and Restated
Articles of Incorporation of ICG governing the terms of the ICG Preferred
Stock and the Indenture governing the 12 1/2% Notes (the "12 1/2% 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 1996 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 1996 Private Offering.
The level of the Company's indebtedness could have important
consequences to holders of the Notes, including the following: (i) the
debt service requirements of any additional indebtedness could make it more
difficult for the Company to make payments on the Notes; (ii) the ability
of the Company to obtain any necessary financing in the future for working
capital, capital expenditures, debt service requirements or other purposes
may be limited; (iii) a substantial portion of the Company's cash flow from
operations, if any, must be dedicated to the payment of principal and
interest on its indebtedness and other obligations and will not be
available for other purposes; (iv) the Company's level of indebtedness
could limit its flexibility in planning for, or reacting to, changes in its
business; (v) the Company is more highly leveraged than some of its
competitors, which may place it at a competitive disadvantage; and (vi) the
Company's high degree of indebtedness will make it more vulnerable in the
event of a downturn in its business.
The Company has been experiencing substantial negative EBITDA and, on
a pro forma basis giving effect to the 1996 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. 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 and could delay or preclude payment of interest or principal on the
Notes. 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 Securities."
HOLDING COMPANY RELIANCE ON SUBSIDIARIES' FUNDS; PRIORITY OF SECURED
CREDITORS
IntelCom is a holding company. 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. IntelCom must rely upon dividends and
other payments from ICG to generate the funds necessary to meet its
obligations, including the payment of principal of and interest on the
October Notes and payment on the October Interest Notes. ICG and its
subsidiaries are legally distinct from IntelCom and have no obligation,
contingent or otherwise, to pay amounts due pursuant to the Notes or to
make funds available for such payment. The ability of ICG to pay dividends
and make other payments to IntelCom is restricted by the terms of the
13 1/2% Notes and the 12 1/2% Notes. The amounts permitted to be paid in
the future by ICG under such terms depends, in part, upon the net income
of ICG and would be reduced by certain other payments, including payment
by ICG of subordinated indebtedness issued by it. ICG has incurred
losses since its inception in 1991 and there can be no assurance that it
will have net income available for distribution. ICG also is a holding
company dependent upon distributions and other payments by its
subsidiaries. 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 IntelCom and the holders of IntelCom's indebtedness, including
the Notes. Accordingly, the Notes 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. In addition,
the Notes are subordinate in right of payment to the prior payment in
full of all Senior Indebtedness (as defined in the Indentures governing
the Notes), including the 13 1/2% Note Guarantee and the 12 1/2% Note
Guarantee. As of March 31, 1996, after giving pro forma effect to the
1996 Private Offering, the Company would have had approximately $705.0
million of senior indebtedness outstanding, net of accrued original
issue discount.
The various financing agreements that govern the indebtedness of the
Company and its subsidiaries, including the 13 1/2% Notes Indenture and
the 12 1/2% Notes Indenture, contain financial and operating covenants
including, among other things, requirements that the Company or its
subsidiaries maintain certain financial ratios and satisfy certain
financial tests and limitations on their respective ability to incur
other indebtedness, pay dividends, engage in transactions with affiliates,
sell assets and engage in mergers and consolidations and other
acquisitions. If the Company or its subsidiaries fail to comply with
these covenants, the lenders will be able to accelerate the maturity of
the applicable indebtedness.
PAYMENTS DUE ON INDEBTEDNESS PRIOR TO MATURITY OF THE NOTES; 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 the October Notes and
the September 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 September Notes and the September
Interest Notes are due September 17, 1998 and are convertible at a price of
$15.60 per Common Share. The September Notes and the September Interest
Notes have since been converted into 769,226 Common Shares. Approximately
$56.1 million of the October Notes and the October 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 October Notes and the October
Interest Notes of its intent to redeem the October Notes and the October
Interest 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. The net proceeds from the 1996
Private Offering, the funds remaining from the 1995 Private 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 12 1/2% Notes Indenture, the ICG Preferred Stock, 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 the value of the
Warrants and the Warrant Shares, 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.
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 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. 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.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, there were 28,553,972 outstanding
Common Shares, of which 28,180,309 are transferable without restriction or
further registration under the Securities Act, except for any Common Shares
held by affiliates of IntelCom, which will be subject to the resale
limitations of Rule 144 promulgated under the Securities Act ("Rule 144").
The remaining 373,663 Common Shares are restricted securities (as defined
in Rule 144) and may only be sold pursuant to a registration statement
or an applicable exemption from registration thereunder, such as Rule 144.
None of such "restricted securities" will be eligible for sale under Rule
144 as currently in effect before October 1996. In addition, IntelCom
has reserved and registered under the Securities Act the following
11,520,774 Common Shares for future issuance: (i) 3,117,013 Common Shares
issuable upon conversion of the October Notes and upon conversion of
the October Interest Notes; (ii) 33,653 Common Shares issuable upon
conversion of the compound interest on the October Interest Notes accrued
up to but not including April 30, 1996; (iii) 1,358,968 Common Shares
issued upon conversion of the September Notes and upon conversion of
$3,120,000 principal amount of the September Interest Notes; (iv) 302,933
Common Shares issuable upon exercise of outstanding warrants; (v) 13,724
Common Shares issuable in satisfaction of certain obligations of IntelCom;
(vi) 4,167,708 Common Shares issuable pursuant to outstanding options;
(vii) 98,585 Common Shares reserved for issuance under ICG's 401(k) Plan;
(viii) 1,928,190 reserved for issuance upon the exercise of the IntelCom
Warrants; (ix) 250,000 Common Shares reserved for issuance upon the
exercise of the Series A Warrants; and (x) 250,000 Common Shares reserved
for issuance upon the exercise of the Series B Warrants. Sales or the
expectation of sales of substantial numbers of Common Shares in the
public market could adversely affect the prevailing market prices for
the Common Shares.
ANTITAKEOVER PROVISIONS
IntelCom's corporate charter provides that directors serve staggered
three-year terms and authorizes the issuance of preferred shares with such
designations, rights and preferences as may be determined from time to time
by IntelCom's Board of Directors. The staggered board provision could
increase the likelihood that, in the event of a possible takeover of
IntelCom, incumbent directors would retain their positions and,
consequently, may have the effect of discouraging, delaying or preventing a
change in control or management of IntelCom. The authorization of
preferred shares empowers the Board of Directors, without further
shareholder approval, to issue preferred shares with dividend, liquidation,
conversion, voting or other rights which could adversely affect the voting
power or other rights of the holders of the Common Shares. In the event of
issuance, the preferred shares could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change
of control of IntelCom. See "Description of Securities."
RECENT DEVELOPMENTS
NETWORK EXPANSION
In March 1996, the Company and SCE jointly filed an agreement with
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 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 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 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. The shareholders of IntelCom will consider and vote on this
plan on July 30, 1996 at the Annual and Special Meeting of Shareholders.
FINANCING
In April 1996, the Company completed a private placement of (i)
$550.3 million principal amount of 12 1/2% Notes for gross proceeds of
$300.0 million, which are guaranteed on a senior unsecured basis by the
12 1/2% Note Guarantee, and (ii) 150,000 shares of ICG Preferred Stock for
gross proceeds of $150.0 million. The net proceeds from the 1996 Private
Offering totaled $433.0 million after transaction fees and expenses of
$17.0 million. Of the net proceeds, $35.3 million was used to redeem the
Redeemable Preferred Stock and to purchase 916,666 of the Redeemable
Warrants previously issued by ICG, and approximately $397.7 million will be
used for capital expenditures and to fund net operating losses over the
next 21 months. The Company believes that its liquidity has improved
because the 12 1/2% Notes do not require the payment of cash interest prior
to 2001 and do not require payment of principal until maturity in 2006 and
dividends on the ICG Preferred Stock are payable at ICG's option in
additional ICG Preferred Stock through May 1, 2001.
Management believes that the net proceeds from the 1996 Private
Offering, amounts expected to be available through vendor financing
arrangements and the funds remaining from the 1995 Private 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.
USE OF PROCEEDS
The Company will not receive any proceeds from this Offering.
PLAN OF DISTRIBUTION
The Common Shares issuable upon conversion of the October Notes and
the October Interest Notes (collectively, the "Notes") will be issued
directly by the Company to the then current Noteholder upon submission of
the Notes for conversion. The conversion is subject to the terms of the
Notes and such Notes may be converted at any time. Accordingly, the
Company has agreed to use its best efforts to keep the Registration
Statement current until the Notes are all converted or redeemed or paid in
accordance with their terms. Pursuant to the Board Resolution, the
interest payable by the Company with respect to the October Interest Notes
upon redemption or conversion thereof would equal the accrued and unpaid
interest on the October Interest Notes as if such interest had been
calculated on a semi-annual compound basis on April 30 and October 30 of
each year from the date of issuance to the date fixed for redemption or
conversion of the Notes. The Company also provided that the interest on
the October Interest Notes accrued up to but not including April 30, 1996
would be convertible into Common Shares, which will result in the issuance
of an additional 33,653 Common Shares. The Company has notified the
holders of the Notes of its intent to redeem the Notes by July 26, 1996.
Certain of the shareholders listed under "Selling Security Holders"
have informed the Company that they intend to sell the Common Shares that
they currently hold through agents, dealers or underwriters on the American
Stock Exchange, the Vancouver Stock Exchange or in the over-the-counter
market, or otherwise, on terms and conditions and at prices determined at
the time of sale by the Selling Security Holders or as a result of private
negotiations between buyer and seller. Sales of the Common Shares may be
made pursuant to this Prospectus or pursuant to Rule 144 adopted under the
Securities Act. Any sales pursuant to this Prospectus by holders of Notes
or Common Shares issuable upon conversion of the Notes will require the
delivery of a current Prospectus to the purchaser. No underwriting
arrangements exist as of the date of this Prospectus for sales by any
Selling Security Holders. Upon being advised of any underwriting
arrangements, the Company will supplement this Prospectus to disclose such
arrangements. It is anticipated that the per share selling price in the
market will be at or between the bid and asked prices of the Common Shares
as reported on the Vancouver Stock Exchange or the American Stock Exchange.
Expenses of any such sale will be borne by the parties as they may agree.
PRICE RANGE OF COMMON SHARES
The Common Shares have been listed on the American Stock Exchange
("AMEX") since January 14, 1993 and have been traded under the symbol "ICG"
since February 29, 1996. Such shares were traded under the symbol "ITR"
through February 28, 1996. The Common Shares have been listed on the
Vancouver Stock Exchange ("VSE") since 1984 under the symbol "INL."
The following table sets forth, for the fiscal periods indicated, the
high and low sale prices of the Common Shares as reported on the VSE since
October 1, 1992, as reported on the American Stock Exchange Emerging
Company Marketplace from October 1, 1992 to January 13, 1993 and as
reported on the AMEX since January 14, 1993. The table also sets forth the
average of the monetary exchange rates on the last day of each month during
such fiscal period.
AMERICAN VANCOUVER
STOCK STOCK
EXCHANGE EXCHANGE
-------- --------
EXCHANGE
RATE
HIGH LOW HIGH LOW (C$/$)
---- --- ---- --- -------
FISCAL YEAR ENDED
SEPTEMBER 30, 1994
First Quarter . . $25.75 $12.88 C$33.50 C$18.50 1.33
Second Quarter . . 25.25 15.13 33.38 20.50 1.38
Third Quarter . . 17.75 9.50 22.00 14.00 1.38
Fourth Quarter . . 16.00 11.20 20.63 15.88 1.37
FISCAL YEAR ENDED
SEPTEMBER 30, 1995
First Quarter . . 17.88 12.38 22.13 20.25 1.38
Second Quarter . . 14.13 9.38 19.75 17.38 1.40
Third Quarter . . 13.25 6.63 18.00 18.00 1.36
Fourth Quarter . . 14.00 8.00 18.00 18.00 1.34
FISCAL YEAR ENDED
SEPTEMBER 30, 1996
First Quarter . . 12.75 8.63 18.00 18.00 1.37
Second Quarter . . 17.88 10.25 18.00 18.00 1.39
Third Quarter
(through July 23,
1996) . . . . . . 27.38 17.13 18.00 18.00 1.37
See the cover page of this Prospectus for a recent price of the Common
Shares on the American Stock Exchange. As of March 31, 1996, there were
435 holders of record of the Common Shares.
DESCRIPTION OF SECURITIES
The authorized capital stock of IntelCom consists of 100,000,000
Common Shares, without par value, of which 28,553,972 Common Shares have
been issued and are outstanding, and 30,000,000 Preferred Shares, without
par value, of which 2,000,000 Series A Preferred Shares are authorized and
none are outstanding, and 2,000,000 Series B Preferred Shares are
authorized and none are outstanding.
Common Shares
Holders of Common Shares are entitled to one vote for each share held
on all matters submitted to a vote of shareholders and do not have
cumulative voting rights. At IntelCom's shareholders meetings (held at
least annually), ordinary resolutions require a simple majority and special
resolutions require a vote of two-thirds of the Common Shares represented
at such meeting. Under the Canada Business Corporations Act (the "CBCA"),
special resolutions are necessary to authorize fundamental changes such as
transfer of incorporation, creation of special rights or restrictions to
IntelCom's shares, increases and reductions in authorized capital,
amalgamation (merger), and dissolution. Holders of Common Shares are
entitled to receive ratably such dividends, if any, as may be declared by
the Board out of funds legally available therefor. IntelCom intends to
retain its earnings, if any, to finance the development and expansion of
its business, and therefore does not anticipate paying any dividends in the
foreseeable future. Upon the liquidation, dissolution or winding-up of
IntelCom, holders of Common Shares are entitled to receive ratably the net
assets of IntelCom available after the payment of all debts and all other
liabilities.
The holders of the Common Shares have no preemptive, subscription,
redemption or conversion rights. Except for the Investment Canada Act
restrictions described in "Description of Securities--Exchange Controls and
Other Limitations Affecting Shareholders," there are no restrictions on
alienability of Common Shares. Special rights or restrictions on any
Common Shares may be created, varied, or abrogated only by special
resolution. No provision of the CBCA, IntelCom's Articles of Incorporation
and Bylaws either discriminates against existing or prospective
shareholders as a result of such security holder owning a substantial
amount of securities or prohibits a change of control of IntelCom.
Classification of the Board of Directors. IntelCom has a classified
Board of Directors whereby the directors serve staggered three-year terms.
Voting for directors is not cumulative and holders of a majority of the
Common Shares entitled to vote in any election of directors may elect all
of the directors standing for election at that meeting. The staggered
board provision could increase the likelihood that, in the event of a
takeover of IntelCom, incumbent directors would retain their positions and,
consequently, may have the effect of discouraging, delaying or preventing a
change in control or management of IntelCom.
7% Redeemable Convertible Subordinated Payable-in-Kind Notes due 1998
("October Notes") and 7% Simple Interest Redeemable Convertible
Subordinated Notes due 1998 ("October Interest Notes")
The October Notes and the October Interest Notes (collectively,
"Notes") are subject to separate Indentures, dated as of October 3, 1994
between the Company, as issuer, and Bankers Trust Company, as trustee (the
"Trustee"). The description of the Notes and the Indentures in this
Prospectus are summaries, do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all provisions of the
Indentures. Wherever defined terms in the Indentures are used in this
Prospectus, such defined terms are derived from the Indentures which are
incorporated herein by reference. Since the two Indentures are similar
except for the interest payment provisions, the following discussion
applies to both Indentures unless otherwise stated.
As of June 30, 1996, there were outstanding the aggregate principal
amount of $47,750,000 of October Notes and $8,356,250 of October Interest
Notes issued in payment of interest on the October Notes in lieu of cash
interest. The October Notes were issued primarily to institutional
investors in a private financing of the Company pursuant to a Note Purchase
Agreement dated October 27, 1993. As of March 31, 1996, there were
outstanding an aggregate principal amount of $10,000,000 of September Notes
and $2,000,000 of September Interest Notes issued in payment of interest on
the September Notes in lieu of cash interest. The September Notes and the
September Interest Notes have since been converted into 769,226 Common
Shares. Prior to March 31, 1996, $8,000,000 of September Notes and
$1,200,000 of September Interest Notes had been converted into 589,742
Common Shares. Pursuant to the Board Resolution, the interest payable
by the Company with respect to the October Interest Notes upon redemption
or conversion thereof would equal the accrued and unpaid interest on the
October Interest Notes as if such interest had been calculated on a semi-
annual compound basis on April 30 and October 30 of each year from the
date of issuance to the date fixed for redemption or conversion of the
Notes. The Company also provided that the interest on the October
Interest Notes accrued up to but not including April 30, 1996 would be
convertible into Common Shares, which will result in the issuance
of an additional 33,653 Common Shares. The Company has notified the
holders of the October Notes and the October Interest Notes of its intent
to redeem such Notes by July 26, 1996. The September Notes and the
September Interest Notes are not included in this Prospectus. All
discussion below refers to both the October Notes and October Interest
Notes unless otherwise stated.
The Notes are unsecured subordinated obligations of the Company,
limited to an aggregate principal amount of $47,750,000, plus an amount
equal to accrued interest on the October Notes, with an original
maturity of October 30, 1998. The original terms of the October Notes
provided for simple interest at the rate of 7% per annum from October
27, 1993, or from the most recent Interest Payment Date to which interest
has been paid or provided. Interest on the October Notes is payable
semi-annually on April 30 and October 30 of each year, commencing April
30, 1994, to each holder in whose name an October Note is registered at
the close of business on the Regular Record Date for such interest payment
(unless, with certain exceptions, such October Notes are converted or
redeemed prior to such Interest Payment Date). Interest on the October
Notes will be paid on the basis of a 360-day year consisting of twelve
30-day months. Principal and interest on the October Notes will be
payable at the office or agency of the Company maintained for that purpose
at the corporate trust office of the Trustee in New York, New York, and
may be surrendered for transfer, exchange, repurchase, redemption or
conversion at that agency or office. Payment of interest may, at the
option of the Company, be made by check mailed to the address of the holder
entitled thereto as it appears in the Note Register. The Company has no
outstanding securities or liabilities that are pari passu with the Notes
and also contain provisions requiring repayment upon a change of control of
the Company.
The Company may elect to accrue and defer interest on the October
Notes rather than pay interest in cash. In such case, the Company shall
issue, in lieu of payment, October Interest Notes to each Noteholder on a
pro rata basis. The issuance of such October Interest Notes shall
constitute full payment of interest in lieu of cash. Each October Interest
Note shall be subject to the same terms and conditions as the October
Notes, except that the original terms of the October Interest Notes
provided for 7% simple interest, payable on the earlier of conversion,
redemption or maturity. Included in this Prospectus is $8,356,250
principal amount of October Interest Notes issued through April 1996 for
accrued interest on the October Notes, 464,236 Common Shares which will
be issuable upon conversion of October Interest Notes and 33,653 Common
Shares which will be issuable upon conversion of the compound interest on
the October Interest Notes accrued up to but not including April 30, 1996.
There can be no assurance that sufficient funds will be available when
necessary to make any required repurchases. Also included in this
Prospectus are 1,358,968 Common Shares issued upon conversion of the
September Notes and the September Interest Notes.
The Notes have been and will be issued only in fully registered form,
without coupons, initially in denominations of $1,000 and any integral
multiple thereof, but thereafter in any denomination. No service charge
will be made for any transfer or exchange of Notes, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith.
All moneys paid by the Company to the Trustee for the payment of
principal and interest on any Note which remain unclaimed for two years
after such principal, premium or interest became due and payable may be
repaid to the Company. Thereafter, the holder of such Note may, as an
unsecured general creditor, look only to the Company for payment thereof.
The Indentures do not contain any provisions that would provide
protection to holders of the Notes against a sudden and dramatic decline in
credit quality of the Company resulting from any takeover, recapitalization
or similar restructuring.
The Indentures provide that the Company may not consolidate or merge
into any other corporation unless there is no Event of Default continuing
under the Indentures and the successor corporation expressly assumes all of
the obligations of the Company under the Indentures.
Conversion Rights. The Notes and interest on the October Interest
Notes accrued up to but not including April 30, 1996 will be convertible
into Common Shares at the conversion price of $18.00 per Common Share
(subject to adjustment as described below) at the option of the holders
if duly surrendered on or before the close of business on the day
preceding the date fixed for redemption (at which time the Company will
redeem any outstanding Notes).
The conversion price of the Common Shares shall be adjusted on the
occurrence of certain events, including (i) if the Company shall pay or
make a dividend or other distribution in Common Shares on the Company's
Common Shares; and (ii) if the outstanding Common Shares are subdivided
into a greater number of shares the conversion price shall be
proportionately reduced; conversely, if the outstanding Common Shares are
combined into a smaller number of shares the conversion price shall be
proportionately increased. Further, if the holders of Common Shares have
received or become entitled to receive dividends of stock or other
securities or property of the Company, or cash, excluding cash dividends
payable out of earnings or earned surplus of the Company, or other or
additional stock or other securities or property, including cash, by way of
spinoffs, split-up, reclassification, recapitalization, or a combination or
other corporate rearrangement other than additional Common Shares issued as
a stock dividend or a stock split, then the holders shall be entitled on
conversion to receive the amount of stock or other securities or property
which such holder would have received on the date of conversion if such
holder had been the holder of the Common Shares issuable on conversion of
the Note. No adjustment shall be made in the conversion price unless it
would require an increase or decrease of at least 1%.
In case of any reorganization, consolidation or merger to which the
Company is a party, other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of outstanding
Common Shares of the Company, in which the Company is the continuing
corporation, or in case of any sale or conveyance of all or substantially
all of the assets of the Company, there will be no adjustment of the
conversion price, but the holder of each Note then outstanding will have
the right to convert such Notes only into the kind and amount of
securities, cash or other property which the holder would have owned or
have been entitled to receive immediately after such consolidation, merger,
statutory exchange, sale or conveyance had such Notes been converted
immediately prior to the effective date of such consolidation, merger,
statutory exchange, sale or conveyance. In the case of a cash merger of
the Company with another corporation or other entity or any other cash
transaction of the type mentioned above, the effect of these provisions
would be that the conversion features of the Notes would thereafter be
limited to converting the Notes at the conversion price then in effect into
the same amount of cash that such holder would have received had such
holder converted the Notes into Common Shares immediately prior to the
effective date of such cash merger or transaction. Depending upon the
terms of such cash merger or transaction, the aggregate amount of cash so
received on conversion could be more or less than the principal amount of
the Notes.
Fractional Common Shares will not be issued upon conversion, but in
lieu thereof, the Company will pay cash equal to the market value of such
fractional share computed with reference to the Closing Price of the Common
Shares on the day of conversion. Notes surrendered for conversion during
the period from the close of business on any Regular Record Date to the
opening of business on the next succeeding Interest Payment Date (except
Notes whose maturity is prior to such Interest Payment Date and Notes
called for redemption on a Redemption Date within such period) must be
accompanied by payment of an amount equal to the interest payable on such
Interest Payment Date. Except for Notes surrendered for conversion which
must be accompanied by payment as described above, no interest on converted
Notes will be payable by the Company on any Interest Payment Date
subsequent to the date of conversion.
Except as stated above, the conversion price will not be adjusted for
the issuance of Common Shares or any securities convertible into or
exchangeable for Common Shares or for payment of dividends on the Common
Shares.
The Company has covenanted under the Indentures to reserve and keep
available at all times out of its authorized but unissued Common Shares,
for the purpose of effecting conversions of Notes, the full number of
Common Shares deliverable upon the conversion of all outstanding Notes.
Subordination. The payment of the principal of, premium, if any, and
interest on, the Notes, to the extent set forth in the Indenture, will be
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness. Senior Indebtedness is defined in the Indenture as all
Indebtedness of the Company, outstanding on the date of issuance of the
Notes or thereafter created or incurred, which is not by its terms
subordinate and junior to or on a parity with the Notes; and all guaranties
by the Company which are not by their terms subordinate and junior to or on
a parity with the Notes or Senior Indebtedness and all indebtedness of the
Company to the Trustee under the Indenture. Upon any payment or
distribution of assets to creditors upon any liquidation, dissolution,
winding up, reorganization, assignment for the benefit of creditors, or
marshalling of assets, whether voluntary, involuntary or in receivership,
bankruptcy, insolvency or similar proceedings, the holders of all Senior
Indebtedness will be first entitled to receive payment in full of all
amounts due or to become due thereon before any payment is made on in
respect of the Notes, or before any distribution is made with respect to
the Notes of any cash, property or securities, other than Secondary
Securities paid in lieu of cash interest. No payments on account of
principal of or interest on the Notes shall be made, and no Notes shall be
redeemed or repurchased, if at the time thereof: (i) there is a default in
the payment of all or any portion of the obligations under any Senior
Indebtedness; or (ii) there shall exist a default in any covenant with
respect to the Senior Indebtedness (other than as specified in clause (i)
of this sentence), and, in such event, such default shall not have been
cured or waived or shall not have ceased to exist, the Trustee shall have
received three business days' written notice from the Company or any holder
of such Senior Indebtedness stating that no payment shall be made with
respect to the Notes.
The holders of the Notes will be subrogated to the rights of the
holders of the Senior Indebtedness to the extent of payments made on Senior
Indebtedness upon any distribution of assets in any such proceedings out of
the distributive share of the Notes.
By reason of such subordination, in the event of insolvency, creditors
of the Company who are not holders of Senior Indebtedness or of the Notes
may recover less, ratably, than holders of Senior Indebtedness but may
recover more, ratably, than the holders of the Notes.
The Notes are obligations exclusively of the Company. The Company's
subsidiaries are separate distinct entities that have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the Notes.
At March 31, 1996, the Company's Senior Indebtedness aggregated
approximately $705.0 million. The Company expects that it will from time
to time incur additional indebtedness, including Senior Indebtedness. The
Indenture does not prohibit or limit the incurrence, assumption or
guarantee by the Company of additional indebtedness, including Senior
Indebtedness.
Events of Default. Events of Default under the Indentures are: (i)
failure to pay any installment of principal on any Note when due; (ii)
failure to pay any interest or premium on any Note when due or within 10
days thereafter; (iii) failure to perform any other covenant of the Company
in the Indentures, which default continues for 10 days after written notice
to the Company by the Trustee or to the Company and the Trustee by any
registered holders of the outstanding Notes; (iv) default on any
indebtedness of the Company in excess of $250,000 for borrowed money or on
any Senior Indebtedness resulting in such indebtedness being declared due
and payable within a period of 10 days after notice shall have been given
to the Company by the Trustee or to the Company and the Trustee by any
registered holders of Notes; and (v) certain events in bankruptcy,
insolvency or reorganization of the Company or judgment or similar process
issued or levied against a substantial portion of the Company's property
which shall not be released, bonded or vacated within 120 days. Subject to
the provisions of the Indentures relating to the duties of the Trustee in
case an Event of Default shall occur and be continuing, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indentures at the request or direction of any of the holders, unless such
holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the holders of a
majority in principal amount of the outstanding Notes will have the right
to 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.
If an Event of Default (other than those relating to certain events of
bankruptcy, insolvency and reorganization) shall occur and be continuing,
either the Trustee or the holders of at least 50% in aggregate principal
amount of the outstanding Notes may by written notice to the Company and,
if applicable, to the Trustee, accelerate the maturity of all Notes;
provided, however, that after such acceleration, but before a judgment or
decree based on acceleration, the holders of a majority in aggregate
principal amount of outstanding Notes may, under certain circumstances,
rescind and annul such acceleration if all Events of Default, other than
the non-payment of accelerated principal, have been cured or waived as
provided in the Indentures.
No holder of any Notes will have any right to institute any proceeding
with respect to the Indentures or for any remedy thereunder, unless such
holder shall have previously given to the Trustee written notice of a
continuing Event of Default, the holders of at least 25% in aggregate
principal amount of the outstanding Notes shall have made written request
and offered reasonable indemnity to the Trustee to institute such
proceeding as trustee, the Trustee shall not have received from the holders
of a majority in principal amount of the outstanding Notes a direction
inconsistent with such request and the Trustee shall have failed to
institute such proceeding within 60 days after such notice. However, such
limitations do not apply to a suit instituted by a holder of a Note for the
enforcement or payment of the principal, premium, if any, or interest on
such Note on or after the respective due dates expressed in such Note or of
the right to convert such Note in accordance with the Indentures.
The Indentures provide that the Trustee shall mail to the holders of
the Notes, as their names and addresses appear on the Notes Register,
notice of all uncured defaults known to it; provided, however, that except
in the case of default in the payment of principal or premium, if any, or
interest on any of the Notes, the Trustee shall be protected in withholding
such notice if a trust committee of Responsible Officers in good faith
determines that the withholding of such notice is in the interests of the
holders of the Notes.
The Company will be required to furnish to the Trustee annually a
certificate with respect to its compliance with the terms, provisions and
conditions of the Indentures and as to any default with respect thereto.
Optional Redemption. The Notes are redeemable at the Company's option
if the sales price of the Company's Common Shares as reported on the
American Stock Exchange exceeds $21.60 for a period of 30 consecutive
trading days. The Notes will be redeemable in whole or from time to time
in part, upon not less than 30 nor more than 60 days' notice mailed to each
holder of the Notes at such holder's record address on any date on or after
October 27, 1995, and prior to maturity, at a redemption price equal to
100% of the principal amount thereof plus accrued but unpaid interest to
the date of redemption (subject to the right of holders of record to
receive interest due). The Company has notified the holders of the Notes
of its intent to redeem the Notes by July 26, 1996. The Board of Directors
of the Company adopted a resolution pursuant to which the interest payable
by the Company with respect to the October Interest Notes upon redemption
or conversion thereof shall equal the accrued and unpaid interest on the
October Interest Notes as if such interest had been calculated on a
compound basis, payable April 30 and October 30 of each year from the date
of issuance to the date fixed for redemption or conversion of the Notes.
If less than all of the Notes are to be redeemed, the Notes shall be
redeemed pro rata in a principal amount which shall bear the same ratio to
the total principal amount of Notes being redeemed as the total principal
amount held by a holder bears to the aggregate amount of Notes outstanding.
Limitations on Dividends and Redemptions. The Indentures provide that
the Company will not make any distributions so long as the Notes are
outstanding, except (i) the Company's subsidiaries may make cash and stock
dividends, return capital and distribute assets to the Company; (ii) the
Company may make distributions of cash and profit which do not exceed 25%
of the Company's cumulative consolidated net income after taxes from
October 27, 1993, through the end of the fiscal quarter preceding the
distribution; (iii) the Company may make stock splits or declare stock
dividends consisting of shares of any class of capital stock to the holders
of such class; and (iv) the Company may redeem shares of a deceased
shareholder from insurance proceeds held by the Company on such
shareholder's life.
Modification and Waiver. Modifications and amendments of the
Indentures may be made by the Company and the Trustee with the consent of
the holders of not less than a majority in aggregate principal amount of
the outstanding Notes; provided, however, that no such modification or
amendment may, without the consent of the holder of each outstanding Note
affected thereby, (i) change the Stated Maturity of the principal of, or
any installment of interest on, any Notes, (ii) reduce the principal amount
of, or the premium on, if any, any Notes or reduce the rate or extend the
time of payment of interest thereon, (iii) change the place or currency of
payment of principal of, or Repurchase Price or premium, if any, or
interest on, any Notes, (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to any Notes, (v) adversely
affect the right to convert Notes, (vi) reduce the percentage of the
aggregate principal amount of outstanding Notes, the consent of the holders
of which is necessary to modify or amend the Indentures, or (vii) reduce
the percentage of the aggregate principal amount of outstanding Notes, the
consent of the holders of which is necessary for waiver of compliance with
certain provisions of the Indentures or for waiver of certain defaults,
(viii) modify the provisions of the Indentures with respect to the
subordination of the Notes in a manner adverse to the holders of the Notes
or (ix) modify the provisions of the Indentures with respect to the right
to require the Company to repurchase Notes in a manner adverse to the
holders of the Notes.
The holders of a majority in aggregate principal amount of the
outstanding Notes may, on behalf of all holders of Notes, waive any past
default under the Indentures or Event of Default, except a default in the
payment of principal, premium, if any, or interest on any of the Notes or
in respect of a provision which under the Indenture cannot be modified
without the consent of the holder of each outstanding Note.
Discharge. The Indentures provide that the Company may discharge its
obligations under the Indentures while any Notes remain outstanding if (i)
all outstanding Notes will become due and payable at their scheduled
maturity within one year or (ii) all outstanding Notes are scheduled for
redemption within one year, and in either case the Company has deposited
with the Trustee an amount sufficient to pay and discharge all outstanding
Notes on the date of their scheduled maturity or scheduled redemption.
Governing Law. The Indentures and the Notes will be governed and
construed in accordance with the laws of the State of New York without
giving effect to such State's conflicts of laws principles.
Information Concerning the Trustee. The Trustee is Bankers Trust
Company, which also serves as the paying agent, conversion agent and
registrar in connection with the Notes.
Transfer Agents and Registrars
The transfer agents and registrars of the Common Shares are: Pacific
Corporate Trust Company, Suite 830-625 Howe Street, Vancouver, British
Columbia V6C 3B8 in Canada, and Registrar & Transfer Company, 10 Commerce
Drive, Cranford, N.J. 07016, in the United States.
Exchange Controls and Other Limitations Affecting Shareholders
There are no governmental laws, decrees or regulations in Canada that
restrict the import or export of capital or affect the remittance of
interest, dividends or other payments to non-resident holders of the Common
Shares, other than tax withholding requirements. See "Certain Tax
Considerations."
There are no limitations under the laws of Canada or in the charter or
any other constituent IntelCom documents on the right of non-residents to
hold and/or vote Common Shares, except as provided in the Investment Canada
Act (the "ICA").
The ICA requires a non-Canadian making an investment which acquires
control of a Canadian business, the gross assets of which exceed certain
defined threshold levels, to file an application for review with Investment
Canada, a federal agency created by the ICA. A Canadian business is
defined in the ICA as a business carried on in Canada that has a place of
business in Canada, an individual or individuals in Canada who are employed
or self-employed in connection with the business and assets in Canada used
to carry on the business.
An investment in Common Shares by a non-Canadian would generally be
reviewable under the ICA if it was an investment to acquire direct control
of IntelCom and the value of the assets of IntelCom was $5.0 million or
more, or indirect control of IntelCom and the value of the assets was $50.0
million or more and in some cases $5.0 million or more if an order for
review is issued by the Canadian cabinet on the grounds that the investment
relates to Canada's cultural heritage or national identity.
A non-Canadian would acquire control of IntelCom for purposes of the
ICA if he acquired a majority of the Common Shares. The acquisition of
less than a majority but more than one-third of the Common Shares would be
presumed to be an acquisition of control of IntelCom unless it could be
established that IntelCom was not controlled in fact by the acquiror
through ownership of Common Shares.
A non-Canadian may not implement an investment reviewable under the
ICA unless the investment has been reviewed and the Minister responsible
for ICA is satisfied or is deemed to be satisfied that the investment is
likely to be a net benefit to Canada. If the Minister is not satisfied
that the investment is likely to be a net benefit to Canada, the
non-Canadian may not implement the investment or, if the investment has
been implemented, may divest himself of control of the Canadian business
that is the subject of the investment.
CERTAIN TAX CONSIDERATIONS
The following discussion identifies all material U.S. federal income
tax considerations relevant to an investment in the Notes and the Common
Shares.
Reid & Priest LLP, counsel to the Company, has advised the Company
that the following discussion expresses their opinion as to the material
United States federal income tax consequences expected to result to holders
from the purchase, ownership and disposition of the October Notes, the
October Interest Notes and the Common Shares. Such opinion is based on
current provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), applicable, permanent, temporary or proposed Treasury Regulations
("Treasury Regulations"), judicial authority, and current administrative
rulings and pronouncements of the Internal Revenue Service (the "Service")
and such opinion is based upon the facts concerning the Company and its
subsidiaries as of the date hereof. There can be no assurance that the
Service will not take a contrary view, and no ruling from the Service has
been or will be sought. Legislative, judicial, or administrative changes
or interpretations may be forthcoming that could alter or modify the
statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders.
This summary and the above referenced opinion does not purport to deal
with all aspects of taxation that may be relevant to particular holders of
the October Notes, the October Interest Notes, and/or Common Shares in
light of their personal investment or tax circumstances, or to certain
types of investors (including insurance companies, financial institutions
or broker-dealers, tax-exempt organizations, foreign corporations and
persons who are not citizens or residents of the United States and holders
who directly, or indirectly, own 10% or more of the voting power of the
Company) subject to special treatment under the United States federal
income tax laws. As used in the discussion which follows, the term
"Holder" refers to holders of the October Notes, the October Interest
Notes, and/or Common Shares who are individuals who are residents or
citizens of the United States, corporations, or other forms of entities
incorporated or otherwise formed and existing under the laws of the United
States which are subject to United States federal income taxation on their
worldwide income.
HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF PURCHASING, HOLDING, AND DISPOSING OF THE OCTOBER
NOTES, THE OCTOBER INTEREST NOTES AND COMMON SHARES INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX LAWS.
NOTES
General. For United States federal income tax purposes, the October
Notes are treated as having been issued with original issue discount within
the meaning of section 1273(a) of the Code. The October Interest Notes are
not treated as debt instruments separate from the October Notes, but
instead are aggregated with the October Notes. Thus, the payments made
pursuant to the October Interest Notes are treated as made on the October
Notes, and the distribution by the Company of the October Interest Notes is
not considered to be a payment made on the October Notes. Accordingly, for
purposes of this discussion, the October Notes and the October Interest
Notes shall, where appropriate, be referred to collectively as the "Notes".
Original Issue Discount. The amount of original issue discount, 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 a substantial amount of such debt instruments were sold. The issue
price includes any amount paid for the right to convert the debt instrument
into common stock. 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).
Each Holder of a Note will be required to include original issue
discount in such Holder's gross income periodically over the term of such
Note even though actual payment of cash or other property with respect to
such income is not received until a later date. In general, the amount of
original issue discount that a holder of a debt instrument with original
issue discount must include in gross income for United States federal
income tax purposes will be the sum of the daily portions of original issue
discount with respect to such debt instrument for each day during the
taxable year or portion of a taxable year on which such holder holds the
debt instrument. The daily portion is determined under a constant yield
method by allocating to each day of an accrual period (generally, a six
month period or a shorter or longer period) a pro rata portion of an amount
equal to the "adjusted issue price" of the debt instrument at the beginning
of the accrual period multiplied by the yield to maturity of the debt
instrument less the amount of any qualified stated interest allowable to
the accrual period. The yield to maturity of a debt instrument is the
discount rate that, when applied to all payments due under the debt
instrument, produces a present value equal to the issue price of the debt
instrument. The "adjusted issue price" is the issue price of the debt
instrument increased by the accrued original issue discount for all prior
accrual periods (and decreased by the amount of cash payments made in all
prior accrual periods, other than qualified stated interest payments).
Under the payment schedule that would result and, as discussed below,
must be used if the option to defer interest payments was exercised, none
of the interest on the Notes would be qualified stated interest.
Accordingly, no payments on the Notes are qualified stated interest
payments. As a result, the Notes will be treated as having been issued
with original issue discount equal to the excess of their stated redemption
price at maturity (which is equal to the sum of the principal amount plus
all payments of stated interest) over their issue price (which is equal to
the initial price at which a substantial amount of Notes were sold
(excluding sales to bond houses and brokers).
The right to issue the October Interest Notes is treated for purposes
of the original issue discount provisions of United States federal income
tax law as an option to defer the interest payments on the October Notes
until maturity. Treasury Regulations provide that in the case of a debt
instrument such as a Note that provides the issuer with an unconditional
option or options exercisable during the term of the debt instrument, that,
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 the amount of original issue
discount are determined by assuming that the issuer exercises or does not
exercise the option in a manner that minimizes the yield on the debt
instrument. The yield and maturity for such purpose, however, are
determined without regard to an option to convert the debt instrument into
the stock of the issuer. Assuming that the Company did not exercise the
option to defer interest payments, the yield on the Notes would be 7%,
compounded semiannually. Assuming that the Company exercised such option,
the yield on the Notes would be less than 7%. Accordingly, original issue
discount with respect to the Notes is computed by assuming that the Company
exercises the option to defer the interest payments on the Notes until
maturity. Subject to the discussion below, the Company believes the yield
to maturity of the Notes is 6.92%, based on the issue price and computed on
the basis of semiannual compounding. The yield to maturity of the Notes
may be higher, if the obligation of the Company to bear the cost of any
Canadian federal withholding tax on interest under the October Interest
Notes is treated as part of the payment schedule. If, instead of issuing
an Interest Note, the Company actually makes a cash interest payment, then
solely for purposes of the accrual of original issue discount, the yield
and maturity of the Notes will be redetermined, if necessary, by treating
the Notes as partially retired on a pro rata basis on the date of such
payment.
The tax basis of a Note in the hands of each Holder will be increased
by the amount of original issue discount, if any, on such Note that is
included in the Holder's gross income and will be decreased by the amount
of any cash payments received with respect to the debt instrument, whether
such payments are denominated as principal or interest. For this purpose,
the October Interest Notes will be treated as issued on the date of
issuance of the October Notes and will be allocated a proportionate part of
the amount paid for the October Notes.
Acquisition Premium. If a Holder of a Note acquired such Note at a
cost in excess of its "adjusted issue price" but less than or equal to the
sum of all amounts payable on the Note after the date of such purchase
other than payments of qualified stated interest, such Note will have an
acquisition premium to the extent of such excess. Notwithstanding the
original issue discount rules described in "Original Issue Discount" above,
the Holder of a Note with an acquisition premium would be entitled to
reduce the daily portion of original issue discount includable in income by
a fraction, the numerator of which is the excess of the adjusted tax basis
of the Note immediately after its acquisition over the adjusted issue price
of the Note and the denominator of which is the excess of the sum of all
payments (other than payments of qualified stated interest) after the
purchase date over such Note's adjusted issue price.
Market Discount. The Code generally requires holders of "market
discount bonds" to treat as ordinary income any gain realized on the
disposition (or gift) of such bonds to the extent of the accrued market
discount during the holder's period of ownership. A "market discount bond"
is a debt obligation purchased at a discount, subject to a statutory de
minimis exception. For this purpose, a purchase at a market discount
includes (i) a purchase after the original issue at a price below the
stated redemption price at maturity, (ii) a purchase at original issue at a
price below its "issue price" and the stated redemption price at maturity,
or (iii) in the case of a debt instrument (such as a Note) issued with
original issue discount, a purchase at a price below (a) its "issue price"
plus (b) the amount of original issue discount includable in income by all
prior holders of the debt instrument, minus (c) all cash payments (other
than payments constituting qualified stated interest) received by such
prior holders. The accrued market discount generally equals a ratable
portion of the bond's market discount, calculated (i) on a straight-line
basis on the number of days the taxpayer has held the bond at the time of
such disposition, as a percentage of the number of days from the date the
taxpayer acquired the bond to its date of maturity, or (ii) at the election
of the taxpayer, on a yield to maturity basis, where the issue price is the
taxpayer's tax basis in the bond.
A holder of "market discount bonds" generally is not required to
include accrued market discount in income until (i) such holder receives a
partial principal payment; (ii) such holder sells or otherwise disposes of
such market discount bonds; or (iii) such market discount bonds are retired
or redeemed by the issuer. If a market discount bond is exchanged or
otherwise disposed of in a transaction which under the Code does not
require the recognition of gain or loss, the transferor of such debt
instrument nevertheless will be required with respect to certain
nonrecognition transactions to recognize gain, if any, to the extent of any
accrued market discount. Alternatively a holder of a market discount bond
can elect to include market discount in income currently on a straight-line
basis or on a constant yield to maturity basis, as discussed above. This
election will apply for all market discount bonds held by the taxpayer.
Part, or all, of the net direct interest expense attributable to debt
used to purchase or carry the market discount bond, for which the taxpayer
has not elected to include such market discount on a current basis, may not
be currently deductible but will be deductible in subsequent tax years.
Disposition. In general, a Holder of Notes will recognize gain or
loss upon the sale, exchange, redemption, or other taxable disposition of
such Notes measured by the difference between (i) the amount of cash and
the fair market value of property received (except to the extent
attributable to accrued interest on the Notes) and (ii) the Holder's tax
basis in the Notes (as increased by any original issue discount and market
discount previously included in income by the Holder and decreased by any
amortizable bond premium, if any, deducted over the term of the Notes).
Subject to the market discount rules discussed above and certain other
issues discussed below, any such gain or loss will generally be long-term
capital gain or loss, provided that the Notes have been held for more than
one year. See "Common Shares - Sale of Common Shares." At the time of
sale, exchange, disposition, retirement or redemption, a Holder of the
Notes must also include in income any previously accrued but unrecognized
original issue discount.
Election. A Holder of Notes, subject to certain limitations, may
elect to include all interest and discount on the Notes in gross income
under the constant yield method. For this purpose, interest includes
stated and unstated interest, acquisition discount, de minimis original
issue discount and original issue discount, de minimis market discount and
market discount, as adjusted by any amortizable bond premium or acquisition
premium. Any such election, if made in respect of a market discount bond,
will constitute an election to include market discount in income currently
on all market discount bonds acquired by such Holder on or after the first
day of the first taxable year to which the election applies. See "Notes -
Market Discount."
Conversion. No gain or loss will be recognized for United States
federal income tax purposes by Holders of the Notes upon conversion of the
Notes into Company Common Shares (except to the extent of cash, if any,
received in lieu of the issuance of fractional shares of Common Shares). A
Holder's tax basis in the Common Shares will equal the tax basis in the
Notes that are converted into such Common Shares. The holding period of
the Common Shares received on the conversion of the Notes will include the
period during which the Notes were held by such Holder. If any cash is
received in lieu of fractional shares, the Holder will recognize gain or
loss, and the character and the amount of such gain or loss will be
determined as if the Holder had received such fractional shares and then
immediately sold them for cash. See "Common Shares - Sale of Common
Shares."
COMMON SHARES
Sale of Common Shares. Gain or loss will generally be recognized upon
a sale of the Common Shares received upon conversion of a Note in an amount
equal to the difference between the amount realized on the transfer and the
Holder's adjusted tax basis in the Common Shares. Such gain or loss will
be capital gain or loss, provided the Common Shares are held as a capital
asset, and will be long-term capital gain or loss with respect to Common
Shares held for more than one year.
Passive Foreign Investment Company Considerations. For United States
federal income tax purposes, the Company generally will be classified as a
passive foreign investment company (a "PFIC") for any taxable year during
which either (i) 75% or more of its gross income is passive income (as
defined for United States federal income tax purposes) or (ii) on average
for such taxable year, 50% or more of the average value of its assets
produce, or are held for the production of, passive income. For purposes
of applying the foregoing tests, the assets and gross income of the
Company's significant direct, and indirect, subsidiaries will be attributed
to the Company.
If the Company were at any time a PFIC for a taxable year during a
holding period for such holder's Common Shares, and the Holder did not then
make, or have in effect, an election to treat the Company as a qualified
electing fund (a "QEF") under section 1295 of the Code, then (i) the Holder
would be required to allocate any gain recognized upon the disposition of
such Holder's Common Shares to a third party ratably over the Holder's
holding period for such interest and (ii) the amount allocated to each year
other than (x) the year of such disposition or (y) any year prior to the
beginning of the first taxable year of the Company for which it was a PFIC,
would be subject to tax at the highest rate applicable to individuals or
corporations, as the case may be, for the taxable year to which such income
is allocated. In addition, a United States Holder would pay an interest
charge imposed upon the resulting tax attributable to each such year (which
charge would accrue from the due date of the return for the taxable year to
which such tax was allocated). Finally, the amounts allocated to the years
referred to in (x) and (y) of the second previous sentence would be treated
as ordinary income. In addition, such adverse tax consequences may also
apply to the disposition of the Notes or to the deemed receipt of excess
distributions with respect to the Notes. See "Common Shares -
Adjustments."
While there can be no assurance with respect to the classification of
the Company as not being a PFIC, the Company believes that it did not
constitute a PFIC during its taxable years ending on or prior to September
30, 1995 and intends to avoid PFIC status for its taxable year ending on or
prior to September 30, 1996, although there can be no assurance that it
will be able to do so. The Board of Directors of the Company has adopted a
plan under which the Company will become a subsidiary of a new publicly
traded company. If such a plan (the "Arrangement") is consummated, the
Company would become a "controlled foreign corporation." In determining
PFIC status of a controlled foreign corporation, assets must be measured by
their adjusted tax bases (as calculated in order to compute earnings and
profits for United States federal income tax purposes) instead of by value,
subject to certain adjustments, for purposes of applying the 50% asset test
described above. Under this rule, there is uncertainty as to whether the
calculation of the Company's assets for purposes of the PFIC rules must be
their adjusted tax bases (as calculated in order to compute earnings and
profits for United States federal income tax purposes) for the Company's
taxable year prior to the Arrangement but includable in the Company's
September 30, 1996 taxable year. If that were the case, the Company may be
treated as a PFIC for the taxable year ending September 30, 1996. Thus, if
a Holder's holding period with respect to its Common Shares did not include
any other taxable year for which the Company was a PFIC, the Holder should
make a QEF Election so that a disposition of such Shares will not be a
taxable event having the adverse tax consequences noted above. The adverse
tax consequence would be avoided because a Holder would avoid holding
Common Shares during a period for which the Company is a PFIC and for which
the holder did not make a QEF Election for such period. As discussed
below, the consequence of a QEF Election is that each Holder would have to
include its share of the Company's earnings in income for the taxable
period. Since the Company believes that it will have no earnings and
profits for the taxable year ending September 30, 1996, there should be no
adverse effect to making the QEF Election. AS A RESULT OF THE FOREGOING,
THE COMPANY ADVISES ALL COMMON SHAREHOLDERS, INCLUDING THOSE COMMON
SHAREHOLDERS WHO HAVE CONVERTED NOTES INTO COMMON SHARES PRIOR TO THE
REDEMPTION BY THE COMPANY, TO MAKE A QEF ELECTION FOR ITS TAXABLE YEAR
THAT INCLUDES SEPTEMBER 30, 1996. A QEF ELECTION IS MADE BY A SHAREHOLDER
BY PROPERLY FILING AND COMPLETING A FORM 8621, WITH ITS TAX RETURN FOR THE
TAXABLE YEAR THAT INCLUDES SEPTEMBER 30, 1996.
SUMMARY. THE FOREGOING SUMMARY OF THE POSSIBLE APPLICATION OF THE
PFIC RULES IS ONLY A SUMMARY OF CERTAIN MATERIAL ASPECTS OF THOSE RULES.
BECAUSE THE UNITED STATES FEDERAL TAX CONSEQUENCES TO A UNITED STATES
HOLDER UNDER THE PFIC PROVISIONS ARE SIGNIFICANT, UNITED STATES HOLDERS OF
COMMON SHARES AND NOTES ARE URGED TO DISCUSS THOSE CONSEQUENCES WITH THEIR
TAX ADVISORS.
Qualified Electing Fund Election; IRS Form 8621. A Common Shareholder
makes a QEF Election for a taxable year by properly filing and completing a
Form 8621 with its tax return for such year. The effect of such election
is that the Holder generally will be currently taxable on such Holder's pro
rata share of the Company's ordinary earnings and net capital gains (at
ordinary income and capital gains rates, respectively) for each taxable
year of the Company in which the Company is classified as a PFIC, even if
no dividend distributions are received by such Holder, unless such United
States Holder makes an election to defer such taxes. If the Company
believes that it is a PFIC for a taxable year, it will provide Holders of
Common Shares with information sufficient to allow such holders to make a
QEF Election and report and pay any current or deferred taxes due with
respect to their pro rata shares of the Company's net ordinary earnings and
net capital gains for such taxable year. Holders should consult their tax
advisors concerning the merits and mechanics of making a QEF Election and
other relevant tax considerations if the Company is a PFIC for any taxable
year.
If a Holder does not make a QEF election for the first year that the
Company is a PFIC, then a Holder should both elect QEF status, as described
above, and elect to "purge" the Company's PFIC taint. A United States
taxpayer's "purge election" must be made as to his PFIC shares held as of
the qualification date by also attaching a Form 8621 to the tax return
for the Holder's taxable year that includes the qualification date. The
qualification date is the first day of the shareholder's taxable year for
which a shareholder elects to treat the PFIC as a QEF. The "purge
election" applicable to any United States person that is a shareholder of a
controlled foreign corporation requires the United States person to include
as a dividend the shareholder's pro rata share of the controlled foreign
corporation's post-1986 earnings and profits included in its holding period
of such shares during which the controlled foreign corporation was a PFIC.
Thus, as a result of making the "purge election" applicable to controlled
foreign corporations, a Holder must include as a dividend (i.e., an excess
distribution subject to the PFIC rules) its share of the Company's
accumulated earnings and profits that was accumulated during the Holder's
holding of the Common Shares but only during taxable years of the Company
during which the Company was a PFIC. The Company does not believe that it
has, or will have, any material amount of accumulated earnings and profits.
Thus, a Common Shareholder should be able to both make the QEF election and
the "purge election" applicable to controlled foreign corporations without
any adverse tax effects.
Adjustments. The conversion price of the Notes is subject to
adjustment under certain circumstances. Under Section 305 of the Code and
the Treasury Regulations issued thereunder, Holders of the Notes will be
treated as having received a constructive distribution, resulting in
ordinary income to the extent of the Company's current and accumulated
earnings and profits, if, and to the extent that, adjustments in the
conversion price that may occur by reason of certain taxable distributions
on stock increase the proportionate interest of a Holder of a Note in the
earnings and profits of the Company. Thus, under certain circumstances
that may or may not occur, such an adjustment may be treated as taxable
distributions to Holders of Notes, without regard to whether such Holders
receive any cash or other property.
The conversion price of the Convertible Preferred Shares is also
subject to adjustment under certain circumstances. Under Section 305 of
the Code and the Treasury Regulations issued thereunder, Holders of the
Common Shares will be treated as having received a constructive
distribution, resulting in ordinary income to the extent of the Company's
accumulated earnings and profits, if, and to the extent that, (i) the
Company distributes a stock dividend on the Common Shares which results in
an increase in the proportionate interest of a Holder of Common Shares in
the assets or earnings and profits of the Company, and the Company does not
fully adjust the conversion price of the Notes or the Convertible Preferred
Shares, as applicable, and (ii) interest or a dividend is paid with respect
to the Notes or the Convertible Preferred Shares, respectively. Thus,
under circumstances that are not likely to occur, certain distributions of
stock on the Common Shares may be treated as taxable distributions to
Holders of the Common Shares, without regard to whether such Holders
receive any cash or other property.
Dividends. For United States federal income tax purposes, a citizen
or resident of the United States or a domestic corporation will be required
to include any cash dividends on Common Shares in his gross income
(including any Canadian federal income tax withheld). Such dividends will
generally not be eligible for the dividends received deduction available to
corporations.
Foreign Tax Credit. Holders of the Notes and/or the Common Shares
will generally be entitled, subject to certain limitations, to a credit
against their United States federal income tax for an amount equal to the
Canadian federal income taxes withheld with respect to interest received on
the Notes and dividends received on the Common Shares. Holders of the
Notes and/or the Common Shares may claim a deduction for such Canadian
taxes if they do not elect to claim such tax credit on United States
federal income tax returns. In certain circumstances, United States
corporations owning more than 10% of the Common Shares of the Company are
eligible for a tax credit for the underlying foreign taxes paid by the
Company. For United States tax purposes, a Holder of a Note must generally
include in income any Canadian federal income taxes withheld.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF UNITED STATES
FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF
NOTES IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES AND INCOME TAX
SITUATION. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISOR AS TO THE SPECIFIC
TAX CONSEQUENCES TO THEM FROM THE PURCHASE, OWNERSHIP, AND DISPOSITION OF
NOTES AND COMMON SHARES INCLUDING THE APPLICATION AND EFFECT OF STATE,
LOCAL, FOREIGN, AND OTHER TAX LAWS.
CANADIAN FEDERAL INCOME TAX CONSIDERATIONS FOR NON-RESIDENTS OF CANADA.
The following discussion concerning the Canadian federal income tax is
based on applicable Canadian federal income tax laws, regulations and other
authorities, as now in effect. Such federal income tax laws, rulings,
regulations, considerations and other authorities are subject to change,
modification and repeal which may be applied retroactively. The following
discussion does not take into account the tax laws of the various provinces
or territories of Canada.
Introduction. KPMG, Chartered Accountants, the Company's Canadian
auditors, have prepared the following summary of the principal Canadian
federal income tax consequences generally applicable to non-residents
of Canada who acquire the Company's October Notes pursuant to this
Offering. This discussion is of a general and summary nature only and
is not intended to be, nor should it be construed as, legal or tax advice
to any particular investor. Such summary does not discuss aspects of
federal income tax laws applicable to a taxpayer's particular tax
situation. Therefore, prospective investors should consult with their own
tax advisor with respect to the tax consequences of an investment in the
Notes or the Common Shares.
This summary is based upon KPMG's understanding of the provisions
of the Income Tax Act (Canada) (the "Canadian Act") and the Regulations
thereunder as they currently exist and current published administration
practices of Revenue Canada, Taxation ("RCT"). This summary takes into
account proposals for specific amendments to the Canadian Act as outlined
in the Federal Budget of March 6, 1996 and draft legislation to amend
the Canadian Act released on June 20, 1996.
This summary is not exhaustive of all possible Canadian federal income
tax consequences. Further, it does not take into account or anticipate any
changes in law, whether by judicial, governmental or legislative decision
or action, nor does it take into account non-Canadian income tax
considerations which considerations may differ significantly from those
discussed herein.
This summary does not constitute and should not be construed to
constitute tax advice to any particular investor. Investors are,
therefore, advised to consult their own tax advisors with respect to their
individual circumstances.
Interest Income. Interest on the October Notes is payable
semi-annually and may be paid in cash or by the issuance of Interest Notes.
The Interest Notes are due on the same date and bear the same interest rate
as the October Notes for which they had been issued as an interest payment.
Non-resident holders of the October Notes who deal at arm's length
with the Company are specifically exempt from Canadian withholding tax on
interest payments by virtue of a specific exemption in the Canadian Act.
This exemption provides that no withholding tax is payable on interest paid
to non-residents on debt where there is no requirement for the company
issuing the debt to pay more than 25% of the principal on the debt within 5
years of issue except in the event of default or conversion.
Non-resident holders of the October Notes who do not deal at arm's
length with the Company would be liable for Canadian tax at 25% unless this
rate is reduced by virtue of an income tax treaty between Canada and the
country in which the non-resident resides. In the event that these debt
holders reside in the U.S., the Canada-U.S. Income Tax Treaty ("Treaty")
reduces the rate of withholding tax from 25% to 10%. This tax would
be withheld by the Company and the debt holder would have no further
payment or reporting obligation to the Canadian income tax authorities.
Non-resident holders of the Interest Notes would be subject to
Canadian withholding tax at 25% on interest paid on these securities unless
this rate is reduced by virtue of an income tax treaty between Canada and
the country in which the non-resident resides. In the event that the
non-resident holder of the Interest Notes resides in the U.S., the Treaty
reduces its rate of withholding from 25% to 10%. Canadian withholding tax
is payable upon payment of the interest. Since interest on the Interest
Notes is payable only upon maturity, conversion or prepayment of the Notes
in the event of default, Canadian withholding tax would be paid at these
times. This tax would be withheld by the Company and the debt holder would
have no further payment or reporting obligation to the Canadian income tax
authorities.
The terms of the Interest Notes provide that IntelCom would "bear the
cost of any Canadian withholding tax on interest...so that the amount of
money...received by the Holder...net of any Canadian withholding tax,
including any Canadian withholding tax on any amount of tax withheld, shall
be the same amount to which the holder would have been entitled if no
Canadian withholding tax were imposed". In the case of a U.S. resident
Noteholder who was to receive a $100 interest payment on which $10 of
Canadian withholding tax was payable, IntelCom would be considered to have
paid interest of $111.11 on which it would be required to withhold and
remit $11.11 (i.e. 10% of $111.11 equals $11.11) to the Canadian tax
authorities. Holders of the security would receive the required $100 but
for their own reporting purposes should report interest income of $111.11
and foreign tax paid of $11.11.
Disposition of Notes. Non-resident Noteholders who do not hold the
Notes in connection with a business carried on in Canada are not subject to
Canadian income tax in respect of gains that they may realize on the Notes.
A transfer of a Note by a non-resident to a resident of Canada may be
treated as if a portion of the consideration paid by the Canadian resident
purchaser is interest subject to Canadian withholding tax. In the case of
interest on the Interest Notes, there is no exemption from Canadian
withholding tax. Accordingly, should these Interest Notes be transferred
by a non-resident to a resident in Canada, the Canadian purchaser would be
obliged to withhold Canadian income tax on that portion of the purchase
price representing accrued interest on the Notes.
Conversion of Notes to Shares. For Canadian income tax purposes, the
conversion of the Notes to Common Shares will be treated as a tax free
rollover provided that the Notes are capital property to the non-resident
investor. Accordingly no capital gain or loss will be realized on the
exchange and the cost to the non-resident of the Common Shares received
will equal the cost of the Notes.
Ownership of Common Shares. The following discussion is limited to
persons who, for purposes of the Canadian Act, deal at arm's length with
the Company, hold Common Shares as capital property, are non-residents of
Canada at any time when holding Common Shares and do not use or hold Common
Shares in, or in the course of, carrying on business in Canada (a
"Non-Resident Shareholder").
Because the Company's operating subsidiaries are U.S. corporations,
profits produced by such subsidiaries will not be distributable directly to
shareholders. Instead, for these profits to be distributed to
shareholders, the Company's operating subsidiaries must declare a dividend
to the Company, and the Company in turn must declare a dividend to
shareholders. This will subject the dividend to two withholding taxes.
First, the dividends from the subsidiaries to the Company will be subject
to a 6% withholding tax imposed by the United States on the gross amount
of the dividends. Then, the subsequent dividends are subject to Canadian
withholding tax at the basic rate of 25% of the gross dividend, although
this rate may be reduced by the terms of any applicable tax treaty. For
residents of the United States whose shareholdings are not effectively
connected with a "permanent establishment" in Canada, the Treaty reduces
the rate to 15% of the gross dividend, although for U.S. corporations
owning 10% of the voting stock of the Company, the withholding tax is
reduced to 6% of the gross dividend.
The March 17, 1995 Protocol amending the Treaty reduces the
withholding tax on dividends to 5% for 1997 and later years where the
corporate recipient owns at least 10% of the payer's voting shares. This
change will reduce the rate of U.S. withholding tax on dividends paid to
the Company by its U.S. subsidiaries as well as the Canadian withholding
tax on dividends paid by the Company to U.S. corporate shareholders who
own at least 10% of the voting shares of the Company.
A Non-Resident Shareholder will generally not be subject to tax in
Canada on capital gains realized from a disposition of Common Shares,
unless such shares are "taxable Canadian property" within the meaning of
the Canadian Act. Generally, the Common Shares will not be considered
"taxable Canadian property" unless the Non-Resident Shareholder, persons
with whom the Non-Resident Shareholder does not deal at arm's length, or
the Non-Resident Shareholder and non-arm's length persons at any time
during the five years prior to the disposition of the Common Shares, owned
not less than 25% of the issued shares of any class of the capital stock of
the Company. Residents of the United States whose Common Shares are
considered "taxable Canadian property" will be exempt under the Treaty from
Canadian capital gains taxes provided that the value of the Common Shares
at the time of disposition is not derived principally from real property
located in Canada. This exemption under the Treaty does not apply to
individuals who have been resident in Canada for 120 months during any
period of twenty consecutive years preceding the sale and had been
resident in Canada at any time in the last ten-year period immediately
preceding the sale if the property had been owned by the individual at
the time he ceased to be resident in Canada.
SELLING SECURITY HOLDERS
Certain Selling Security Holders may sell their Common Shares or Notes
on a delayed or continuous basis. The Registration Statement has been
filed pursuant to Rule 415 under the Securities Act to afford certain
holders of the Company's outstanding Notes or Common Shares (the
"Securities") the opportunity to sell such Securities in public
transactions rather than pursuant to exemptions from the registration and
prospectus delivery requirements of the Securities Act.
SELLING NOTEHOLDERS. The following lists the names of the Selling
Noteholders set forth in the Prospectus dated November 3, 1995, as
supplemented by the Prospectus Supplement dated February 12, 1996 (and
indicates any position, office or other material relationship with the
Company that the Selling Noteholder had within the past three years), the
principal amount of the October Notes and October Interest Notes owned by
such Selling Noteholder prior to the offering, the maximum principal amount
of Notes to be offered for such Selling Noteholder's account, and the
principal amount of Notes owned by the Selling Noteholder after completion
of the offering (assuming the Selling Noteholder sold the maximum principal
amount of Notes). The Selling Noteholders are not required, and may choose
not, to sell any of their Notes.
OCTOBER INTEREST TO BE AFTER
NAME NOTES NOTES OFFERED OFFERING
--------------------------------------------------------------------------
D. Kaplan Revocable Trust . . . . $25,000 $3,500 $28,500 $0
Marlene Turk-Gozansky . . . . . . $25,000 $3,500 $28,500 $0
Phil Wanger . . . . . . . . . . . $20,000 $2,800 $22,800 $0
H.J. Remacle Jr. Revocable Living
Trust . . . . . . . . . . . . . . $15,000 $2,100 $17,100 $0
Robert Wright . . . . . . . . . . $15,000 $2,100 $17,100 $0
Amdur Children's Trust . . . . . $40,000 $5,600 $45,600 $0
Florence Hecht Marital Trust . . $25,000 $3,500 $28,500 $0
David Russin Pension . . . . . . $25,000 $3,500 $28,500 $0
Lois England Charitable Trust . . $50,000 $7,000 $57,000 $0
Richard England Charitable Trust $40,000 $5,600 $45,600 $0
Herb Freid . . . . . . . . . . . $22,000 $0 $22,000 $0
Herb Freid IRA . . . . . . . . . $25,000 $3,500 $28,500 $0
Jewish Cemetery . . . . . . . . . $10,000 $1,400 $11,400 $0
Jewish Cemetery SPCL Care . . . . $35,000 $4,900 $39,900 $0
Futernick Grandchildren . . . . . $15,000 $2,100 $17,100 $0
M Futernick MGD . . . . . . . . . $25,000 $3,500 $28,500 $0
Transchemical Pension . . . . . . $15,000 $2,100 $17,100 $0
Gerald Pinnas Pension . . . . . . $25,000 $3,500 $28,500 $0
Philip J. Hempelmen IRA . . . . . $0 $70,000 $70,000 $0
Philip and Colleen Hempelmen . . $1,000,000 $140,000 $1,140,000 $0
Bost & Co. . . . . . . . . . . . $0 $420,000 $420,000 $0
Bridge Rope & Co . . . . . . . . $3,000,000 $420,000 $3,420,000 $0
Calhoun & Co. . . . . . . . . . . $30,000 $4,200 $34,200 $0
Calmont & Co. . . . . . . . . . . $500,000 $70,000 $570,000 $0
Mellon Bank NA for MAGMA Copper
Company
Warburg for Employee
Benefits Plan Small . . . . . . . $150,000 $21,000 $171,000 $0
Vault & Co. . . . . . . . . . . . $0 $105,000 $105,000 $0
Hare & Co. . . . . . . . . . . . $5,000,000 $735,000 $5,735,000 $0
Kalb Voorhis & Co. . . . . . . . $70,000 $9,800 $79,800 $0
Kane & Co. . . . . . . . . . . . $2,750,000 $148,750 $2,898,750 $0
MAC & Co. . . . . . . . . . . . . $640,000 $9,100 $149,100 $0
Merrill Lynch & Co. . . . . . . . $80,000 $108,150 $188,150 $0
Merrill Lynch Pierce Fenner &
Smith Incorporated . . . . . . . $1,385,000 $96,950 $1,481,950 $0
NAP & Co. . . . . . . . . . . . . $1,290,000 $180,600 $1,470,600 $0
Orefund . . . . . . . . . . . . . $2,250,000 $315,000 $2,565,000 $0
Heisen & Co. . . . . . . . . . . $4,000,000 $140,000 $4,140,000 $0
Warburg Pincus Emerging Growth
Fund . . . . . . . . . . . . . . $0 $210,000 $210.000 $0
Bear Stearns Securities Corp. . . $2,640,000 $302,400 $2,942,400 $0
CS & Co. . . . . . . . . . . . . $0 $24,500 $24,500 $0
Cudd & Co. . . . . . . . . . . . $2,000,000 $70,000 $2,070,000 $0
Kelly & Co. . . . . . . . . . . . $3,800,000 $133,000 $3,933,000 $0
Kingsley & Co. . . . . . . . . . $1,200,000 $42,000 $1,242,000 $0
Northman & Co. . . . . . . . . . $425,000 $14,875 $439,875 $0
PaineWebber . . . . . . . . . . . $0 $2,207,975 $2,207,975 $0
Salkeld & Co. . . . . . . . . . . $4,100,000 $143,500 $4,243,500 $0
SEIDCO . . . . . . . . . . . . . $1,000,000 $35,000 $1,035,000 $0
Tamarack & Co. . . . . . . . . . $1,300,000 $45,500 $1,345,500 $0
Fuelship & Co. . . . . . . . . . $275,000 $0 $275,000 $0
TIMM & Co. . . . . . . . . . . . $1,200,000 $42,000 $1,242,000 $0
The following lists the names of the Selling Noteholders (and
indicates any position, office or other material relationship with the
Company that the Selling Noteholder had within the past three years), the
principal amount of the October Interest Notes issued on April 30, 1996 by
the Company in payment of interest on the October Notes in lieu of cash
interest, the maximum principal amount of such October Interest Notes to be
offered for such Selling Noteholder's account, and the principal amount of
such October Interest Notes owned by such Selling Noteholder after
completion of the offering (assuming the Selling Noteholder sold the
maximum principal amount of such Notes). The Selling Noteholders are not
required, and may choose not, to sell any of their Notes.
OCTOBER
INTEREST TO BE AFTER
NAME NOTES OFFERED OFFERING
-------------------------------------------------------------------------
Florence Hecht Marital Trust . . . $875 $875 0
Jewish Cem ECO 85 Account . . . . . $280 $280 0
Kelly & Co. . . . . . . . . . . . . $133,000 $133,000 0
Mac & Co. . . . . . . . . . . . . . 17,500 $17,500 0
Morgan Stanley & Co. . . . . . . . $8,750 $8,750 0
Heisen & Co. . . . . . . . . . . . $140,000 $140,000 0
Kalb Voorhis . . . . . . . . . . . $11,200 $11,200 0
Kingsley & Co. . . . . . . . . . . $42,000 $42,000 0
Merrill Lynch & Co. . . . . . . . . $2,800 $2,800 0
NAP & Co. . . . . . . . . . . . . . $26,250 $26,250 0
Phillip Hempelman and Colleen
Hempelman JTTEN . . . . . . . . . . $35,000 $35,000 0
Kane & Co. . . . . . . . . . . . . $96,250 $96,250 0
Leo Landau . . . . . . . . . . . . $875 $875 0
Merrill, Lynch, Pierce, Fenner
& Smith, Inc. . . . . . . . . . . . $17,745 $17,745 0
NAP & Co. . . . . . . . . . . . . . $12,495 $12,495 0
Northman & Co. . . . . . . . . . . $14,875 $14,875 0
PaineWebber Inc. . . . . . . . . . $1,050 $1,050 0
Salkeld & Co. . . . . . . . . . . . $210,000 $210,000 0
Tfinn & Co. . . . . . . . . . . . . $8,750 $8,750 0
D. Kaplan Revocable Trust 3 . . . . $875 $875 0
Orefund . . . . . . . . . . . . . . $78,750 $78,750 0
Gerald Pinnas Pension . . . . . . . $875 $875 0
Sigler & Co. . . . . . . . . . . . $3,500 $3,500 0
Timm & Co. . . . . . . . . . . . . $40,250 $40,250 0
Transchemical Pension . . . . . . . $525 $525 0
PaineWebber Inc. . . . . . . . . . $30,310 $30,310 0
HJ Remacle . . . . . . . . . . . . $525 $525 0
Tamarack & Co . . . . . . . . . . . $45,500 $45,500 0
Timm & Co. . . . . . . . . . . . . $22,750 $22,750 0
Marlene Turckgozans . . . . . . . . $875 $875 0
Amdur Children's Trust . . . . . . $1,400 $1,400 0
Calmont & Co. . . . . . . . . . . . $17,500 $17,500 0
Custody Richard England Charity . . $1,400 $1,400 0
Mellon Bank N.A. for Magma Copper . $5,250 $5,250 0
M Futernick . . . . . . . . . . . . $875 $875 0
Bear Stearns Securities . . . . . . $172,900 $172,900 0
Jewish Cem Spcl Care 53683-07-4 . . $1,120 $1,120 0
Cudd & Co. . . . . . . . . . . . . $133,000 $133,000 0
Herb Fried IRA . . . . . . . . . . $875 $875 0
Futernick Grandchildren . . . . . . $525 $525 0
Bridge Rope & Co. . . . . . . . . . $105,000 $105,000 0
Custody Lois England Charity . . . $1,750 $1,750 0
David Russin Pension . . . . . . . $875 $875 0
Fuelship . . . . . . . . . . . . . $9,625 $9,625 0
Hare & Co. . . . . . . . . . . . . $213,500 $213,500 0
Phil Wanger . . . . . . . . . . . . $700 $700 0
Robert Wright . . . . . . . . . . . $525 $525 0
SELLING SECURITY HOLDERS. The Selling Security Holders listed below
include persons who receive Common Shares after acquiring a September
Note, September Interest Note or warrant and converting that September
Note, September Interest Note or exercising the warrant. This list
indicates any position, office or other material relationship with the
Company that the Selling Security Holder had within the past three
years, the number of Common Shares owned by such Selling Security
Holder prior to the offering, the maximum number of shares to be
offered for such Selling Security Holder's account, and the amount of
the class owned by the Selling Security Holder after the completion of
the Offering (assuming the Selling Security Holder sold the maximum
number of Common Shares). The Selling Noteholders who receive Common
Shares after acquiring an October Note or an October Interest Note and
converting that Note have been previously identified in the lists
under the caption "Selling Noteholders". The Selling Security
Holders are not required, and may choose not, to sell any of their
Common Shares.
COMMON COMMON COMMON
SHARES SHARES SHARES
PRIOR TO TO BE AFTER
NAME OFFERING OFFERED OFFERING
------------------------------------------------------------------------
A.C. Israel Enterprises, Inc. . . . 72,800 72,800 0
Abovelevel & Co.(1) . . . . . . . . 38,461 38,461 0
Affiliated General Vascular Surgeons
Pension Plan . . . . . . . . . . . 750 750 0
Alliance Global Small Cap. Fund(1) 18,461 18,461 0
Alliance Quaser Fund(1) . . . . . . 112,692 112,692 0
APA Excelsior II(2) . . . . . . . . 204,769 204,769 0
APA/Fostin Penn. Venture Capital
Fund(2) . . . . . . . . . . . . . . 50,982 50,982 0
Applied Telecommunications
Technologies IV, N.V.(3) . . . . . 67,725 67,725 0
Applied Telecommunications
Technologies, Inc.(3) . . . . . . . 35,208 35,208 0
Ardsley Partners Fund I, - L.P. . . 143,750 143,750 0
Bruce Baldwin . . . . . . . . . . . 1,000 1,000 0
Tom Becker . . . . . . . . . . . . 22,988 22,988 0
Paul Brandenburg (former Company
Employee) . . . . . . . . . . . . . 13,000 13,000 0
Joseph Buck (former Company
Employee) . . . . . . . . . . . . . 157,638 157,638 0
Cindi Burge (former Company
Employee) . . . . . . . . . . . . . 27,000 27,000 0
Keith Burge (former Company
Employee) . . . . . . . . . . . . . 106,690 106,690 0
William Byrd (former Company
Employee) . . . . . . . . . . . . . 157,638 157,638 0
Chestnut Hill Fund, L.P. . . . . . 30,000 30,000 0
Clarion Capital Corporation . . . . 22,250 22,250 0
Coutts & Co. (Jersey) Ltd.(2) . . . 51,231 51,231 0
Paula Criser Defined Benefit Pension
Plan . . . . . . . . . . . . . . . 300 300 0
CVM Equity Fund III, Ltd.(2) . . . 12,063 12,063 0
H. Davis Dear . . . . . . . . . . . 4,000 4,000 0
Larry DiGoia (Company Employee) . . 70,827 70,827 0
Equity Managers Trust(1) . . . . . 520,513 520,513 0
Fiduciary Management Associates(1) 61,153 61,153 0
John Field (Company Officer) . . . 1,000 1,000 0
Gabelli Growth Fund(1) . . . . . . 5,129 5,129 0
GARM & Company . . . . . . . . . . 69,230 69,230 0
Ivan Grauman . . . . . . . . . . . 22,988 22,988 0
Gunster, Yoakley & Stewart 401(k)
Plan . . . . . . . . . . . . . . . 375 375 0
Gunster, Yoakley & Stewart Target
Benefit Plan . . . . . . . . . . . 450 450 0
Hanifen Imhoff, Inc. . . . . . . . 74,000 74,000 0
Haussman Holdings(1) . . . . . . . 63,846 63,846 0
Philip J. Hempelmen . . . . . . . . 22,500 22,500 0
The Hill Partnership III, L.P.(2) . 90,469 90,469 0
Jefferson National Life Insurance
Co. . . . . . . . . . . . . . . . . 6,750 6,750 0
Loeb Investors Co. 103(2) . . . . . 30,156 30,156 0
Lee's Factory Outlet No. 2 . . . . 3,000 3,000 0
Chris Mach . . . . . . . . . . . . 18,390 18,390 0
Paul A. Moore(4) . . . . . . . . . 100,000 100,000 0
B. Scott McConnell . . . . . . . . 750 750 0
McKinley Capital Appreciation Fund
L.P. . . . . . . . . . . . . . . . 9,000 9,000 0
Montgomery Growth Partners(1) . . . 26,153 26,153 0
Montgomery Growth Partners II(1) . 40,000 40,000 0
Howard Murray (Company Employee) . 57,252 57,252 0
Nosrob(1) . . . . . . . . . . . . . 8,461 8,461 0
Oppenheimer Discovery Fund . . . . 172,500 172,500 0
Bear Stearns Securities Corp.(1) . 153,846 153,846 0
PaineWebber Olympus Fund . . . . . 10,125 10,125 0
PaineWebber Series Trust Growth
Portfolio . . . . . . . . . . . . . 2,625 2,625 0
PaineWebber Incorporated(4) . . . . 100,000 100,000 0
Quality Imagery . . . . . . . . . . 1,420 1,420 0
Quota Fund N.V.(1) . . . . . . . . 92,307 92,307 0
Roanoke Partners, L.P. . . . . . . 4,500 4,500 0
Charles E. Seay . . . . . . . . . . 750 750 0
Shipmaster & Co.(1) . . . . . . . . 153,846 153,846 0
Alan L. Stuart . . . . . . . . . . 1,800 1,800 0
Judith Terwilliger . . . . . . . . 6,100 6,100 0
Thomas Terwilliger . . . . . . . . 78,100 78,100 0
Trustees of Amherst College . . . . 8,835 8,835 0
Dr. Herman Turndorf . . . . . . . . 450 450 0
Richard A. Williams (former Company
Employee) . . . . . . . . . . . . . 70,827 70,827 0
Worthington Growth L.P. . . . . . . 11,250 11,250 0
Zignago International S A . . . . 46,000 46,000 0
____________________
(1) Upon conversion of September Notes.
(2) Former owners of Nova-Net Communications, Inc.
(3) After exercise of outstanding warrants.
(4) After exercise of warrants received in connection with the Private
Placement of the October Notes.
OTHER SELLING SECURITY HOLDERS. Common Shares held by the other
shareholders listed below have also been registered for resale. These
shareholders are not required, and may choose not, to sell any of
their Common Shares.
COMMON COMMON COMMON
SHARES SHARES SHARES
PRIOR TO TO BE AFTER
NAME OFFERING OFFERED OFFERING
------------------------------------------------------------------------
MicroNet, Inc. . . . . . . . . . . 2,253 2,253 0
Payne Financial . . . . . . . . . . 10,000 10,000 0
Sue Shaw . . . . . . . . . . . . . 20 20 0
Richard Schmelzer . . . . . . . . . 2,400 2,400 0
Mitch Mollard (former Company
Employee) . . . . . . . . . . . . . 1,400 1,400 0
Debra Cabana (Company Employee) . . 600 600 0
Marc Maassen (Company Officer). . . 4,000 4,000 0
Jeffrey Marlow (Company Employee) . 2,000 2,000 0
Karen MacLennan (Company Employee) 600 600 0
Kevin McGoey . . . . . . . . . . . 600 600 0
U.S. Growth Fund Partners, C.V. . . 127,500 127,500 0
A.G. Edwards & Sons Inc. . . . . . 10 10 0
Barbara A. Abate . . . . . . . . . 64 64 0
Ruth Abel . . . . . . . . . . . . . 40 40 0
Affiliated General Vascular
Oncologic & Endoscopic
Surgeons Pension Plan . . . . . . 5,000 5,000 0
David C. Anderson & Donna M.
Anderson . . . . . . . . . . . . . 200 200 0
Frances R. Baker . . . . . . . . . 4,000 4,000 0
J. R. Baker TTEE for J. R. Baker
Trust . . . . . . . . . . . . . . . 400 400 0
David C. Barr . . . . . . . . . . . 40 40 0
B.E. Baublits Sr. . . . . . . . . . 64 64 0
Robert W. Bauchman . . . . . . . . 284 284 0
Delores Baxter and John Baxter . . 400 400 0
Daniel B. Beck . . . . . . . . . . 100 100 0
Max and Loas Behm . . . . . . . . . 200 200 0
Jack D. Behr and Iris D. Behr TIC . 60 60 0
Richard S. Belton . . . . . . . . . 560 560 0
Collin Bennett . . . . . . . . . . 1,250 1,250 0
Harold H. Bennett . . . . . . . . . 240 240 0
Electra H. Bergstrand . . . . . . . 300 300 0
Gordon Blankstein (former Director) 565 565 0
Rob Blankstein . . . . . . . . . . 7 7 0
Karl Boeckmann . . . . . . . . . . 1,600 1,600 0
Leo G. Bonacci and Lavina M. Bonacci 100 100 0
Thomas P. Brekke . . . . . . . . . 20 20 0
Carol Broderick . . . . . . . . . . 20 20 0
Jane H. Bruckmeier . . . . . . . . 200 200 0
Ronald J. Bundy . . . . . . . . . . 1,400 1,400 0
Robert W. Burnham . . . . . . . . . 500 500 0
Donna M. Bushnell . . . . . . . . . 3,122 3,122 0
Joan F. Byrne . . . . . . . . . . . 2,000 2,000 0
Rachel Byrne . . . . . . . . . . . 800 800 0
Edward O. Byrne F/B/O Sara Byrne . 800 800 0
R.G. Canning and M.H. Canning . . . 40 40 0
Isabel Carley and James Carley . . 40 40 0
Basil B. Carpenter . . . . . . . . 200 200 0
Nolan L. Carroll . . . . . . . . . 120 120 0
Sian Tek Chen . . . . . . . . . . . 425 425 0
Julia Cloninger . . . . . . . . . . 100 100 0
Grant Coates . . . . . . . . . . . 60 60 0
Michael A. Cohen and Valerie A.
Cohen . . . . . . . . . . . . . . . 100 100 0
Clyde Collins . . . . . . . . . . . 270 270 0
Wayne Conner . . . . . . . . . . . 1,720 1,720 0
E.W. Corbin . . . . . . . . . . . . 10 10 0
Regis Creeden . . . . . . . . . . . 500 500 0
CRM Partners LP . . . . . . . . . . 13,650 13,650 0
CRM Retirement Partners LP . . . . 4,095 4,095 0
Roger M.J. Crochet . . . . . . . . 70 70 0
Arthur Balian and Margaret L. Cuccio 200 200 0
Michael Dale and Ellen Dale . . . . 400 400 0
David Paradine Productions Ltd. . . 2,500 2,500 0
Constance K. Dawson . . . . . . . . 330 330 0
Logan Delaney . . . . . . . . . . . 200 200 0
Gregory J. Delzeit . . . . . . . . 80 80 0
Iris Dennis . . . . . . . . . . . . 1,400 1,400 0
Donald B. Dorman Junior . . . . . . 10 10 0
Ronald E. Dreiling . . . . . . . . 100 100 0
Oleta B. Dulaney . . . . . . . . . 1,600 1,600 0
Julian I. Edison . . . . . . . . . 6,000 6,000 0
Jim Ekman . . . . . . . . . . . . . 64 64 0
Daryl Ellis . . . . . . . . . . . . 90 90 0
Rudi Ellis . . . . . . . . . . . . 90 90 0
Robert B. Enloe . . . . . . . . . . 60 60 0
Woody L. Ennis and Jean G. Ennis . 100 100 0
John W. Erickson . . . . . . . . . 1,000 1,000 0
Elaine S. Evans C/F David S. Evans 170 170 0
Elaine S. Evans C/F Kristin E. Evans 170 170 0
John R. Falkenham and Alice L.
Falkenham . . . . . . . . . . . . . 300 300 0
Margaret H. Ferraro Trust . . . . . 1,000 1,000 0
William J. Finn and Gayle C. Finn . 200 200 0
Stephen G. Finney . . . . . . . . . 480 480 0
First Trust Corp. TTE FBO Michael L.
Glaser . . . . . . . . . . . . . . 26,852 26,852 0
Mary Catherine Foley and Mark A.
Foley . . . . . . . . . . . . . . . 2,000 2,000 0
Robert Foord . . . . . . . . . . . 700 700 0
Malcolm H. Forst and Michelle K.
Forst . . . . . . . . . . . . . . . 700 700 0
Ted Fostey . . . . . . . . . . . . 1 1 0
Steen V. Frerichs and Deborah L.
Frerichs . . . . . . . . . . . . . 478 478 0
William E. Frey and Rae J. Frey . . 100 100 0
Bradley Frimanslund . . . . . . . . 247 247 0
Mary L. Furst . . . . . . . . . . . 400 400 0
Tony Furst . . . . . . . . . . . . 400 400 0
Kirk Fyffe . . . . . . . . . . . . 1 1 0
Gabelli Growth Fund . . . . . . . . 2,250 2,250 0
Gilbert III Trustee for Wise Carter
Child . . . . . . . . . . . . . . . 6,000 6,000 0
Vito A. Giotta . . . . . . . . . . 10 10 0
Sarahlu H. Glenn . . . . . . . . . 100 100 0
Michael Gordon . . . . . . . . . . 40 40 0
Robert E. Gross M.D. Combination
Retirement Trust . . . . . . . . . 1,926 1,926 0
John P. Grove . . . . . . . . . . . 186 186 0
Gunster Yoakley and Stewart PA 401K
Plan . . . . . . . . . . . . . . . 375 375 0
Gunster Yoakley and Stewart Target
Benefit Plan . . . . . . . . . . . 450 450 0
Dorothy Jean Hall . . . . . . . . . 120 120 0
Francis J. Harmon . . . . . . . . . 4,000 4,000 0
Kathleen Ann Harris . . . . . . . . 400 400 0
Hartford Holdings, Inc. Ltd. . . . 292,200 292,200 0
Haussman Holdings . . . . . . . . . 1,200 1,200 0
Paul Naffah C/F Monique Hayat
UGMA/IL . . . . . . . . . . . . . . 84 84 0
Gerald A. Heasman . . . . . . . . . 100 100 0
Barry L. Heiman . . . . . . . . . . 550 550 0
Hugh Hendrie . . . . . . . . . . . 600 600 0
Donald Henn . . . . . . . . . . . . 200 200 0
Cliff A. Herman . . . . . . . . . . 240 240 0
Mary Alice Herring Trust . . . . . 160 160 0
Linda K. Higginbotham . . . . . . . 100 100 0
William L. Hodges . . . . . . . . . 85 85 0
Paula S. Hogan . . . . . . . . . . 20 20 0
Scott Holley . . . . . . . . . . . 104 104 0
Helen L. Homes . . . . . . . . . . 278 278 0
Jim Hopkins . . . . . . . . . . . . 184 184 0
William E. Hughes . . . . . . . . . 62 62 0
Intelicom Ltd. . . . . . . . . . . 225 225 0
Judith Isea . . . . . . . . . . . . 100 100 0
Anne Marie Jankowski . . . . . . . 100 100 0
Jefferson National Life Insurance
Co. . . . . . . . . . . . . . . . . 45,000 45,000 0
Cheryl L. Johnson . . . . . . . . . 388 388 0
David Johnstone . . . . . . . . . . 1 1 0
Harold Jones . . . . . . . . . . . 200 200 0
Susan E. Dammer-Jones and Michael B.
Jones . . . . . . . . . . . . . . . 60 60 0
John F. Joplin . . . . . . . . . . 180 180 0
Joe H. Joyer . . . . . . . . . . . 180 180 0
Robyn R. Kaelin . . . . . . . . . . 240 240 0
Judith Ann B. Kanas . . . . . . . . 200 200 0
Peter Kazimirski . . . . . . . . . 40 40 0
John J. Kenyon and Mary Kay Kenyon 200 200 0
Brunhilde Kilian . . . . . . . . . 200 200 0
Joe Kim . . . . . . . . . . . . . . 1 1 0
Ernest J. King and Dolly King . . . 200 200 0
Ramon J. Kramer Revocable Living
Trust . . . . . . . . . . . . . . . 100 100 0
Sidney Kravetz . . . . . . . . . . 300 300 0
Lois M. Kreitzer . . . . . . . . . 200 200 0
William W. Krentz . . . . . . . . . 1,600 1,600 0
Vincent A. Kvaternik . . . . . . . 51 51 0
Nancy V. Laitner . . . . . . . . . 200 200 0
Shelly Siegle Land . . . . . . . . 200 200 0
Janet Larson-Miller . . . . . . . . 40 40 0
Leon Le Faivre . . . . . . . . . . 100 100 0
James Leary . . . . . . . . . . . . 1,029 1,029 0
Legg Mason Wood and Walker FBO Walt
Fagan IRA . . . . . . . . . . . . . 4,000 4,000 0
J.F. Legier FBO Peninsula Pathology
Assoc. Trust . . . . . . . . . . . 584 584 0
Jacob Lewin . . . . . . . . . . . . 200 200 0
Raphael Lewis . . . . . . . . . . . 200 200 0
Vivian Lewis . . . . . . . . . . . 200 200 0
Tik T. Liem Trust . . . . . . . . . 500 500 0
Michael J. Lilly . . . . . . . . . 40 40 0
William A. and Mary P. Lindenfelser 200 200 0
Joseph J. Liska and Rose M. Liska . 35 35 0
Sharon Lutosky . . . . . . . . . . 380 380 0
Gary S. Maier . . . . . . . . . . . 100 100 0
A. Paul Manchester . . . . . . . . 15,000 15,000 0
Paul Manchester . . . . . . . . . . 1 1 0
Emily A. Marcevic . . . . . . . . . 200 200 0
Mary E. Marcevic . . . . . . . . . 100 100 0
Robert Edward Mark . . . . . . . . 200 200 0
Scott David Mark . . . . . . . . . 200 200 0
John Marsala . . . . . . . . . . . 1 1 0
Donald J. Martinson and Roberta J.
Martinson . . . . . . . . . . . . . 100 100 0
Wayne R. Mathis and Leila B. Mathis 200 200 0
Harry Maynor and Leah B. Maynor . . 975 975 0
Stuart R. McIntyre . . . . . . . . 180 180 0
McKinley Capital Appreciation Fund
LP . . . . . . . . . . . . . . . . 9,000 9,000 0
M. Helen Michel and Kenneth Michel 500 500 0
V. Kenneth Michel and Jane J. Michel 500 500 0
Sharon Milby and Wayne Milby . . . 185 185 0
Nelli Mitchell-Chappelle . . . . . 20 20 0
Wilbur Mitsdarffer . . . . . . . . 500 500 0
Clark A. Monroe . . . . . . . . . . 20 20 0
Jeffrey T. Monroe . . . . . . . . . 20 20 0
Mark A. Monroe . . . . . . . . . . 20 20 0
Paul E. Monroe and Marilyn L. Monroe 300 300 0
Montgomery Growth Partners . . . . 800 800 0
Montgomery Growth Partners 2 . . . 1,200 1,200 0
Diane E. Morgan . . . . . . . . . . 20 20 0
Thomas P. Morris and Sharon R.
Morris . . . . . . . . . . . . . . 200 200 0
Jesse M. Mothersbaugh Trust . . . . 1,500 1,500 0
Mountain View Holdings . . . . . . 60,000 60,000 0
Harry M. Murphy and Marion Murphy . 100 100 0
Paul Naffah C/F Christopher Jean
Naffah UGMA/IL . . . . . . . . . . 84 84 0
Paul Naffah C/F Janine Marie Naffah
UGMA/IL . . . . . . . . . . . . . . 84 84 0
Nell Investments Ltd. . . . . . . . 1,249 1,249 0
Charles Newton . . . . . . . . . . 400 400 0
Valerie Nicol . . . . . . . . . . . 4 4 0
North American Trust Company Trustee 200 200 0
William R. Nunery . . . . . . . . . 903 903 0
Lee Ann Nye . . . . . . . . . . . . 60 60 0
PaineWebber Olympus Fund/
PaineWebber Growth Portfolio . . . 141,750 141,750 0
PaineWebber Series Trust Growth
Portfolio . . . . . . . . . . . . . 4,375 4,375 0
William H. Parsons Jr. . . . . . . 1,270 1,270 0
Keith Patey . . . . . . . . . . . . 1 1 0
William G. Pentony . . . . . . . . 15 15 0
Barry Peters . . . . . . . . . . . 480 480 0
Dallen Walner and Glennis Marie
Peterson . . . . . . . . . . . . . 500 500 0
Todd Michael Peterson and Dana
Peterson . . . . . . . . . . . . . 100 100 0
Patricia Phare-Camp C/F FBO
Christopher Lee Phare . . . . . . . 5 5 0
Philadephia & Co. . . . . . . . . . 43,814 43,814 0
Elizabeth C. Phillips . . . . . . . 200 200 0
Richard Plessinger . . . . . . . . 400 400 0
Quota Fund N V . . . . . . . . . . 2,800 2,800 0
Anna and Warren Rasberry . . . . . 2 2 0
Kristen Rasberry . . . . . . . . . 400 400 0
Stefanie Rasberry . . . . . . . . . 400 400 0
Warran J. Ratty Grantor Trust . . . 500 500 0
Gordon Rees . . . . . . . . . . . . 1,000 1,000 0
Albert King Reis and Lillian Reis . 200 200 0
Sharon Richman . . . . . . . . . . 220 220 0
Christina Marie Riedel . . . . . . 200 200 0
Jacqueline R. Riedel . . . . . . . 200 200 0
John S. Riedel . . . . . . . . . . 200 200 0
Pauline Riley . . . . . . . . . . . 100 100 0
Wilbur L. Ringwald . . . . . . . . 800 800 0
Roanoke Partners LP . . . . . . . . 4,500 4,500 0
Michael L. Rocke and Maizie J.
Rocke . . . . . . . . . . . . . . . 25 25 0
James C. Ruh . . . . . . . . . . . 10,239 10,239 0
Joseph R. Rusnak and Mary B. Rusnak 200 200 0
Robert Sali . . . . . . . . . . . . 1 1 0
Mildred M. Scheck and Thomas H.
Scheck . . . . . . . . . . . . . . 20 20 0
Lee E. Schlessman . . . . . . . . . 800 800 0
Kevin Schramm . . . . . . . . . . . 20 20 0
Rudolph F. Scuglik . . . . . . . . 2,000 2,000 0
SDIRA as Trustee for Michael L.
Glaser . . . . . . . . . . . . . . 20,000 20,000 0
Roy Shannon . . . . . . . . . . . . 200 200 0
Shearson/Lehman Brothers Inc. . . . 20 20 0
Andrew E. Sheftz and Rosalia M.
Sheftz . . . . . . . . . . . . . . 180 180 0
Andrew E. Sheftz and Rosalia M.
Sheftz . . . . . . . . . . . . . . 140 140 0
Roger Sherman . . . . . . . . . . . 400 400 0
William J. Sims . . . . . . . . . . 1,000 1,000 0
Harley L. Sims Jr. . . . . . . . . 1,000 1,000 0
Stanley T. Siudak and Dolly H.
Siudak . . . . . . . . . . . . . . 343 343 0
Michael Skipper . . . . . . . . . . 200 200 0
Frank A. Smejkal . . . . . . . . . 1,000 1,000 0
Jennifer A. Smyth . . . . . . . . . 20 20 0
Marvin E. Sneed . . . . . . . . . . 400 400 0
Jack Solomon . . . . . . . . . . . 500 500 0
J. Sondheimer Revocable Trust . . . 12,000 12,000 0
Lynn Spencer and Charles Spencer . 200 200 0
Sunburst Bank Trustee for Wise
Carter Child . . . . . . . . . . . 4,000 4,000 0
Starrak Operating Co. . . . . . . . 27,137 27,137 0
Sterling Trust Co. Trustee FBO
Michael Ballard . . . . . . . . . . 140 140 0
Stanley Stone and Francine Stone . 500 500 0
Alan L. Stuart . . . . . . . . . . 1,800 1,800 0
Russell J. Stumacher and Sharon G.
Stumacher . . . . . . . . . . . . . 400 400 0
Dorothy Sutherland . . . . . . . . 40 40 0
Gretchen J. Swisher . . . . . . . . 1,000 1,000 0
Cecilia Tahan and Shulamit Tahan . 120 120 0
Kelly Taillon . . . . . . . . . . . 4 4 0
Talus Inc. . . . . . . . . . . . . 980 980 0
George A. Tarantino . . . . . . . . 200 200 0
Ted N. Thacker and Sandra S. Thacker 200 200 0
Barbara Joanne Thomas . . . . . . . 20 20 0
George E. Tindell . . . . . . . . . 100 100 0
Donald G. Todd . . . . . . . . . . 100 100 0
Joseph T. Tokar and Anna J. Tokar . 200 200 0
Jerome E. Treisman . . . . . . . . 19,000 19,000 0
Joseph Truini . . . . . . . . . . . 203 203 0
Earnest Turaji . . . . . . . . . . 1 1 0
Charles J. Turcin . . . . . . . . . 40 40 0
Herman Turndorf . . . . . . . . . . 3,000 3,000 0
Ralph R. Turner . . . . . . . . . . 200 200 0
Vancouver Stock Exchange Service
Corp. . . . . . . . . . . . . . . . 140 140 0
Peter Vita . . . . . . . . . . . . 1 1 0
E. Gail Walder . . . . . . . . . . 20 20 0
Ione Walthall . . . . . . . . . . . 200 200 0
Robert A. Ward Jr. . . . . . . . . 3,000 3,000 0
Daniel Warner . . . . . . . . . . . 560 560 0
E.J. Weinfeld Trustee . . . . . . . 300 300 0
Robert G. Werner . . . . . . . . . 40 40 0
Leslie W. Wetsel . . . . . . . . . 200 200 0
Larry Richard Wetzel . . . . . . . 150 150 0
FC&E Whitcomb TTEE FBO D.C. Whitcomb 100 100 0
The Willard Revocable Living Trust 100 100 0
Roger Willbanks . . . . . . . . . . 40,488 40,488 0
Harry R. Williams and Zita Williams 100 100 0
Willtrust A. Partnership . . . . . 1,000 1,000 0
Alfred Winnie and Kay Winnie . . . 100 100 0
Wood Gundy (London) Limited . . . . 245 245 0
Jex Woods . . . . . . . . . . . . . 1 1 0
Regina Woolley . . . . . . . . . . 100 100 0
Worthington Growth LP . . . . . . . 11,250 11,250 0
Wilfred Wyler and Marjorie Wyler . 40 40 0
Larry Digioia (Company Employee) . 6,862 6,862 0
Richard Williams (former Company
Employee) . . . . . . . . . . . . . 6,862 6,862 0
Worldwide Condominium Development
Inc. (Affiliate) . . . . . . . . . 373,663 373,663 0
LEGAL MATTERS
The legality of the Securities offered hereby and certain tax matters
are being passed upon for the Company by Reid & Priest LLP, New York, New
York and Tupper Jonsson & Yeadon, Vancouver, British Columbia, Canada.
Gregory C.K. Smith, a partner of Tupper Jonsson & Yeadon, is a director of
the Company.
EXPERTS
The consolidated financial statements and financial statement
schedules of IntelCom as of September 30, 1994 and 1995, 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.
<PAGE>
================================= ==================================
No person has been authorized to $47,750,000 OF 7% REDEEMABLE
give any information or to make any CONVERTIBLE SUBORDINATED
representations other than those PAYABLE-IN-KIND NOTES DUE 1998
contained in this Prospectus, and, (Interest payable in kind on
if given or made, such information April 30, and October 30)
or representations must not be
relied upon as having been
authorized. This Prospectus does
not constitute an offer to sell or $8,356,250 OF 7% SIMPLE INTEREST
the solicitation of an offer to buy REDEEMABLE CONVERTIBLE
any securities other than the SUBORDINATED NOTES DUE 1998
securities to which it related or (Interest payable upon maturity,
any offer to sell or the conversion or redemption)
solicitation of an offer to buy
such securities in any
circumstances in which such offer
or solicitation is unlawful. 8,190,348 COMMON SHARES
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 INTELCOM GROUP INC.
THE COMPANY .................... 3 -------------
AVAILABLE INFORMATION........... 3 PROSPECTUS
INFORMATION INCORPORATED BY -------------
REFERENCE..................... 3
SUMMARY......................... 5
RISK FACTORS.................... 14
RECENT DEVELOPMENTS............. 20
USE OF PROCEEDS................. 21
PLAN OF DISTRIBUTION............ 21
PRICE RANGE OF COMMON SHARES.... 22
DESCRIPTION OF SECURITIES....... 23
CERTAIN TAX CONSIDERATIONS...... 29
SELLING SECURITY HOLDERS........ 38
LEGAL MATTERS................... 48
EXPERTS......................... 48 JULY __, 1996
===================================== ===============================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses payable by the Company in
connection with the issuance and distribution of the securities to be
registered.
SEC Registration Fee ......................... $4,802.02
Accounting Fees and Expenses ................. 4,000.00+
Legal Fees and Expenses ...................... 30,000.00+
Miscellaneous................................. 10,000.00+
---------
Total ........................................ $48,802.02+
=========
---------------------
+ Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws, as amended, contain provisions limiting the
liability of directors of the Company to the fullest extent permitted under
the laws of the Canada Business Corporations Act (the "CBCA"). The CBCA
allows the Company, with court approval, to indemnify a Director or former
Director of the Company against all costs, charges and expenses, actually
and reasonably incurred by him, including an amount paid to settle an
action or satisfy a judgment in a civil, criminal or administrative action
or proceeding to which he is made a party by reason of being or having been
a Director, including an action brought by the Company, if:
a) he acted honestly and in good faith with the view to the best
interest of the Company; and
b) in the case of criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds
for believing that his conduct was lawful.
The Company's Bylaws also allow the Directors to cause the
Company to indemnify any officer, employee or agent of the Company against
all costs, charges and expenses incurred by him resulting from his acting
as officer, employee or agent of the company. See Part 7 of the Company's
Bylaws for a description of the indemnification provisions of the Company's
Bylaws.
See Item 17 of this Registration Statement regarding the position
of the Securities and Exchange Commission on indemnification for
liabilities arising under the Act.
ITEM 16. EXHIBITS
(1) Underwriting Agreement. Not Applicable.
---------------------
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation or
---------------------------------------------------------------
Succession. None.
----------
(4) Instruments defining the rights of security holders, including
--------------------------------------------------------------
indentures.
----------
4.1: Note Purchase Agreement, dated September 16, 1993
[Incorporated by reference to Annual Report on Form 20-F
for the year ended September 30, 1993, as filed on
March 31, 1994].
4.2: Note Purchase Agreement, dated October 27, 1993
[Incorporated by reference to Annual Report on Form 20-F
for the year ended September 30, 1993, as filed on
March 31, 1994].
4.3: Form of Indenture between IntelCom Group Inc. and Bankers
Trust Company for 7% Convertible Subordinated Redeemable
Notes due 1998 [Incorporated by reference to Exhibit 4.3 to
Registration Statement on Form S-1, File No. 33-75636].
4.4: Form of Indenture between IntelCom Group Inc. and Bankers
Trust Company for 7% Simple Interest Convertible
Subordinated Redeemable Notes due 1998 [Incorporated by
reference to Exhibit 4.4 to Registration Statement on Form
S-1, File No. 33-75636].
4.4: Note Purchase Agreement, dated as of July 14, 1995, among
the Registrant, IntelCom Group (U.S.A.), Inc., Morgan
Stanley Group Inc. ("MS Group") (the "Initial Purchaser"),
Princes Gate Investors, L.P., Acorn Partnership I, L.P.,
PGI Investments Limited, PGI Sweden AB, and Gregor von Opel
(collectively, together with the Initial Purchaser, the
"Committed Purchasers") and MS Group, as agent for the
Purchasers (as such term is defined therein) [Incorporated
by reference to Exhibit 4.1 to Form 8-K, as filed on August
2, 1995].
4.5: Warrant Agreement, dated as of July 14, 1995, among the
Registrant, the Committed Purchasers, and IntelCom Group
(U.S.A.), Inc., as Warrant Agent [Incorporated by reference
to Exhibit 4.2 to Form 8-K, as filed on August 2, 1995].
4.6: Indenture, dated as of August 8, 1995, among IntelCom Group
(U.S.A.), Inc., IntelCom Group Inc. and Norwest Bank
Colorado, National Association [Incorporated by reference
to Exhibit 4.1 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995, as filed on August 10, 1995].
4.7: Registration Rights Agreement, dated as of August 8, 1995
among IntelCom Group Inc., IntelCom Group (U.S.A.), Inc.
and Morgan Stanley & Co. Incorporated [Incorporated by
reference to Exhibit 4.2 to Quarterly Report on Form 10-Q
for the quarter ended June 30, 1995, as filed on
August 10, 1995].
4.8: Warrant Agreement, dated as of August 8, 1995 between
IntelCom Group Inc. and Norwest Bank Colorado, National
Association [Incorporated by reference to Exhibit 4.3 to
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995, as filed on August 10, 1995].
4.9: Warrant Agreement Amendment, dated as of August 8, 1995
among IntelCom Group Inc., Morgan Stanley Group, Inc.,
Princes Gate Investors, L.P., IntelCom Group (U.S.A.),
Inc., and certain subsidiaries of IntelCom Group (U.S.A.),
Inc. [Incorporated by reference to Exhibit 4.4 to Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995, as
filed on August 10, 1995].
4.10: Indenture, dated as of April 30, 1995, among IntelCom
Group (U.S.A.), Inc., IntelCom Group Inc. and Norwest
Bank Colorado, National Association [Incorporated by
reference to Exhibit 4.13 to Registration Statement on
Form S-4, File No. 333-04569].
4.11: Registration Rights Agreement, dated April 30, 1996,
among IntelCom Group (U.S.A.), Inc., IntelCom Group
Inc. and Norwest Bank Colorado, National Association,
with respect to the ICG Preferred Stock [Incorporated
by reference to Exhibit 4.14 to Registration Statement
on Form S-4, File No. 333-04569].
4.12: Registration Rights Agreement, dated April 30, 1996,
among IntelCom Group (U.S.A.), Inc., IntelCom Group
Inc. and Norwest Bank Colorado, National Association,
with respect to the 12 1/2% Notes [Incorporated by
reference to Exhibit 4.15 to Registration Statement on
Form S-4, File No. 333-04569].
(5) Opinion regarding legality.
--------------------------
5.1: Opinion of Tupper Jonsson & Yeadon.
(8) Opinions Regarding Tax Matters.
-----------------------------
8.1: Opinion of KPMG, Independent Chartered Accountants,
concerning Canadian federal income tax considerations.
8.2: Opinion of Reid & Priest LLP, concerning U.S. federal
income tax considerations.
(12) Statement re Computation of Ratios. Not Applicable.
----------------------------------
(15) Letter regarding Unaudited Interim Financial Statements.
-------------------------------------------------------
Not Applicable.
(23) Consents.
--------
23.1: Consent of KPMG Peat Marwick LLP.
23.2: Consent of Tupper Jonsson & Yeadon.
23.3: Consent of KPMG, Independent Chartered Accountants,
to the use of its opinion concerning Canadian
federal income tax considerations.
23.4: Consent of Connecticut Research [Incorporated by
reference to Annual Report on Form 10-K for the year
ended September 30, 1994, as filed on December 27,
1994].
23.5: Consent of Reid & Priest LLP, to the use of its opinion
concerning U.S. federal income tax considerations.
(24) Power of Attorney.
-----------------
24.1: Power of Attorney appointing J. Shelby Bryan and John
D. Field as attorneys-in-fact [contained on the
signature page hereof].
(25) Statement of Eligibility of Trustee. [Incorporated by reference
-----------------------------------
to Exhibit 25.1 to Registration Statement on Form S-1, File No.
33-75636]
(26) Invitation for Competitive Bids. Not Applicable.
-------------------------------
(28) Information from Reports Furnished to State Insurance Regulatory
----------------------------------------------------------------
Authorities. None.
-----------
(99) Additional Exhibits. None.
-------------------
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represents a fundamental change in the
information set forth in the Registration Statement; and
(c) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
Filings Incorporating Subsequent Exchange Act Documents by Reference.
The undersigned registrant undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in this registration
statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
Incorporated Annual and Quarterly Reports. The undersigned registrant
undertakes to deliver or cause to be delivered with the Prospectus, to each
person to whom the Prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the Prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14C-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to presented by Article 3 of Regulation S-X
are not set forth in the Prospectus, to deliver, or cause to be delivered
to each person to whom the Prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
Prospectus to provide such interim financial information.
Request for Acceleration of Effective Date. Insofar as
indemnification for liabilities arising under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the laws of Canada, the Company's Articles of
Incorporation and Bylaws, or otherwise, the registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Securities Act of 1933 and will be governed by the final adjudication
of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City and County of Denver, State of
Colorado, on July 24, 1996.
INTELCOM GROUP INC.
By: /s/ J. Shelby Bryan
-------------------------
J. Shelby Bryan
President, Chief Executive
Officer and Director
KNOW ALL MEN BY THESE PRESENTS, that each individual whose
signature appears below constitutes and appoints J. Shelby Bryan and John
D. Field, or either of them, his true and lawful attorney-in-fact and agent
with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange
Commission, granting said attorney-in-fact and agent, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or any
of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Chairman of the
/s/William J. Laggett Board of July 24, 1996
------------------------ Directors
William J. Laggett
/s/J. Shelby Bryan President,
------------------------- Chief Executive July 24, 1996
J. Shelby Bryan Officer and
Director
/s/James D. Grenfell Executive Vice
------------------------- President and July 24, 1996
James D. Grenfell Chief Financial
Officer
/s/Jay E. Ricks
------------------------- Director July 24, 1996
Jay E. Ricks
/s/Gregory C.K. Smith
------------------------- Director July 24, 1996
Gregory C.K. Smith
/s/William W. Becker
------------------------- Director July 24, 1996
William W. Becker
/s/Leontis Teryazos
------------------------- Director July 24, 1996
Leontis Teryazos
/s/Harry R. Herbst
------------------------- Director July 24, 1996
Harry R. Herbst
<PAGE>
INTELCOM GROUP INC.
Form S-3 Registration Statement under the Securities Act of 1933
(Registration No. 333- )
-----
INDEX TO EXHIBITS
(5) Opinions Regarding Legality.
---------------------------
5.1: Opinion of Tupper Jonsson & Yeadon.
(8) Opinions Regarding Tax Matters.
------------------------------
8.1: Opinion of KPMG, Independent Chartered Accountants,
concerning Canadian federal income tax considerations.
8.2: Opinion of Reid & Priest LLP, concerning U.S. federal
income tax considerations.
(23) Consents.
--------
23.1: Consent of KPMG Peat Marwick LLP.
23.2: Consent of Tupper Jonsson & Yeadon [contained in
Exhibit 5.1 hereto, Opinion of Tupper Jonsson &
Yeadon].
23.3: Consent of KPMG, Independent Chartered Accountants,
to the use of its opinion concerning Canadian federal
income tax considerations [contained in Exhibit 8.1
hereto, Opinion of KPMG].
23.5: Consent of Reid & Priest LLP, to the use of its opinion
concerning U.S. federal income tax considerations.
(24) Power of Attorney.
-----------------
24.1: Power of Attorney appointing J. Shelby Bryan and John
D. Field as attorneys-in-fact [contained on the
signature page hereof].
EXHIBIT 5.1
Gregory C. Smith
July 24, 1996
IntelCom Group Inc.
#11 - 1155 North Service Road West
Oakville, Ontario
LM6 3C3
Dear Sirs:
Re: IntelCom Group Inc. (the "Company")
Registration Statement on Form S-3, filed on July 24, 1996
(the "Registration Statement")
----------------------------------------------------------------
As Canadian counsel for IntelCom Group Inc., a Canadian federal
corporation (the "Company"), we have been requested by the
Company's U.S. counsel to provide our opinion in connection with
the filing with the Securities and Exchange Commission of the
Registration Statement in respect of the qualification for resale
of:
(a) $1,671,250 principal amount of October Interest Notes;
and
(b) an aggregated of 601,453 Common Shares (the "Shares") of
the Company issuable upon conversion of the October Notes,
the October Interest Notes, and upon conversion of
compound interest on the October Interest Notes, and
issued upon conversion of the September Notes and the
September Interest Notes, and issuable in satisfaction
of other obligations of the Company (all as defined in
the Registration Statement and hereinafter collectively
referred to as the "Securities") on the basis provided
in the Registration Statement.
We have considered such questions of law and examined such
statutes and regulations, corporate records, certificates,
financial statements and other documents and have made such other
examinations, searches and investigations as we have considered
necessary for the purpose of the opinion hereinafter expressed.
In such examination, we have assumed the genuineness of all
signatures and authenticity of all documents submitted to us as
originals and the conformity to original documents of all
documents submitted to us as certified or photocopies.
The statements in this opinion relate only to the laws of Canada.
Based on and subject to the foregoing, we are of the opinion
that:
1. The Company is a corporation duly continued and validly
existing under the laws of Canada pursuant to the
Canada Business Corporations Act ("CBCA") and is, with
respect to its filings required by the CBCA, in good
standing;
2. The Shares have been duly authorized and when issued
and delivered pursuant to the conversion of the
Securities, will be validly issued, fully paid and non-
assessable; and
3. The Securities have been duly authorized and are
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to
the Registration Statement and to the reference of this firm
appearing in the Registration Statement under the heading "Legal
Matters". In giving the foregoing consent, we do not thereby
admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and
Exchange Commission thereunder.
Yours truly,
TUPPER JONSSON & YEADON
/s/ Gregory C. Smith
GREGORY C. SMITH
GCS/csw
EXHIBIT 8.1
[LETTERHEAD OF KPMG PEAT MARWICK THORNE]
IntelCom Group Inc.
#11-1155 North Service Road West
Oakville, Ontario
L6M 3E3
July 24, 1996
Dear Sirs:
Re: Form S-3 Registration Statement, dated July 24, 1996
---------------------------------------------------------
You have requested our opinion that the Canadian Federal income
tax consequences described in the "Certain Tax Considerations"
section of the Form S-3 Registration Statement dated July 24,
1996 in connection with the resale by certain holders of (i) 7%
Redeemable Convertible Subordinated Payable-in-Kind Notes due
1998 (the "October Notes"), (ii) 7% Simple Interest Redeemable
Convertible Subordinated Payable-in-Kind Notes due 1998 (the
"October Interest Notes", and (iii) certain shares of Common
Stock of IntelCom Group Inc. ("Common Shares") correctly sets
forth all material Canadian Federal income tax consideration
relevant to holders of the October Notes, the October Interest
Notes and the Common Shares who are non-residents of Canada.
Based on our understanding of the facts, we have prepared the
following summary of the Canadian Federal income tax
considerations. We consent that this summary together with our
name as the preparer may be included in IntelCom Group Inc.'s
Form S-3 Registration Statement. This summary constitutes our
analysis and opinion as to the Canadian Federal income tax
considerations for non-residents of Canada who hold October
Notes, the October Interest Notes and the Common Shares of
IntelCom Group Inc. described in the company's Form S-3
Registration Statement.
Canadian Federal Income Tax Considerations for Non-residents
of Canada.
The following discussion concerning the Canadian federal
income tax is based on applicable Canadian federal income
tax laws, regulations and other authorities, as now in
effect. Such federal income tax laws, rulings, regulations,
considerations and other authorities are subject to change,
modification and repeal which may be applied retroactively.
The following discussion does not take into account the tax
laws of the various provinces or territories of Canada.
Introduction. KPMG, Chartered Accountants, the Company's
Canadian auditors, have prepared the following summary of the
principal Canadian federal income tax consequences generally
applicable to non-residents of Canada who acquire the Company's
October Notes pursuant to this Offering. This discussion is of a
general and summary nature only and is not intended to be, nor
should it be construed as, legal or tax advice to any particular
investor. Such summary does not discuss aspects of federal
income tax laws applicable to a taxpayer's particular tax
situation. Therefore, prospective investors should consult with
their own tax advisor with respect to the tax consequences of an
investment in the Notes or the Common Shares.
This summary is based upon KPMG's understanding of the
provisions of the Income Tax Act (Canada) (the "Canadian Act")
and the Regulations thereunder as they currently exist and
current published administration practices of Revenue Canada,
Taxation ("RCT"). This summary takes into account proposals for
specific amendments to the Canadian Act as outlined in the
Federal Budget of March 6, 1996 and draft legislation to amend
the Canadian Act released on June 20, 1996.
This summary is not exhaustive of all possible Canadian
federal income tax consequences. Further, it does not take into
account or anticipate any changes in law, whether by judicial,
governmental or legislative decision or action, nor does it take
into account non-Canadian income tax considerations which
considerations may differ significantly from those discussed
herein.
This summary does not constitute and should not be construed
to constitute tax advice to any particular investor. Investors
are, therefore, advised to consult their own tax advisors with
respect to their individual circumstances.
Interest Income. Interest on the October Notes is payable
semi-annually and may be paid in cash or by the issuance of
Interest Notes. The Interest Notes are due on the same date and
bear the same interest rate as the October Notes for which they
had been issued as an interest payment.
Non-resident holders of the October Notes who deal at arm's
length with the Company are specifically exempt from Canadian
withholding tax on interest payments by virtue of a specific
exemption in the Canadian Act. This exemption provides that no
withholding tax is payable on interest paid to non-residents on
debt where there is no requirement for the company issuing the
debt to pay more than 25% of the principal on the debt within 5
years of issue except in the event of default or conversion.
Non-resident holders of the October Notes who do not deal at
arm's length with the Company would be liable for Canadian tax at
25% unless this rate is reduced by virtue of an income tax treaty
between Canada and the country in which the non-resident resides.
In the event that these debt holders reside in the U.S., the
Canada-U.S. Income Tax Treaty ("Treaty") reduces the rate of
withholding tax from 25% to 10%. This tax would be withheld by
the Company and the debt holder would have no further payment or
reporting obligation to the Canadian income tax authorities.
Non-resident holders of the Interest Notes would be subject
to Canadian withholding tax at 25% on interest paid on these
securities unless this rate is reduced by virtue of an income tax
treaty between Canada and the country in which the non-resident
resides. In the event that the non-resident holder of the
Interest Notes resides in the U.S., the Treaty reduces its rate
of withholding from 25% to 10%. Canadian withholding tax is
payable upon payment of the interest. Since interest on the
Interest Notes is payable only upon maturity, conversion or
prepayment of the Notes in the event of default, Canadian
withholding tax would be paid at these times. This tax would be
withheld by the Company and the debt holder would have no further
payment or reporting obligation to the Canadian income tax
authorities.
The terms of the Interest Notes provide that IntelCom would
"bear the cost of any Canadian withholding tax on interest...so
that the amount of money...received by the Holder...net of any
Canadian withholding tax, including any Canadian withholding tax
on any amount of tax withheld, shall be the same amount to which
the holder would have been entitled if no Canadian withholding
tax were imposed". In the case of a U.S. resident Noteholder who
was to receive a $100 interest payment on which $10 of Canadian
withholding tax was payable, IntelCom would be considered to have
paid interest of $111.11 on which it would be required to
withhold and remit $11.11 (i.e. 10% of $111.11 equals $11.11) to
the Canadian tax authorities. Holders of the security would
receive the required $100 but for their own reporting purposes
should report interest income of $111.11 and foreign tax paid of
$11.11.
Disposition of Notes. Non-resident Noteholders who do not
hold the Notes in connection with a business carried on in Canada
are not subject to Canadian income tax in respect of gains that
they may realize on the Notes. A transfer of a Note by a
non-resident to a resident of Canada may be treated as if a
portion of the consideration paid by the Canadian resident
purchaser is interest subject to Canadian withholding tax. In
the case of interest on the Interest Notes, there is no exemption
from Canadian withholding tax. Accordingly, should these
Interest Notes be transferred by a non-resident to a resident in
Canada, the Canadian purchaser would be obliged to withhold
Canadian income tax on that portion of the purchase price
representing accrued interest on the Notes.
Conversion of Notes to Shares. For Canadian income tax
purposes, the conversion of the Notes to Common Shares will be
treated as a tax free rollover provided that the Notes are
capital property to the non-resident investor. Accordingly no
capital gain or loss will be realized on the exchange and the
cost to the non-resident of the Common Shares received will equal
the cost of the Notes.
Ownership of Common Shares. The following discussion is
limited to persons who, for purposes of the Canadian Act, deal at
arm's length with the Company, hold Common Shares as capital
property, are non-residents of Canada at any time when holding
Common Shares and do not use or hold Common Shares in, or in the
course of, carrying on business in Canada (a "Non-Resident
Shareholder").
Because the Company's operating subsidiaries are U.S.
corporations, profits produced by such subsidiaries will not be
distributable directly to shareholders. Instead, for these
profits to be distributed to shareholders, the Company's
operating subsidiaries must declare a dividend to the Company,
and the Company in turn must declare a dividend to shareholders.
This will subject the dividend to two withholding taxes. First,
the dividends from the subsidiaries to the Company will be
subject to a 6% withholding tax imposed by the United States on
the gross amount of the dividends. Then, the subsequent
dividends are subject to Canadian withholding tax at the basic
rate of 25% of the gross dividend, although this rate may be
reduced by the terms of any applicable tax treaty. For residents
of the United States whose shareholdings are not effectively
connected with a "permanent establishment" in Canada, the Treaty
reduces the rate to 15% of the gross dividend, although for U.S.
corporations owning 10% of the voting stock of the Company, the
withholding tax is reduced to 6% of the gross dividend.
The March 17, 1995 Protocol amending the Treaty reduces the
withholding tax on dividends to 5% for 1997 and later years where
the corporate recipient owns at least 10% of the payer's voting
shares. This change will reduce the rate of U.S. withholding tax
on dividends paid to the Company by its U.S. subsidiaries as well
as the Canadian withholding tax on dividends paid by the Company
to U.S. corporate shareholders who own at least 10% of the voting
shares of the Company.
A Non-Resident Shareholder will generally not be subject to
tax in Canada on capital gains realized from a disposition of
Common Shares, unless such shares are "taxable Canadian property"
within the meaning of the Canadian Act. Generally, the Common
Shares will not be considered "taxable Canadian property" unless
the Non-Resident Shareholder, persons with whom the Non-Resident
Shareholder does not deal at arm's length, or the Non-Resident
Shareholder and non-arm's length persons at any time during the
five years prior to the disposition of the Common Shares, owned
not less than 25% of the issued shares of any class of the
capital stock of the Company. Residents of the United States
whose Common Shares are considered "taxable Canadian property"
will be exempt under the Treaty from Canadian capital gains taxes
provided that the value of the Common Shares at the time of
disposition is not derived principally from real property located
in Canada. This exemption under the Treaty does not apply to
individuals who have been resident in Canada for 120 months
during any period of twenty consecutive years preceding the sale
and had been resident in Canada at any time in the last ten-year
period immediately preceding the sale if the property had been
owned by the individual at the time he ceased to be resident in
Canada.
We trust that this letter provides the information required by
the U.S. Securities and Exchange Commission.
Yours truly,
/s/ Rob Salmon
Rob Salmon
Partner
EXHIBIT 8.2
REID & PRIEST LLP
40 West 57th Street
New York, NY 10019-4097
Telephone 212 603-2000
Fax 212 603-2001
(212) 603-2322
New York, New York
July 24, 1996
IntelCom Group, Inc.
Unit 11
1155 Service Road West
Oakville, Ontario 46M 3E3
Canada
Gentlemen:
You have requested our opinion that the U.S. tax
consequences described in the "Certain Tax Considerations"
section of the Prospectus, issued by Intelcom Group Inc.
("Intelcom") and contained in the Registration Statement on
Form S-3 filed on July 24, 1996 (the "Prospectus") in
connection with the resale by certain holders of (i) 7%
Redeemable Convertible Subordinated Payable-in-Kind Notes
due 1998 (the "October Notes"), (ii) 7% Simple Interest
Redeemable Convertible Subordinated Payable-in-Kind Notes
due 1998 (the "October Interest Notes"), and (iii) certain
shares of Common Stock of Intelcom ("Common Shares")
correctly sets forth all material U.S. federal income tax
considerations relevant to a Holder of the October Notes,
the October Interest Notes and the Common Shares. Unless
otherwise defined herein, capitalized terms shall have the
meanings ascribed to them in the Prospectus.
The opinion expressed herein is based solely upon
current law, including the Internal Revenue Code of 1986,
as amended (the "Code"), applicable Treasury Regulations
promulgated or proposed thereunder, current positions of
the Internal Revenue Service contained in published Revenue
Rulings and Revenue Procedures, other current administrative
positions of the Internal Revenue Service and existing
judicial decisions, all of which are subject to change or
modification at any time. This opinion will not apply to
Holders that are subject to special treatment under the U.S.
federal income tax laws, including insurance companies,
financial institutions or broker dealers, tax-exempt
organizations, foreign corporations and persons who are not
citizens or residents of the United States, and Holders who
directly, or indirectly, own 10% or more of the voting power
of Intelcom.
In connection with the rendering of this opinion, we
have reviewed the Prospectus and other materials as we deemed
relevant to the rendering of our opinion. In addition, we
have relied upon certain representations of IntelCom and on
the assumption that all documents we have reviewed are true
and accurate, accurately reflect the originals and have been
or will be properly executed, and that actions in connection
with the transactions contemplated in the Prospectus have been
and will be conducted in the manner provided in such document.
We are members of the bar of the State of New York
and are not admitted to practice law in any other
jurisdiction. Accordingly, we express no opinion with respect
to the laws of any other jurisdiction other than the federal
laws of the United States of America in respect of the
opinions set forth herein.
Based on and subject to the foregoing, it is our
opinion that the U.S. tax consequences described in the
"Certain Tax Considerations" section of the Prospectus correctly
sets forth all material U.S. federal income tax considerations
relevant to a Holder of the October Notes, the October Interest
Notes and the Common Shares.
This opinion is solely for your information and is
not to be quoted in whole or in part, summarized or otherwise
referred to, nor is it to be filed with or supplied to or
relied upon by any governmental agency or other person without
our written consent. This opinion is as of the date hereof.
We disclaim any responsibility to update or supplement this
opinion to reflect any events or state of facts which may
hereafter come to our attention, or any changes in statutes or
regulations or any court decisions which may hereafter occur.
Very truly yours,
/s/ Reid & Priest LLP
REID & PRIEST LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
THE BOARD OF DIRECTORS
INTELCOM GROUP INC.:
We consent to incorporation by reference in this registration
statement on Form S-3 of IntelCom Group Inc. of our reports dated
December 8, 1995, relating to the consolidated balance sheets of
IntelCom Group Inc. and subsidiaries as of September 30, 1995 and
1994, and the related consolidated statements of operations,
shareholders' equity, and cash flows for each of the years in the
three-year period ended September 30, 1995, and the related
schedule, and to the reference to our firm under the heading
"Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Denver, Colorado
July 23, 1996
EXHIBIT 23.5
REID & PRIEST LLP
40 West 57th Street
New York, NY 10019-4097
Telephone 212 603-2000
Fax 212 603-2001
(212) 603-2322
New York, New York
July 24, 1996
IntelCom Group Inc.
Unit 11
1155 Service Road West
Oakville, Ontario 46M 3E3
Canada
Gentlemen:
We have rendered our opinion, dated as of July
24, 1996 (the "Opinion"), that the U.S. tax consequences
described in the "Certain Tax Considerations" section of
the Prospectus, issued by IntelCom Group Inc. ("Intelcom")
and contained in the Registration Statement on Form S-3
filed on July 24, 1996 in connection with the resale by
certain holders of (i) 7% Redeemable Convertible
Subordinated Payable-in-Kind Notes due 1998, (ii) 7% Simple
Interest Redeemable Convertible Subordinated Payable-in-
Kind Notes due 1998, and (iii) certain shares of Common
Stock of Intelcom correctly sets forth all material U.S.
federal income tax considerations relevant to a holder of
these instruments.
We hereby consent to the filing of the Opinion
with the Securities and Exchange Commission, in connection
with the Registration Statement on Form S-3 filed on July
24, 1996.
Very truly yours,
/s/ Reid & Priest LLP
REID & PRIEST LLP
LETTERHEAD OF INTELCOM GROUP INC.
July 24, 1996
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Re: IntelCom Group Inc.
Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
The undersigned herby requests acceleration of the
effective date of the above referenced Registration Statement
to 9:00 a.m. on July 25, 1996, or as soon thereafter as may be
practicable.
Very truly yours,
IntelCom Group Inc.
By: /s/ John D. Field
---------------------------
John D. Field
Executive Vice President
