SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) January 21, 1998
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ICG COMMUNICATIONS, INC.
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(Exact name of registrant as specified in charter)
Delaware 1-11965 84-1342022
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(State of Incorporation) (Commission (IRS Employer
File Number) Identification No.)
9605 E. Maroon Circle, P.O. Box 6742, Englewood, Colorado 80155-6742
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(Address of principal executive offices)
ICG HOLDINGS (CANADA), INC.
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(Exact name of registrant as specified in charter)
Canada 1-11052 Not Applicable
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(State of Incorporation) (Commission (IRS Employer
File Number) Identification No.)
1710-1177 West Hastings Street, Vancouver, British Columbia V6E 2L3
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(Address of principal executive offices)
ICG HOLDINGS, INC.
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(Exact name of registrant as specified in charter)
Colorado 33-96540 84-1158866
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(State of Incorporation) (Commission (IRS Employer
File Number) Identification No.)
9605 E. Maroon Circle, P.O. Box 6742, Englewood, Colorado 80155-6742
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(Address of principal executive offices)
Registrants' telephone numbers, including area codes (800) 650-5960 or
(303) 572-5960
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N/A
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(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 21, 1998, ICG Communications, Inc. ("ICG")
completed the previously announced acquisition of NETCOM On-Line
Communication Services, Inc. ("NETCOM"), pursuant to the
Agreement and Plan of Merger, dated October 12, 1997, as amended
December 15, 1997, among ICG, NETCOM and ICG Acquisition, Inc.
(the "Merger Agreement"). Pursuant to the Merger Agreement, the
former stockholders of NETCOM will receive 0.8628 shares of ICG
common stock for each share of NETCOM common stock. An aggregate
of 10,198,733 shares of ICG common stock will be issued in
exchange for all of the issued and outstanding shares of common
stock of NETCOM.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. The
financial statements of NETCOM have been previously filed with
the Commission and are incorporated by reference from NETCOM's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1997 and NETCOM's Annual Report on Form 10-KSB/A for the fiscal
year ended December 31, 1996.
(B) PRO FORMA FINANCIAL INFORMATION. The required pro
forma financial statements have been previously filed with the
Commission and are incorporated by reference from the
Registrant's registration statement on Form S-4 (Reg. No. 333-
39737).
(C) EXHIBITS.
2.1 Agreement and Plan of Merger, dated October 12,
1997, by and among ICG, ICG Acquisition, Inc. and
NETCOM.
2.2 Amendment to Agreement and Plan of Merger, dated
December 15, 1997, by and among ICG, ICG
Acquisition, Inc. and NETCOM.
23.1 Consent of Ernst & Young LLP.
99.1 NETCOM Annual Report on Form 10-KSB/A for the
fiscal year ended December 31, 1996.
99.2 NETCOM Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1997.
99.3 ICG Registration Statement on Form S-4 initially
filed on November 7, 1997 (Reg. No. 333-39737).
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrants have duly caused this report to be
signed on their behalf by the undersigned hereunto duly
authorized.
Dated: February 5, 1998 ICG COMMUNICATIONS, INC.
By: /s/ James D. Grenfell
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James D. Grenfell
Executive Vice President and Chief
Financial Officer
ICG HOLDINGS (CANADA), INC.
By: /s/ James D. Grenfell
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James D. Grenfell
Executive Vice President and Chief
Financial Officer
ICG HOLDINGS, INC.
By: /s/ James D. Grenfell
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James D. Grenfell
Executive Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Merger, dated October 12, 1997,
by and among ICG, ICG Acquisition, Inc. and NETCOM.
2.2 Amendment to Agreement and Plan of Merger, dated
December 15, 1997, by and among ICG, ICG Acquisition,
Inc. and NETCOM.
23.1 Consent of Ernst & Young LLP.
99.1 NETCOM Annual Report on Form 10-KSB/A for the fiscal
year ended December 31, 1996.
99.2 NETCOM Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1997.
99.3 ICG Registration Statement on Form S-4 initially filed
on November 7, 1997 (Reg. No. 333-39737).
AGREEMENT AND PLAN OF MERGER
DATED
OCTOBER 12, 1997
AMONG
ICG COMMUNICATIONS, INC.
AND
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE I
DEFINITIONS
Section 1.1 Definitions . . . . . . . . . . . . . . . . . . 1
Section 1.2 Other Definitions . . . . . . . . . . . . . . . 3
Section 1.3 Use of Terms . . . . . . . . . . . . . . . . . . 5
ARTICLE II
THE MERGER AND RELATED MATTERS
Section 2.1 The Merger . . . . . . . . . . . . . . . . . . . 5
Section 2.2 Effective Time of the Merger . . . . . . . . . . 6
ARTICLE III
CONVERSION OF CAPITAL STOCK
Section 3.1 Conversion of Stock . . . . . . . . . . . . . . 6
Section 3.2 Exchange of Certificates . . . . . . . . . . . . 7
Section 3.3 Dividends and Other Distributions. . . . . . . . 9
Section 3.4 No Fractional Shares. . . . . . . . . . . . . . 9
Section 3.5 No Liability . . . . . . . . . . . . . . . . . 10
Section 3.6 Lost Certificates . . . . . . . . . . . . . . 10
Section 3.7 Treatment of Stock Options, Etc. . . . . . . . 10
Section 3.8 Closing of the Company's Transfer Books . . . 11
Section 3.9 Closing . . . . . . . . . . . . . . . . . . . 11
Section 3.10 No Repurchase Rights . . . . . . . . . . . . . 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ICG
Section 4.1 Organization and Qualification . . . . . . . . 11
Section 4.2 Capitalization . . . . . . . . . . . . . . . . 11
Section 4.3 Subsidiaries . . . . . . . . . . . . . . . . . 12
Section 4.4 Authority Relative to this Agreement . . . . . 12
Section 4.5 No Breach; Required Consents . . . . . . . . . 13
Section 4.6 Consents and Approvals . . . . . . . . . . . . 13
Section 4.7 Reports and Financial Statements . . . . . . . 13
Section 4.8 Compliance with Law; Litigation . . . . . . . 15
Section 4.9 Title to Assets . . . . . . . . . . . . . . . 15
Section 4.10 Employee Matters . . . . . . . . . . . . . . . 15
Section 4.11 ERISA . . . . . . . . . . . . . . . . . . . . 16
Section 4.12 Operations of Acquisition Sub . . . . . . . . 17
Section 4.13 No Broker . . . . . . . . . . . . . . . . . . 17
Section 4.14 Taxes . . . . . . . . . . . . . . . . . . . . 17
Section 4.15 Environmental Laws . . . . . . . . . . . . . . 17
Section 4.16 Transactions with Affiliates . . . . . . . . . 18
Section 4.17 Approval . . . . . . . . . . . . . . . . . . . 18
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 5.1 Organization and Qualification . . . . . . . . 19
Section 5.2 Capitalization . . . . . . . . . . . . . . . . 19
Section 5.3 Subsidiaries . . . . . . . . . . . . . . . . . 19
Section 5.4 Authority Relative to this Agreement . . . . . 20
Section 5.5 No Breach; Required Consents . . . . . . . . . 20
Section 5.6 Consents and Approvals . . . . . . . . . . . . 21
Section 5.7 Reports and Financial Statements . . . . . . . 21
Section 5.8 Compliance with Law; Litigation . . . . . . . 22
Section 5.9 Title to Assets . . . . . . . . . . . . . . . 23
Section 5.10 Employee Matters . . . . . . . . . . . . . . . 23
Section 5.11 ERISA . . . . . . . . . . . . . . . . . . . . 23
Section 5.12 Approval . . . . . . . . . . . . . . . . . . . 24
Section 5.13 Financial Advisor . . . . . . . . . . . . . . 25
Section 5.14 Taxes . . . . . . . . . . . . . . . . . . . . 25
Section 5.15 Environmental Laws . . . . . . . . . . . . . . 25
Section 5.16 Transactions with Affiliates . . . . . . . . . 25
Section 5.17. Contracts . . . . . . . . . . . . . . . . . . 26
Section 5.18. Intellectual Property . . . . . . . . . . . . 26
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Conduct of Business of the Company . . . . . . 26
Section 6.2 Conduct of Business of ICG . . . . . . . . . . 29
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Access and Information . . . . . . . . . . . . 30
Section 7.2 SEC Filings . . . . . . . . . . . . . . . . . 31
Section 7.3 Meetings of Stockholders . . . . . . . . . . . 34
Section 7.4 Compliance with the Securities Act . . . . . . 34
Section 7.5 Reasonable Best Efforts . . . . . . . . . . . 34
Section 7.6 Confidentiality and Public Announcements . . . 35
Section 7.7 Notification . . . . . . . . . . . . . . . . . 35
Section 7.8 HSR Act Filings . . . . . . . . . . . . . . . 35
Section 7.9 Indemnification of Executives . . . . . . . . 36
Section 7.10 Employee Benefits . . . . . . . . . . . . . . 37
ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1 Conditions to Each Party's Obligation
to Effect the Merger . . . . . . . . . . . . . 37
Section 8.2 Conditions to Obligation of the Company
to Effect the Merger . . . . . . . . . . . . . 38
Section 8.3 Conditions to Obligations of ICG and
Acquisition Sub to Effect the Merger . . . . . 39
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination . . . . . . . . . . . . . . . . . 39
Section 9.2 Remedies. . . . . . . . . . . . . . . . . . . 40
Section 9.3 Amendment . . . . . . . . . . . . . . . . . . 41
Section 9.4 Waiver . . . . . . . . . . . . . . . . . . . . 41
ARTICLE X
GENERAL PROVISIONS; DEFINITIONS
Section 10.1 Non-Survival of Representations, Warranties
and Agreements . . . . . . . . . . . . . . . . 42
Section 10.2 Notices . . . . . . . . . . . . . . . . . . . 42
Section 10.3 Fees and Expenses . . . . . . . . . . . . . . 43
Section 10.4 Specific Performance . . . . . . . . . . . . . 43
Section 10.5 Third Party Beneficiaries . . . . . . . . . . 43
Section 10.6 Entire Agreement; Miscellaneous . . . . . . . 43
Section 10.7 Governing Law and Venue; Waiver of Jury Trial 43
<PAGE>
EXHIBITS
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EXHIBIT DESCRIPTION
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A Form of Affiliate Agreement
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is
dated October 12, 1997 and is entered into by and among ICG
Communications, Inc., a Delaware corporation ("ICG"), and NETCOM
On-Line Communication Services, Inc., a Delaware corporation (the
"Company").
RECITALS
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A. ICG and the Company have agreed to enter into a
transaction in which a Delaware subsidiary of ICG to be formed
("Acquisition Sub") will merge with and into the Company (the
"Merger"). At the effective time of the Merger, the outstanding
shares of the capital stock of the Company shall be converted
into the right to receive shares of common stock of ICG (except
as provided herein). As a result, ICG will become the holder of
all the outstanding shares of capital stock of the Company and
the holders of shares of capital stock of the Company outstanding
immediately prior to the Merger will become holders of shares of
common stock of ICG.
B. The Boards of Directors of ICG and the Company
each have determined that the transactions described herein are
in the best interests of their respective corporations and
stockholders.
C. It is intended that, for federal income tax
purposes, the Merger shall qualify as a reorganization under the
provisions of Section 368(a) of the Code.
D. For financial accounting purposes, it is intended
that the Merger shall be accounted for as a "pooling-of-
interests" under generally accepted accounting principles.
NOW, THEREFORE, in consideration of the foregoing
premises and the representations, warranties and agreements
contained in this Agreement, the parties to this Agreement agree
as follows:
ARTICLE I
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DEFINITIONS
Section 1.1 Definitions. As used in this Agreement,
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the following terms with initial capital letters will have the
meanings set forth below:
"Affiliate" means, as to any Person, any other Person
which, directly or indirectly, controls, is under common control
with, or is controlled by, such Person. As used in this
definition, "control" (including, with correlative meaning,
"controlling," "controlled by" and "under common control with")
means possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person
(whether through the ownership of voting securities, by contract
or otherwise).
"Business Day" means any day on which commercial banks
are open for business in Denver, Colorado and San Jose,
California.
"Company Common Stock" means the shares of common
stock, par value $.01 per share, of the Company.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Environmental Law" means any applicable Legal
Requirement relating to the protection, preservation or
restoration of the environment (including, air, water vapor,
surface water, ground water, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural
resource).
"Equity Affiliate" means, as to any Person, any other
Person in which such Person or any of its Subsidiaries holds a
five percent or greater equity interest.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"ERISA Affiliate" means, as to any Person, any trade or
business (whether or not incorporated) that is treated as a
single employer with such Person under Section 414(b), (c), (m)
or (o) or the Code.
"GAAP" means generally accepted accounting principles
as in effect from time to time in the United States of America.
"ICG Closing Stock Price" means the average of the
Volume Weighted Average Price of ICG Common Stock, as quoted by
NASDAQ, for the ten consecutive trading days ending two trading
days prior to the Closing Date.
"ICG Common Stock" means the shares of common stock,
par value $.01 per share, of ICG.
"Intellectual Property" means copyrights, patents,
trademarks, service marks, service names, trade names,
applications therefor, technology rights and licenses, computer
software (including any source or object codes therefor or
documentation relating thereto), trade secrets, franchises, know-
how, inventions, and other intellectual property rights.
"Knowledge" means the actual present knowledge of a
Person that is a human being and, in the case of a Person that is
not a human being, the present actual knowledge of any executive
officer (or any human being having duties comparable to those of
an executive officer) of such Person.
"Legal Requirement" means any statute, ordinance, code,
law, rule, regulation, order or other requirement, standard or
procedure enacted, adopted or applied by any Governmental Entity,
including judicial decisions applying common law or interpreting
any other Legal Requirement or any agreement entered into with a
Governmental Entity in resolution of a dispute or otherwise.
"Lien" means any lien, security interest, pledge,
charge, claim, option, right to acquire, restriction on transfer,
voting restriction or encumbrance of any nature.
"Material Adverse Effect" means a material adverse
effect on the business, properties, assets, prospects, condition
(financial or otherwise), liabilities or operations of a Person
and its Subsidiaries, taken as a whole, or on the ability of such
Person to perform its obligations under this Agreement.
"NASDAQ" means the over-the-counter market of the
National Association of Securities Dealers, Inc.
"Person" means any human being or any partnership,
limited liability company, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture,
Governmental Entity or other entity.
"SEC" means the United States Securities and Exchange
Commission.
"Subsidiary" means, with respect to any Person, any
other Person more than 50% of whose outstanding voting securities
or partnership or other equity interests, as the case may be, are
directly or indirectly owned by such Person.
"Termination Fee" means cash in the amount of
$11,340,000.
Section 1.2 Other Definitions. The following terms
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are defined in the Sections indicated:
Term Section
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Acquisition Proposal 6.1(h)
Acquisition Sub Recital A
Agreement Preamble
Antitrust Division 7.8
BT Alex. Brown 5.4
Certificate of Incorporation 2.1(a)
Certificate of Merger 2.2
Closing 3.9
Closing Date 3.9
Company Preamble
Company Benefit Plans 5.11(a)
Company Options 3.7
Company Permits 5.8(a)
Company SEC Reports 5.7(a)
Company Stock 3.1(b)
Company Stock Certificates 3.2(a)
DGCL 2.1
Effective Time 2.2
Exchange Act 4.6
Exchange Agent 3.2(a)
Exchange Ratio 3.1(a)
Executive 7.9(a)
FTC 7.8
Governmental Entity 4.8(a)
HSR Act 4.6
ICG Preamble
ICG Benefit Plans 4.11(a)
ICG Certificates 3.2(a)
ICG Permits 4.8(a)
ICG SEC Reports 4.7(a)
Indemnified Party 7.2(h)(iii)
Indemnifying Party 7.2(h)(iii)
Joint Proxy Statement/
Prospectus 7.2(a)
Losses 7.2(h)(i)
Meeting 7.3
Merger Recital A
Most Recent Company
Balance Sheet 5.7(c)
Most Recent ICG Balance Sheet 4.7(c)
NASD 7.3
Other Filings 7.2(b)
Preliminary Joint Proxy
Statement/Prospectus 7.2(a)
Secretary 2.2
SEC Filings 7.2(c)
Securities Act 4.6
Surviving Corporation 2.1
Tax 4.14
Section 1.3 Use of Terms. Terms used with initial
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capital letters will have the meanings specified, applicable to
both singular and plural forms, for all purposes of this
Agreement. All pronouns (and any variations) will be deemed to
refer to the masculine, feminine or neuter, as the identity of
the Person may require. The singular or plural includes the
other, as the context requires or permits. The word include (and
any variation) is used in an illustrative sense rather than a
limiting sense. The word day means a calendar day. All
accounting terms not otherwise defined in this Agreement will
have the meanings ascribed to them under GAAP.
ARTICLE II
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THE MERGER AND RELATED MATTERS
Section 2.1 The Merger. Subject to the terms and
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conditions of this Agreement and applicable provisions of the
Delaware General Corporation Law ("DGCL"), at the Effective Time:
(i) Acquisition Sub will be merged with and into the Company;
(ii) the separate existence of Acquisition Sub will cease and the
Company will continue as the surviving corporation in the Merger
(the "Surviving Corporation"); and (iii) the name of the
Surviving Corporation will be NETCOM On-Line Communication
Services, Inc. From and after the Effective Time, and without
any further action on the part of any Person, the Merger will
have all the effects provided by applicable Legal Requirements,
including Sections 251 and 259 of the DGCL, the effects described
in Section 3.1 with respect to the capital stock of
Acquisition Sub and the Company and, subject to applicable Legal
Requirements, the following additional effects as of the
Effective Time:
(a) Certificate of Incorporation. The certificate of
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incorporation of Acquisition Sub (the "Certificate of
Incorporation"), will become the certificate of incorporation of
the Surviving Corporation, and such Certificate of Incorporation
may thereafter be amended and/or restated as provided therein and
by the DGCL.
(b) Bylaws. The bylaws of Acquisition Sub, as in
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effect immediately prior to the Effective Time, will become the
bylaws of the Surviving Corporation, and such bylaws may
thereafter be amended or repealed in accordance with their terms
and the Certificate of Incorporation and as provided by the DGCL.
(c) Directors. The directors of Acquisition Sub
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immediately prior to the Effective Time will become the directors
of the Surviving Corporation, each to hold office in accordance
with the Certificate of Incorporation and bylaws of the Surviving
Corporation and the DGCL and until the earlier of such director's
resignation or removal or such director's successor is duly
elected and qualified, as the case may be.
(d) Officers. The officers of Acquisition Sub
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immediately prior to the Effective Time will become the officers
of the Surviving Corporation, each to hold office in accordance
with the Certificate of Incorporation and bylaws of the Surviving
Corporation and the DGCL and until the earlier of such officer's
resignation or removal or such officer's successor is duly
appointed and qualified, as the case may be.
(e) Properties and Liabilities. All the properties,
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rights, privileges, powers and franchises of the Company and
Acquisition Sub will vest in the Surviving Corporation, and all
debts, liabilities, agreements and duties of the Company and
Acquisition Sub will become the debts, liabilities, agreements
and duties of the Surviving Corporation.
(f) New ICG Director. David W. Garrison, Chief
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Executive Officer and Chairman of the Board of Directors of the
Company, will become a member of the Board of Directors of ICG to
hold office in accordance with the certificate of incorporation
and bylaws of ICG and the DGCL and until the earlier of Mr.
Garrison's resignation or removal or his successor is duly
elected and qualified.
Section 2.2 Effective Time of the Merger. Subject
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to the terms and conditions of this Agreement, on the Closing
Date the parties will prepare, sign and acknowledge, in
accordance with the DGCL, a certificate of merger (the
"Certificate of Merger") and deliver the Certificate of Merger to
the Secretary of State of the State of Delaware (the "Secretary")
for filing pursuant to the DGCL. The Merger will become
effective upon the filing of the Certificate of Merger with the
Secretary. As used in this Agreement, the "Effective Time" means
the time at which the Certificate of Merger is filed with the
Secretary.
ARTICLE III
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CONVERSION OF CAPITAL STOCK
Section 3.1 Conversion of Stock. At the Effective
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Time, by virtue of the Merger and without any action on the part
of ICG, Acquisition Sub, the Company or the holders of any of the
following securities, the parties agree as follows:
(a) Each share of Company Common Stock outstanding
immediately prior to the Effective Time (except shares subject to
Section 3.1(b)), shall be converted into the right to receive,
and there shall be paid and issued as provided in this Agreement
in exchange for such share, that number of shares of ICG Common
Stock equal to the Exchange Ratio (as defined below), plus cash
in lieu of any fractional share as provided in Section 3.4. The
"Exchange Ratio" shall be determined as follows: (i) if the ICG
Closing Stock Price of a share of ICG Common Stock is greater
than or equal to $22.125, the Exchange Ratio shall equal 0.8628,
(ii) if the ICG Closing Stock Price of a share of ICG Common
Stock is greater than or equal to $19.00 but less than $22.125,
the Exchange Ratio shall equal a fraction (rounded to the nearest
ten-thousandth) determined by dividing $19.0625 by the ICG
Closing Stock Price of a share of ICG Common Stock, and (iii) if
the ICG Closing Stock Price is less than $19.00, the Exchange
Ratio shall equal 1.0078.
(b) Each share of capital stock of the Company (the
"Company Stock") issued and outstanding immediately prior to the
Effective Time and owned directly or indirectly by the Company,
if any, will be canceled and retired, and no ICG Common Stock or
other consideration will be delivered in exchange therefor.
(c) Each share of common stock, par value $.01 per
share, of Acquisition Sub issued and outstanding immediately
prior to the Effective Time (except shares subject to
Section 3.1(d)) will be converted into and will thereafter
evidence and become that number of validly issued, fully paid,
and nonassessable shares of common stock, par value $.01 per
share, of the Surviving Corporation equal to the quotient of (a)
the number of shares of Company Common Stock outstanding
immediately prior to the Effective Time divided by (b) the number
of shares of common stock of Acquisition Sub outstanding
immediately prior to the Effective Time rounded, in the case of
any fractional share, down to the nearest whole number.
(d) Each share of the capital stock of Acquisition Sub
issued and outstanding immediately prior to the Effective Time
and owned directly or indirectly by Acquisition Sub, if any, will
be canceled and retired, and no common stock of the Surviving
Corporation or other consideration will be delivered in exchange
therefor.
(e) In the event ICG changes the number of shares of
ICG Common Stock issued and outstanding after the date of this
Agreement and prior to the Effective Time as a result of a stock
split, stock dividend, or similar recapitalization with respect
to ICG Common Stock and the record date therefor (in the case of
a stock dividend) or the effective date thereof (in the case of a
stock split or similar recapitalization for which a record date
is not established) is after the date of this Agreement and prior
to the Effective Time, the Exchange Ratio will be appropriately
adjusted to reflect such stock split, stock dividend or similar
recapitalization.
Section 3.2 Exchange of Certificates.
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(a) Exchange Agent. As of the Effective Time, ICG
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shall enter into an agreement with a bank or trust company
selected by ICG and reasonably acceptable to the Company which
Person will act as exchange agent (the "Exchange Agent") in
connection with the surrender of certificates that, prior to the
Effective Time, evidenced outstanding shares of Company Common
Stock ("Company Stock Certificates"). Prior to the Closing Date,
ICG will deposit with the Exchange Agent for exchange in
accordance with this Section 3.2 certificates evidencing the
shares of ICG Common Stock to be issued in the Merger ("ICG
Certificates"), which shares of ICG Common Stock will be deemed
to be issued at the Effective Time. At and following the
Effective Time, ICG will deliver to the Exchange Agent such cash
as may be required from time to time to make payments of cash in
lieu of fractional shares of ICG Common Stock in accordance with
Section 3.4.
(b) Exchange. As soon as practicable after the
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Effective Time, ICG will cause the Exchange Agent to mail to each
Person who was a holder of record of Company Common Stock at the
Effective Time: (i) a letter of transmittal (which will specify
that delivery will be effective, and risk of loss and title to
any Company Stock Certificates will pass, only upon delivery of
the Company Stock Certificates to the Exchange Agent and will be
in such form and will have such other provisions that are
specified by ICG and reasonably acceptable to the Company); and
(ii) instructions for use in effecting the surrender of Company
Stock Certificates in exchange for ICG Certificates (together
with any dividend or distribution with respect thereto made after
the Effective Time and any cash to be paid in lieu of fractional
shares of ICG Common Stock pursuant to Section 3.4). Upon
surrender of a Company Stock Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be
appointed by ICG, together with such letter of transmittal, duly
executed, and such other documents as may be required by the
Exchange Agent or such other agent, the holder of such Company
Stock Certificate will be entitled to receive in exchange
therefor ICG Certificates representing the number of whole shares
of ICG Common Stock that such holder has the right to receive
pursuant to this Agreement (together with any dividend or
distribution with respect thereto made after the Effective Time
and any cash to be paid in lieu of fractional shares of ICG
Common Stock pursuant to Section 3.4) and the Company Stock
Certificate so surrendered will be canceled. In the event of a
transfer of ownership of Company Common Stock that is not
registered in the transfer records of the Company, ICG
Certificates representing the proper number of shares of ICG
Common Stock may be issued to a Person other than the Person in
whose name the surrendered Company Stock Certificate is
registered if the Company Stock Certificate representing such
Company Common Stock is presented to the Exchange Agent
accompanied by all documents required to evidence and effect such
transfer and by evidence reasonably satisfactory to ICG that any
applicable stock transfer tax has been paid. ICG will not
directly or indirectly pay or reimburse any Person for any
transfer taxes of the type referred to in the preceding sentence.
If any ICG Certificates are to be delivered to a Person other
than the Person in whose name the Company Stock Certificates
surrendered in exchange therefor are registered, it will be a
condition to the delivery of such ICG Certificates that the
Company Stock Certificates so surrendered are properly endorsed
or accompanied by appropriate stock powers and otherwise in
proper form for transfer, that such transfer otherwise is proper
and that the Person requesting such transfer pay to the Exchange
Agent any transfer or other taxes payable by reason of the
foregoing or establishes to the satisfaction of the Exchange
Agent that such taxes have been paid or are not required to be
paid.
(c) Certificates Not Exchanged. After the Effective
--------------------------
Time, each outstanding Company Stock Certificate will, until
surrendered for exchange in accordance with this Section 3.2, be
deemed for all purposes to evidence ownership of the number of
whole shares of ICG Common Stock into which the shares of Company
Common Stock (which, prior to the Effective Time, were
represented thereby) are converted in accordance with Section
3.1, together with the right to receive any dividend or
distribution with respect thereto made after the Effective Time
and any cash to be paid in lieu of fractional shares of ICG
Common Stock pursuant to Section 3.4.
(d) Expenses. Except as otherwise expressly provided
--------
in this Agreement, ICG will pay all charges and expenses,
including those of the Exchange Agent, in connection with the
exchange of shares of ICG Common Stock for shares of Company
Common Stock, except any charges or expenses that are otherwise
solely the liability of one or more holders of Company Common
Stock. Any ICG Certificates deposited with the Exchange Agent
that remain unclaimed by the former stockholders of the Company
after six months following the Effective Time will be delivered
to ICG upon its demand, and any former stockholders of the
Company who have not then complied with the instructions for
exchanging their Company Stock Certificates will thereafter look
only to ICG for exchange of Company Stock Certificates and for
any dividend or distribution with respect thereto made after the
Effective Time and any cash to be paid in lieu of fractional
shares of ICG Common Stock pursuant to Section 3.4.
Section 3.3 Dividends and Other Distributions. No
---------------------------------
dividends or other distributions declared or made after the
Effective Time with respect to shares of ICG Common Stock with a
record date after the Effective Time will be paid to the holder
of any unsurrendered Company Stock Certificate with respect to
the shares of ICG Common Stock issuable upon surrender thereof
until the holder of such Company Stock Certificate surrenders
such Company Stock Certificate in accordance with Section 3.2.
Subject to the effect of applicable Legal Requirements, following
surrender of any such Company Stock Certificate, ICG will pay or
cause to be paid, without interest, to the record holder of ICG
Certificates issued in exchange therefor, (a) at the time of such
surrender, the amount of cash in lieu of fractional shares of ICG
Common Stock to which such holder is entitled pursuant to Section
3.4 and the amount, if any, of dividends or other distributions
by ICG with a record date after the Effective Time theretofore
paid with respect to such whole shares of ICG Common Stock and
(b) at the appropriate payment date, the amount of dividends or
other distributions (if any) by ICG with a record date after the
Effective Time but prior to surrender of such Company Stock
Certificate and a payment date subsequent to such surrender
payable with respect to such whole shares of ICG Common Stock.
Section 3.4 No Fractional Shares.
--------------------
(a) Cash Payment in Lieu of Fractional Shares. No
-----------------------------------------
certificates or scrip representing fractional shares of ICG
Common Stock will be issued upon the surrender of Company Stock
Certificates pursuant to Section 3.2. No such fractional
interest will entitle the owner thereof to any rights as a
security holder of ICG. In lieu of any such fractional shares of
ICG Common Stock, each holder of Company Common Stock entitled to
receive shares of ICG Common Stock in the Merger, upon surrender
of such Person's Company Stock Certificates for exchange pursuant
to Section 3.2, will be entitled to receive an amount in cash
(without interest), rounded to the nearest cent, determined by
multiplying the fractional share interest in ICG Common Stock to
which such holder would otherwise be entitled (after taking into
account all shares of Company Common Stock held of record by such
holder immediately prior to the Effective Time) by the market
value of one share of ICG Common Stock at the Effective Time.
The market value of one share of ICG Common Stock at the
Effective Time will be the ICG Closing Stock Price.
(b) Deposit with Exchange Agent. As soon as
---------------------------
practicable after the determination of the amount of cash, if
any, to be paid to holders of shares of Company Common Stock in
lieu of any fractional shares of ICG Common Stock, ICG will
promptly deposit with the Exchange Agent cash in the required
amounts and the Exchange Agent will mail such amounts without
interest to such holders; provided however, that no such amount
will be paid to any holder with respect to any Company Stock
Certificate prior to the surrender by such holder of such Company
Stock Certificate.
Section 3.5 No Liability. None of ICG,
------------
Acquisition Sub, the Company, the Surviving Corporation or the
Exchange Agent will be liable to any holder of shares of Company
Common Stock for any shares of ICG Common Stock, dividends or
distributions with respect thereto or cash payable in lieu of
fractional shares of ICG Common Stock delivered to a state
abandoned property administrator or other public official
pursuant to any applicable abandoned property, escheat or similar
law.
Section 3.6 Lost Certificates. If any Company Stock
-----------------
Certificate is lost, stolen or destroyed, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Company
Stock Certificate the shares of ICG Common Stock (and any
dividend or distribution with respect thereto made after the
Effective Time and any cash payable in lieu of fractional shares
of ICG Common Stock pursuant to Section 3.4) deliverable in
respect thereof as determined in accordance with the terms of
this Agreement, subject to the condition that the Person to whom
the ICG Common Stock (and any dividend or distribution with
respect thereto made after the Effective Time and any cash
payable in lieu of fractional shares pursuant to Section 3.4) is
to be issued shall have (a) delivered to ICG an affidavit
claiming such Company Stock Certificate to be lost, stolen, or
destroyed and (b) if required by ICG, given ICG an indemnity
satisfactory to ICG against any claim that may be made against
ICG with respect to the Company Stock Certificate alleged to have
been lost, stolen or destroyed.
Section 3.7 Treatment of Stock Options, Etc. At
--------------------------------
the Effective Time, each outstanding stock option, warrant or
other right to acquire shares of Company Common Stock ("Company
Options"), whether or not exercisable, as of the Effective Time
will be converted into and become rights with respect to ICG
Common Stock, and ICG shall assume each Company Option, in
accordance with the terms and conditions of the stock option,
warrant or other agreement by which it is evidenced, except that
from and after the Effective Time, (i) each Company Option
assumed by ICG may be exercised solely for shares of ICG Common
Stock, (ii) the number of shares of ICG Common Stock subject to
such Company Option will be equal to the number of shares of
Company Common Stock subject to such Company Option immediately
prior to the Effective Time multiplied by the Exchange Ratio, and
(iii) the per share exercise price under each such Company Option
will be adjusted by dividing the per share exercise price under
each such Company Option by the Exchange Ratio and rounding up to
the nearest cent. Notwithstanding the provisions of clause
(ii) of the preceding sentence, ICG will not be obligated to
issue any fraction of a share of ICG Common Stock upon exercise
of Company Options.
Section 3.8 Closing of the Company's Transfer Books.
---------------------------------------
At the Effective Time, the stock transfer books of the Company
will be closed and no transfer of shares of Company Common Stock
will be made thereafter. In the event that, after the Effective
Time, Company Stock Certificates are presented to the Surviving
Corporation, they will be canceled and exchanged for ICG
Certificates (and, if required, cash) as provided in Section
3.2(b) and Section 3.4.
Section 3.9 Closing. The closing of the
-------
transactions contemplated by this Agreement (the "Closing") will
take place (i) at the offices of Sherman & Howard L.L.C.,
633 Seventeenth Street, Suite 3000, Denver, Colorado, at
9:00 a.m. local time on the date that is the first Business Day
after the day on which the last of the conditions set forth in
Article VIII (excluding delivery of opinions and certificates) is
fulfilled or waived or (ii) at such other place and time as ICG
and the Company agree in writing. The date on which the Closing
occurs is referred to in this Agreement as the "Closing Date."
Section 3.10 No Repurchase Rights. The holders of
--------------------
ICG Common Stock received pursuant to the Merger or issuable
pursuant to the Company Options shall have no right to require
ICG or its Affiliates to repurchase any such shares of ICG Common
Stock.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF ICG
ICG represents and warrants to the Company as follows
(it being understood that the representations and warranties
relating to Acquisition Sub will be deemed to be made only as of
the Closing Date):
Section 4.1 Organization and Qualification. Each of
------------------------------
ICG and Acquisition Sub is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware, and has all requisite corporate power and authority to
carry on its business as it is now being conducted. Each of ICG
and Acquisition Sub is duly qualified as a foreign corporation to
do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the
nature of its activities make such qualification necessary,
except where the failure to be so qualified will not,
individually or in the aggregate, have a Material Adverse Effect
on it.
Section 4.2 Capitalization.
--------------
(a) As of September 30, 1997, the authorized capital
stock of ICG consisted of: (i) 100,000,000 shares of common
stock, par value $.01 per share, of which 32,381,310 are issued
and outstanding; (ii) 1,000,000 shares of preferred stock, par
value $.01 per share, of which no shares are issued and
outstanding; (iii) 4,786,680 shares of common stock of ICG
issuable upon conversion of outstanding preferred stock of ICG
and its Affiliates; and (iv) 7,439,998 shares of common stock
issuable with respect to all other options, warrants, convertible
debt and similar rights to acquire shares of ICG Common Stock.
(b) All shares of ICG Common Stock to be issued in
connection with the Merger, when issued in accordance with this
Agreement, will be duly authorized, validly issued, fully paid
and nonassessable.
(c) Acquisition Sub is a direct, wholly owned
subsidiary of ICG. ICG will own all of the issued and
outstanding stock of (i) Acquisition Sub immediately prior to the
Effective Time and (ii) Surviving Corporation immediately after
the Effective Time, all of which stock will be owned beneficially
and of record by ICG.
Section 4.3 Subsidiaries. A list of all of the
------------
Equity Affiliates of ICG has been delivered to the Company, which
list reflects the percentage and nature of ICG's ownership of
each Subsidiary and Equity Affiliate of ICG. Each of ICG's
Subsidiaries is a corporation or partnership (including solely
for purposes of this Section 4.3 a limited liability company)
duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or formation and has
the corporate or partnership power to carry on its business as it
is now being conducted or currently proposed to be conducted.
Each of ICG's Subsidiaries is duly qualified as a foreign
corporation or partnership to do business, and is in good
standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its
activities makes such qualification necessary except where the
failure to be so qualified will not have a Material Adverse
Effect on ICG. All the outstanding shares of capital stock of
each of ICG's Subsidiaries that is a corporation are validly
issued, fully paid and nonassessable. Except as set forth on the
list of Equity Affiliates, the shares of capital stock or
partnership or other ownership interests in each of ICG's
Subsidiaries or Equity Affiliates that are owned by ICG or by a
Subsidiary of ICG are owned free and clear of any Liens, are not
subject to and have not been issued in violation of any
preemptive rights and have not been issued in violation of any
federal or state securities laws or any other Legal Requirement.
Except as set forth on the list of Equity Affiliates, there are
not, as of the date hereof, and at the Effective Time there will
not be, any outstanding options, warrants, calls or other rights,
agreements or commitments of any character, to which ICG or any
of its Subsidiaries is a party, relating to the issued or
unissued capital stock, other securities or partnership or other
ownership interests in any of the Subsidiaries or Equity
Affiliates of ICG.
Section 4.4 Authority Relative to this Agreement.
------------------------------------
ICG has all requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated by this Agreement by ICG have been duly authorized
by the Board of Directors of ICG, and no other corporate
proceedings on the part of ICG (other than the approval of ICG
stockholders as contemplated by this Agreement) are necessary to
authorize this Agreement and the transactions contemplated by
this Agreement. The Board of Directors of ICG has received the
opinion of Gleacher NatWest Inc., as financial advisor to ICG,
dated October 12, 1997, satisfactory to ICG and its Board of
Directors to the effect that, as of the date of this Agreement,
the Exchange Ratio is fair from a financial point of view to ICG
and its stockholders. This Agreement constitutes a valid and
binding obligation of ICG enforceable against it in accordance
with its terms, except (i) as enforcement may be limited by
bankruptcy, insolvency or other similar Legal Requirements
affecting the enforcement of creditors' rights generally, (ii) as
the availability of indemnification and other remedies may be
limited by federal and state securities laws and (iii) for
limitations imposed by general principles of equity.
Section 4.5 No Breach; Required Consents. The
----------------------------
execution and delivery of this Agreement by ICG does not, and the
consummation of the transactions contemplated by this Agreement
by ICG and Acquisition Sub will not: (a) subject to approval of
holders of ICG Common Stock, violate or conflict with the
certificate of incorporation or bylaws of ICG or Acquisition Sub;
(b) constitute a breach or default (or an event that with notice
or lapse of time or both would become a breach or default) or
give rise to any Lien, third-party right of termination,
cancellation, modification or acceleration under any agreement or
undertaking to which ICG or Acquisition Sub is a party or by
which any of them is bound, except where such breach, default,
Lien, third-party right of termination, cancellation,
modification or acceleration would not have a Material Adverse
Effect on ICG or Acquisition Sub; or (c) subject to obtaining the
approvals and making the filings described in Section 4.6,
constitute a violation of any applicable Legal Requirement,
except where such violation would not have a Material Adverse
Effect on ICG or Acquisition Sub.
Section 4.6 Consents and Approvals. Neither the
----------------------
execution and delivery of this Agreement by ICG nor the
consummation of the transactions contemplated by this Agreement
by ICG and Acquisition Sub will require ICG or Acquisition Sub to
make any filing or registration with, or obtain any
authorization, consent or approval of, any Governmental Entity,
except those required in connection, or in compliance, with the
provisions of (i) the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), (ii) the Communications
Act of 1934, as amended, (iii) the Securities Act of 1933, as
amended (the "Securities Act"), (iv) the Securities Exchange Act
of 1934, as amended (the "Exchange Act") and (v) the corporation,
securities or blue sky laws or regulations, or similar Legal
Requirements, of various states of the United States, and other
than such filings, registrations, authorizations, consents or
approvals the failure of which to make or obtain would not have a
Material Adverse Effect on ICG or Acquisition Sub or prevent the
consummation of the transactions contemplated by this Agreement.
Section 4.7 Reports and Financial Statements.
--------------------------------
(a) SEC Reports. ICG has filed all required forms,
-----------
reports and documents required to be filed with the SEC since
December 31, 1993 (collectively, the "ICG SEC Reports"). As of
their respective dates or effective dates and except as the same
may have been corrected, updated or superseded by means of a
subsequent filing with the SEC prior to the date of this
Agreement, none of the ICG SEC Reports, including any financial
statements or schedules included or incorporated by reference
therein, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make
the statements therein, in light of the circumstances under which
they were made, not misleading insofar as such statements relate
to ICG. ICG has delivered or made available to the Company, in
the forms filed with the SEC, all the ICG SEC Reports.
(b) Financial Statements. The audited consolidated
--------------------
financial statements of ICG contained in the ICG SEC Reports
comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the
SEC with respect thereto, were prepared in accordance with GAAP
applied on a consistent basis during the periods involved (except
as may be indicated in the notes thereto) and present fairly
ICG's consolidated financial condition and the results of its
operations as of the relevant dates thereof and for the periods
covered thereby. The unaudited consolidated interim financial
statements of ICG contained in the ICG SEC Reports comply in all
material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect
thereto, were prepared on a basis consistent with prior interim
periods (except as required by applicable changes in GAAP or in
SEC accounting policies) and include all adjustments (consisting
only of normal recurring accruals) necessary for a fair
presentation of ICG's consolidated financial condition and
results of operations for such periods.
(c) Absence of Certain Changes. Since the date of the
--------------------------
most recent consolidated balance sheet of ICG included in ICG's
Quarterly Report on Form 10-Q filed with the SEC for the quarter
ended June 30, 1997 (the "Most Recent ICG Balance Sheet"), there
has not been any: (i) transaction, commitment, dispute or other
event or condition (financial or otherwise) of any character
(whether or not in the ordinary course of business) that,
individually or in the aggregate, has had, or would have, a
Material Adverse Effect on ICG (other than as a result of changes
in laws or regulations of general applicability or any changes
resulting from general economic, financial, market or industry-
wide conditions); (ii) any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or
property) with respect to the capital stock of ICG; provided that
dividends will be paid on shares of preferred stock issued by ICG
after the date of this Agreement; or (iii) entry into any
commitment or transaction material to ICG and its Subsidiaries
taken as a whole (including any borrowing or sale of assets)
except in the ordinary course of business consistent with past
practice, other than the sale of exchangeable preferred shares of
ICG Funding, LLC and the pending purchase of the stock of
Communications Buying Group, Inc. and the pending issuance of ICG
Common Stock to shareholders of that company.
(d) Absence of Undisclosed Liabilities. ICG does not
----------------------------------
have any indebtedness, liability or obligation required by GAAP
to be reflected on a balance sheet that is not reflected or
reserved against in the Most Recent ICG Balance Sheet except (i)
liabilities, obligations and contingencies that were incurred
after the date of the Most Recent ICG Balance Sheet in the
ordinary course of business and which would not, in the
aggregate, have a Material Adverse Effect and (ii) other
liabilities, obligations and contingencies that would not, in the
aggregate, have a Material Adverse Effect on ICG.
Section 4.8 Compliance with Law; Litigation.
-------------------------------
(a) ICG and its Subsidiaries hold all permits,
licenses, franchises, variances, exemptions, concessions, leases,
instruments, orders and approvals (the "ICG Permits") of all
courts, administrative agencies or commissions or other
governmental authorities or instrumentalities, domestic or
foreign (each, a "Governmental Entity") required to be held under
applicable Legal Requirements, except for such ICG Permits the
failure of which to hold, individually or in the aggregate, does
not have and, in the future is not likely to have, a Material
Adverse Effect on ICG. To ICG's Knowledge, ICG and its
Subsidiaries are in compliance with the terms of the ICG Permits,
except for such failures to comply that, individually or in the
aggregate, would not have a Material Adverse Effect on ICG. To
ICG's Knowledge, the businesses of ICG and its Subsidiaries are
not being conducted in violation of any Legal Requirement, except
for such violations which, individually or in the aggregate,
would not have a Material Adverse Effect on ICG. No
investigation or review by any Governmental Entity with respect
to ICG or any of its Subsidiaries is pending, or, to the
Knowledge of ICG, threatened, nor has any Governmental Entity
indicated to ICG in writing an intention to conduct the same,
other than those the outcome of which would not reasonably be
expected to have a Material Adverse Effect on ICG.
(b) There is no suit, action or proceeding pending or,
to the Knowledge of ICG, threatened, against or affecting ICG or
any of its Subsidiaries that has had or is likely to have a
Material Adverse Effect on ICG, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against ICG or any of its Subsidiaries
that has had or is likely to have a Material Adverse Effect on
ICG.
Section 4.9 Title to Assets. ICG and its
---------------
Subsidiaries have valid title to all material assets reflected on
the Most Recent ICG Balance Sheet, free and clear of any Lien
except: (a) landlord's Liens and Liens for property taxes not
delinquent; (b) Liens that were created in the ordinary course of
business and do not materially detract from the value of such
assets or materially impair the use thereof in the operation of
ICG's business; (c) leased interests in property owned by others
and leased interests in property leased to others; and (d)
zoning, building or similar restrictions, easements, rights-of-
way, reservations of rights, conditions, or other restrictions or
encumbrances relating to or affecting real property that do not,
individually or in the aggregate, materially interfere with the
use of such real property in the operation of ICG's business.
Section 4.10 Employee Matters. ICG and its
----------------
Subsidiaries are in compliance with all applicable Legal
Requirements relating to the employment of its employees,
including any obligations relating to employment standards
legislation, pay equity, occupational health and safety, labor
relations and human rights legislation except for such failures
to comply as do not have, and are not likely to have, a Material
Adverse Effect on ICG.
Section 4.11 ERISA.
-----
(a) Copies of all "employee benefit plans," as defined
in ERISA, and all other material employee benefit arrangements,
programs or payroll practices, including severance pay, sick
leave, vacation pay, salary continuation for disability, deferred
compensation, bonus, stock purchase, hospitalization, medical
insurance, life insurance, tuition reimbursement, employee
assistance and employee discounts, that ICG or any of its ERISA
Affiliates maintains or has an obligation to make contributions
(the "ICG Benefit Plans") have been delivered or made available
to the Company.
(b) Neither ICG nor any of its ERISA Affiliates has
incurred any unsatisfied withdrawal liability, as defined in
Section 4201 of ERISA, with respect to any multiemployer plan,
nor has any of them incurred any liability due to the termination
or reorganization of any multiemployer plan, except any such
liability that would not have a Material Adverse Effect on ICG.
To the Knowledge of ICG, neither ICG nor any of its ERISA
Affiliates reasonably expects to incur any liability due to a
withdrawal from or termination or reorganization of a
multiemployer plan, except any such liability that would not have
a Material Adverse Effect on ICG.
(c) Each ICG Benefit Plan that is intended to qualify
under Section 401 of the Code and the trust maintained pursuant
thereto is the subject of a favorable determination letter or
notification letter issued by the Internal Revenue Service, and
to the Knowledge of ICG, nothing has occurred with respect to any
such plan since such determination letter or notification letter
that is likely to result in the loss of such exemption or the
imposition of any material liability, penalty or tax under ERISA
or the Code. To the Knowledge of ICG and its ERISA Affiliates,
each ICG Benefit Plan has at all times been maintained in all
material respects, by its terms and in operation, in accordance
with all applicable Legal Requirements.
(d) All contributions (including all employer
contributions and employee salary reduction contributions)
required to have been made under the ICG Benefit Plans or
pursuant to applicable Legal Requirements (without regard to any
waivers granted under Section 412 of the Code) to any funds or
trusts established thereunder or in connection therewith have
been made by the due date thereof (including any valid extension
or grace period) and no accumulated funding deficiency exists
with respect to any of the ICG Benefit Plans subject to Section
412 of the Code.
(e) To the Knowledge of ICG, there have been no
violations of ERISA or the Code with respect to the filing of
applicable reports, documents and notices regarding the ICG
Benefit Plans with the Secretary of Labor and the Secretary of
the Treasury or the furnishing of such reports, documents and
notices to the participants or beneficiaries of the ICG Benefit
Plans, except such violations that, individually or in the
aggregate, would not have a Material Adverse Effect on ICG.
(f) There are no pending actions, claims or lawsuits
that have been asserted or instituted against the ICG Benefit
Plans, the assets of any of the trusts under such plans or the
plan sponsor or the plan administrator, or against any fiduciary
of the ICG Benefit Plans, with respect to the operation of such
plans (other than routine benefit claims), nor does ICG have
Knowledge of facts that reasonably could be expected to form the
basis for any such action, claim or lawsuit, except any such
actions, claims or lawsuits that, individually or in the
aggregate, would not have a Material Adverse Effect on ICG.
Section 4.12 Operations of Acquisition Sub. As of
-----------------------------
the Closing, Acquisition Sub will have engaged in no other
business activities other than in contemplation of this Agreement
and the transactions contemplated by this Agreement and will have
no material assets or liabilities other than its rights and
obligations under this Agreement.
Section 4.13 No Broker. Except for the fee payable
---------
by ICG to Gleacher NatWest Inc., no broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or
on behalf of ICG or Acquisition Sub.
Section 4.14 Taxes. ICG and each of its Subsidiaries
-----
have timely filed all Tax returns required to be filed by any of
them and have timely paid or have established an adequate reserve
for the payment of, all Taxes owed in respect of the periods
covered by such returns, except where the failure to file such
Tax returns or timely pay or establish an adequate reserve for
the payment of such Taxes will not have a Material Adverse Effect
on ICG. The information contained in such Tax returns is
complete and accurate in all material respects. Neither ICG nor
any Subsidiary of ICG is delinquent in the payment of any Tax or
other amount owed to any Governmental Entity, except where the
amount owed, when paid, or the delinquency in paying the amount
owed will not have a Material Adverse Effect on ICG. There are
no claims or investigations pending or, to ICG's Knowledge,
threatened against ICG or any of its Subsidiaries for past Taxes,
except claims and investigations that would not have a Material
Adverse Effect on ICG and adequate provision for which has been
made on the Most Recent Balance Sheet. None of ICG or its
Subsidiaries has waived or extended any applicable statute of
limitations relating to the assessment of any Taxes, other than
state sales and use Taxes, that would be payable by ICG or such
Subsidiary. For the purposes of this Agreement, the term "Tax"
includes all federal, state, local and foreign income, profits,
estimated, franchise, gross receipts, payroll, sales, employment,
use, property, withholding, excise and other taxes, duties and
assessments of any nature whatsoever together with all interest,
penalties and additions imposed with respect to such amounts.
Section 4.15 Environmental Laws.
------------------
(a) Each of ICG and its Subsidiaries is in compliance
in all respects with all Environmental Laws, except where the
failure to so comply would not have a Material Adverse Effect on
ICG; and
(b) No orders, directions or notices have been issued
pursuant to any Environmental Law and no Governmental Entity has
submitted to any of ICG and its Subsidiaries any written request
for information pursuant to any Environmental Law.
Section 4.16 Transactions with Affiliates. Except as
----------------------------
disclosed in the ICG SEC Reports, there is no lease, sublease,
indebtedness, contract, agreement, commitment, understanding or
other arrangement of any kind entered into by ICG with any
officer, director or stockholder of ICG or any "affiliate" or
"associate" of any of them (as those terms are defined in the
Exchange Act) or of ICG, except, in each case, for compensation
paid to directors and officers consistent with previously
established policies (including normal merit increases in such
compensation in the ordinary course of business), reimbursements
of ordinary and necessary expenses incurred in connection with
their employment and amounts paid or benefits granted pursuant to
ICG Benefit Plans and except for transactions that are not
required to be disclosed pursuant to applicable Legal
Requirements.
Section 4.17 Approval.
--------
(a) The Board of Directors of ICG at a meeting duly
called and held: (i) determined that the Merger is advisable and
fair and in the best interests of ICG and its stockholders; (ii)
approved the Merger and this Agreement and the transactions
contemplated by this Agreement; and (iii) recommended the
approval of this Agreement and the Merger by the holders of ICG
Common Stock and directed that the Merger be submitted for
consideration by ICG's stockholders at the Meeting.
(b) The majority vote of the total votes cast at the
Meeting with respect to this Agreement and the Merger is the
minimum vote required for the adoption and approval of this
Agreement, the Merger and the other transactions contemplated by
this Agreement.
Section 4.18 Contracts. Each of ICG and its
---------
Subsidiaries are in material compliance with each material
contract or agreement to which it is a party, and each such
contract is in full force and effect, without material monetary
default by ICG or any such Subsidiary and, to the Knowledge of
ICG, without any breach or default by any other party thereto,
except where such breach or default would not result in a
Material Adverse Effect. No written notice has been received by
ICG or any such Subsidiary or, to ICG's Knowledge, threatened
regarding termination, suspension or material alteration or
amendment thereof. Each such contract or agreement is a valid
and binding obligation of ICG or its Subsidiary, as the case may
be, in accordance with its terms.
Section 4.19 Intellectual Property. ICG and its
---------------------
Subsidiaries own or have the right to use all of its registered
trademarks, service marks and copyrights used by ICG or its
Subsidiaries. To ICG's Knowledge, ICG and its Subsidiaries own
or have the legal right to use, by license or otherwise, all of
its Intellectual Property which is material to the operation of
its business. To ICG's Knowledge, the continued operation of the
business of ICG and such Subsidiaries as currently conducted will
not interfere with, infringe upon, misappropriate or conflict
with any Intellectual Property of another Person.
ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to ICG as follows:
Section 5.1 Organization and Qualification. The
------------------------------
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
requisite corporate power and authority to carry on its business
as it is now being conducted. The Company is duly qualified as a
foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such
qualification necessary, except where the failure to be so
qualified would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
Section 5.2 Capitalization.
--------------
(a) The authorized capital stock of the Company
consists of 40,000,000 shares of Company Common Stock, $.01 par
value per share, of which 11,738,388 shares are issued and
outstanding as of October 10, 1997, and 5,000,000 shares of
preferred stock, $.01 par value per share, none of which are
issued and outstanding and 200,000 of which have been designated
Series C Preferred Stock.
(b) The Company has delivered to ICG a schedule of all
options, warrants, calls, subscriptions or other rights,
agreements or commitments of any kind (including preemptive
rights), to which the Company or any of its Subsidiaries is a
party, relating to the issued or unissued capital stock or other
securities of the Company. Such schedule sets forth for all such
options, warrants, calls, subscriptions or other rights,
agreements or commitments that are outstanding (i) the number of
shares of Company Common Stock issuable pursuant thereto, (ii)
the exercise or conversion price, and (iii) the date of grant.
Any such options, warrants, calls, subscriptions or other rights,
agreements or commitments set forth on such schedule, if not
exercised before the Effective Time, as of the Effective Time
will be converted pursuant to Section 3.7.
(c) All issued and outstanding shares of Company Stock
have been duly authorized and validly issued and are fully paid
and nonassessable, are not subject to, and have not been issued
in violation of, any preemptive rights, and have not been issued
in violation of any federal or state securities laws or any other
Legal Requirement.
Section 5.3 Subsidiaries. A list of all the Equity
------------
Affiliates of the Company has been delivered to ICG, which list
reflects the percentage and nature of the Company's ownership of
each Subsidiary and Equity Affiliate of the Company. Each of the
Company's Subsidiaries is a corporation or partnership duly
organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or formation and has the
corporate or partnership power to carry on its business as it is
now being conducted or currently proposed to be conducted. Each
of the Company's Subsidiaries is duly qualified as a foreign
corporation or partnership to do business, and is in good
standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its
activities makes such qualification necessary except where the
failure to be so qualified will not have a Material Adverse
Effect on the Company. All the outstanding shares of capital
stock of each of the Company's Subsidiaries that is a corporation
are validly issued, fully paid and nonassessable. Except as set
forth on the list of Equity Affiliates, the shares of capital
stock or partnership or other ownership interests in each of the
Company's Subsidiaries or Equity Affiliates that are owned by the
Company or by a Subsidiary of the Company are owned free and
clear of any Liens, are not subject to and have not been issued
in violation of any preemptive rights and have not been issued in
violation of any federal or state securities laws or any other
Legal Requirement. Except as set forth on the list of Equity
Affiliates, there are not, as of the date hereof, and at the
Effective Time there will not be, any outstanding options,
warrants, calls or other rights, agreements or commitments of any
character, to which the Company or any of its Subsidiaries is a
party, relating to the issued or unissued capital stock, other
securities or partnership or other ownership interests in any of
the Subsidiaries or Equity Affiliates of the Company.
Section 5.4 Authority Relative to this Agreement.
------------------------------------
The Company has all requisite corporate power and authority to
execute and deliver this Agreement and, subject to approval of
this Agreement by the holders of the Company Stock, to consummate
the transactions contemplated by this Agreement. The execution
and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly
authorized by the Company's Board of Directors. Except for the
approval of the holders of Company Stock, no other corporate
proceedings on the part of the Company are necessary to authorize
this Agreement and the transactions contemplated by this
Agreement. The Board of Directors of the Company has received
the opinion of BT Alex. Brown Incorporated ("BT Alex. Brown") as
financial advisor to the Company dated October 12, 1997
satisfactory to the Company and its Board of Directors to the
effect that, as of the date of this Agreement, the Exchange Ratio
is fair to the Company's stockholders from a financial point of
view. This Agreement constitutes a valid and binding obligation
of the Company enforceable in accordance with its terms except
(i) as enforcement may be limited by bankruptcy, insolvency or
other similar Legal Requirements affecting the enforcement of
creditors' rights generally, (ii) as the availability of
indemnification and other remedies may be limited by federal and
state securities laws and (iii) for limitations imposed by
general principles of equity.
Section 5.5 No Breach; Required Consents. The
----------------------------
execution and delivery of this Agreement by the Company does not,
and the consummation of the transactions contemplated by this
Agreement by the Company will not: (a) subject to the approval
of holders of Company Stock, violate or conflict with the
certificate of incorporation or bylaws of the Company;
(b) constitute a breach or default (or an event that with notice
or lapse of time or both would become a breach or default) or
give rise to any Lien, third-party right of termination,
cancellation, modification or acceleration under any agreement or
undertaking to which the Company is a party or by which it is
bound, except where such breach, default, Lien, third-party right
of termination, cancellation, modification, or acceleration would
not have a Material Adverse Effect on the Company; or (c) subject
to obtaining the consents, approvals or authorizations and making
the filings or registrations described in Section 5.6, constitute
a violation of any Legal Requirement, except where such violation
would not have a Material Adverse Effect on the Company.
Section 5.6 Consents and Approvals. Neither the
----------------------
execution and delivery of this Agreement by the Company nor the
consummation of the transactions contemplated by this Agreement
by the Company will require the Company to make any filing or
registration with, or obtain any authorization, consent or
approval of, any Governmental Entity or any other Person, except
those required in connection, or in compliance, with the
provisions of (i) the HSR Act, (ii) the Communications Act of
1934, as amended, (iii) the Securities Act, (iv) the Exchange Act
and (v) the corporation, securities or blue sky laws or
regulations, or similar Legal Requirements, of the various states
of the United States, and other than such other filings,
registrations, authorizations, consents or approvals the failure
of which to make or obtain would not have a Material Adverse
Effect on the Company or prevent the consummation of the
transactions contemplated by this Agreement.
Section 5.7 Reports and Financial Statements.
--------------------------------
(a) SEC Reports. The Company has filed all required
-----------
forms, reports and documents required to be filed with the SEC
since December 31, 1993 (collectively, the "Company SEC
Reports"). As of their respective dates or effective dates and
except as the same may have been corrected, updated or superseded
by means of a subsequent filing with the SEC prior to the date of
this Agreement, none of the Company SEC Reports, including any
financial statements or schedules included or incorporated by
reference therein, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make
the statements therein, in light of the circumstances under which
they were made, not misleading. The Company has delivered or
made available to ICG, in the forms filed with the SEC, all the
Company SEC Reports.
(b) Financial Statements. The audited consolidated
--------------------
financial statements of the Company contained in the Company SEC
Reports comply in all material respects with applicable
accounting requirements and with the published rules and
regulations of the SEC with respect thereto, were prepared in
accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes
thereto) and present fairly the Company's consolidated financial
condition and the results of its operations as of the relevant
dates thereof and for the periods covered thereby. The unaudited
consolidated interim financial statements of the Company
contained in the Company SEC Reports comply in all material
respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto,
were prepared on a basis consistent with prior interim periods
(except as required by applicable changes in GAAP or in SEC
accounting policies) and include all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation
of the Company's consolidated financial condition and results of
operations for such periods.
(c) Absence of Certain Changes. Since the date of the
--------------------------
most recent consolidated balance sheet of the Company included in
the Company's Quarterly Report on Form 10-Q filed with the SEC
for the quarter ended June 30, 1997 (the "Most Recent Company
Balance Sheet"), there has not been any: (i) transaction,
commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary
course of business) that, individually or in the aggregate, has
had, or would have, a Material Adverse Effect on the Company
(other than as a result of changes in laws or regulations of
general applicability or any changes resulting from general
economic, financial, market or industry-wide conditions); (ii)
any declaration, setting aside or payment of any dividend or
other distribution (whether in cash, stock or property) with
respect to the capital stock of the Company; or (iii) entry into
any commitment or transaction material to the Company and its
Subsidiaries taken as a whole (including any borrowing or sale of
assets) except in the ordinary course of business consistent with
past practice.
(d) Absence of Undisclosed Liabilities. The Company
----------------------------------
does not have any indebtedness, liability or obligation required
by GAAP to be reflected on a balance sheet that is not reflected
or reserved against in the Most Recent Company Balance Sheet
except (i) liabilities, obligations and contingencies that were
incurred after the date of the Most Recent Company Balance Sheet
in the ordinary course of business and which would not in the
aggregate have a Material Adverse Effect and (ii) other
liabilities, obligations and contingencies that would not, in the
aggregate, have a Material Adverse Effect on the Company.
Section 5.8 Compliance with Law; Litigation.
-------------------------------
(a) To the Company's Knowledge, the Company and its
Subsidiaries hold all permits, licenses, franchises, variances,
exemptions, concessions, leases, instruments, orders and
approvals (the "Company Permits") of all Governmental Entities
required to be held under applicable Legal Requirements, except
such Company Permits the failure of which to hold, individually
or in the aggregate, does not have and, in the future is not
likely to have, a Material Adverse Effect on the Company. To the
Company's Knowledge, the Company and its Subsidiaries are in
compliance with the terms of the Company Permits, except for such
failures to comply that, individually or in the aggregate, would
not have a Material Adverse Effect on the Company. To the
Company's Knowledge, the businesses of the Company and its
Subsidiaries are not being conducted in violation of any Legal
Requirement, except for such violations which, individually or in
the aggregate, would not have a Material Adverse Effect on the
Company. No investigation or review by any Governmental Entity
with respect to the Company or any of its Subsidiaries is
pending, or, to the Knowledge of the Company, threatened, nor has
any Governmental Entity indicated to the Company in writing an
intention to conduct the same, other than those the outcome of
which would not reasonably be expected to have a Material Adverse
Effect on the Company.
(b) There is no suit, action or proceeding pending or,
to the Knowledge of the Company, threatened against or affecting
the Company or any of its Subsidiaries that has had or is likely
to have a Material Adverse Effect on the Company nor is there any
judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against the Company or any of
its Subsidiaries that has had or is likely to have a Material
Adverse Effect on the Company.
Section 5.9 Title to Assets. The Company and its
---------------
Subsidiaries have valid title to all material assets reflected on
the Most Recent Company Balance Sheet, free and clear of any Lien
except: (a) landlord's Liens and Liens for property taxes not
delinquent; (b) Liens that were created in the ordinary course of
business and do not materially detract from the value of such
assets or materially impair the use thereof in the operation of
the Company's business; (c) leased interests in property owned by
others; and leased interests in property leased to others; and
(d) zoning, building or similar restrictions, easements,
rights-of-way, reservations of rights, conditions, or other
restrictions or encumbrances relating to or affecting real
property that do not, individually or in the aggregate,
materially interfere with the use of such real property in the
operation of the Company's business.
Section 5.10 Employee Matters. The Company and its
----------------
Subsidiaries are in compliance with all applicable Legal
Requirements relating to the employment of employees, including
any obligations relating to employment standards legislation, pay
equity, occupational health and safety, labor relations and human
rights legislation except for such failures to comply as do not
have, and are not likely to have, a Material Adverse Effect on
the Company.
Section 5.11 ERISA.
-----
(a) Copies of all "employee benefit plans," as defined
in ERISA, and all other material employee benefit arrangements,
programs or payroll practices, including severance pay, sick
leave, vacation pay, salary continuation for disability, deferred
compensation, bonus, stock purchase, hospitalization, medical
insurance, life insurance, tuition reimbursement, employee
assistance and employee discounts, that the Company or any of its
ERISA Affiliates maintains or has an obligation to make
contributions (the "Company Benefit Plans") have been delivered
or made available to the Company.
(b) Neither the Company nor any of its ERISA
Affiliates has incurred any unsatisfied withdrawal liability, as
defined in Section 4201 of ERISA, with respect to any
multiemployer plan, nor has any of them incurred any liability
due to the termination or reorganization of any multiemployer
plan, except any such liability that would not have a Material
Adverse Effect on the Company. To the Knowledge of the Company,
neither the Company nor any of its ERISA Affiliates reasonably
expects to incur any liability due to a withdrawal from or
termination or reorganization of a multiemployer plan, except any
such liability that would not have a Material Adverse Effect on
the Company.
(c) Each Company Benefit Plan that is intended to
qualify under Section 401 of the Code, and a form of trust that
is similar in all material respects to the trust maintained
pursuant thereto, have been determined to be exempt from federal
income taxation under Section 501 of the Code by the Internal
Revenue Service, and to the Knowledge of the Company, nothing has
occurred with respect to any such plan since such determination
that is likely to result in the loss of such exemption or the
imposition of any material liability, penalty or tax under ERISA
or the Code. Each Company Benefit Plan has at all times been
maintained in all material respects, by its terms and in
operation, in accordance with all applicable Legal Requirements.
(d) All contributions (including all employer
contributions and employee salary reduction contributions)
required to have been made under the Company Benefit Plans or
pursuant to applicable Legal Requirements (without regard to any
waivers granted under Section 412 of the Code) to any funds or
trusts established thereunder or in connection therewith have
been made by the due date thereof (including any valid extension
or grace period) and no accumulated funding deficiency exists
with respect to any of the Company Benefit Plans subject to
Section 412 of the Code.
(e) To the Knowledge of the Company, there have been
no violations of ERISA or the Code with respect to the filing of
applicable reports, documents and notices regarding the Company
Benefit Plans with the Secretary of Labor and the Secretary of
the Treasury or the furnishing of such reports, documents and
notices to the participants or beneficiaries of the Company
Benefit Plans, except such violations that, individually or in
the aggregate, would not have a Material Adverse Effect on the
Company.
(f) There are no pending actions, claims or lawsuits
that have been asserted or instituted against the Company Benefit
Plans, the assets of any of the trusts under such plans or the
plan sponsor or the plan administrator, or against any fiduciary
of the Company Benefit Plans, with respect to the operation of
such plans (other than routine benefit claims), nor does the
Company have Knowledge of facts that reasonably could be expected
to form the basis for any such action, claim or lawsuit, except
any such actions, claims or lawsuits that, individually or in the
aggregate, would not have a Material Adverse Effect on the
Company.
Section 5.12 Approval.
--------
(a) The Board of Directors of the Company at a meeting
duly called and held: (i) determined that the Merger is advisable
and fair and in the best interests of the Company and its
stockholders; (ii) approved the Merger and this Agreement and the
transactions contemplated by this Agreement in accordance with
the provisions of Section 251 of the DGCL; (iii) recommended the
approval of this Agreement and the Merger by the holders of the
Company Stock and directed that the Merger be submitted for
consideration by the Company's stockholders at the Meeting; and
(iv) adopted a resolution having the effect of causing the Merger
not to be subject to Section 203 of the DGCL to the extent
applicable, if applicable, and to the extent permitted by
applicable Legal Requirements.
(b) The vote of a majority of the outstanding shares
of the Company Stock is the vote required for the adoption and
approval of this Agreement, the Merger and the other transactions
contemplated by this Agreement.
Section 5.13 Financial Advisor/Investment Banker.
-----------------------------------
Except for amounts payable to BT Alex. Brown, pursuant to the
letter agreement dated June 1, 1997, no broker, finder or
investment banker is entitled to any brokerage, finder's or other
fee or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company or its
Subsidiaries. There has been delivered to ICG a true and
complete copy of the agreement pursuant to which BT Alex. Brown
has been retained to act as financial advisor to the Company and
its Subsidiaries in connection with the Merger.
Section 5.14 Taxes. The Company and each of its
-----
Subsidiaries have timely filed all Tax returns required to be
filed by any of them and have timely paid or have established an
adequate reserve for the payment of, all Taxes owed in respect of
the periods covered by such returns, except where the failure to
file such Tax returns or timely pay or establish an adequate
reserve for the payment of such Taxes, will not have a Material
Adverse Effect on the Company. The information contained in such
Tax returns is complete and accurate in all material respects.
Neither the Company nor any Subsidiary of the Company is
delinquent in the payment of any Tax or other amount owed to any
Governmental Entity, except where the amount owed, when paid, or
the delinquency in paying the amount owed will not have a
Material Adverse Effect on the Company. There are no claims or
investigations pending or, to the Company's Knowledge, threatened
against the Company or any of its Subsidiaries for past Taxes,
except claims and investigations that would not have a Material
Adverse Effect on the Company and adequate provision for which
has been made on the Most Recent Balance Sheet. None of the
Company or its Subsidiaries has waived or extended any applicable
statute of limitations relating to the assessment of any material
Taxes that would be payable by the Company or such Subsidiary.
Section 5.15 Environmental Laws.
------------------
(a) Each of the Company and its Subsidiaries is in
compliance in all respects with all Environmental Laws, except
where the failure to so comply would not have a Material Adverse
Effect on the Company; and
(b) No orders, directions or notices have been issued
pursuant to any Environmental Law and no Governmental Entity has
submitted to any of the Company and its Subsidiaries any request
for information pursuant to any Environmental Law.
Section 5.16 Transactions with Affiliates. Except as
----------------------------
disclosed in the Company SEC Reports, there is no lease,
sublease, indebtedness, contract, agreement, commitment,
understanding or other arrangement of any kind entered into by
the Company with any officer, director or stockholder of the
Company or any "affiliate" or "associate" of any of them (as
those terms are defined in the Exchange Act) or of the Company,
except, in each case, for compensation paid to directors and
officers consistent with previously established policies
(including normal merit increases in such compensation in the
ordinary course of business), reimbursements of ordinary and
necessary expenses incurred in connection with their employment
and amounts paid or benefits granted pursuant to Company Benefit
Plans and except for transactions that are not required to be
disclosed pursuant to applicable Legal Requirements.
Section 5.17. Contracts. Each of the Company and its
---------
Subsidiaries are in material compliance with each material
contract or agreement to which it is a party, and each such
contract is in full force and effect, without material monetary
default by the Company or any such Subsidiary and, to the
Knowledge of the Company, without any breach or default by any
other party thereto, except where such breach or default would
not result in a Material Adverse Effect. No written notice has
been received by the Company or any such Subsidiary or, to the
Company's Knowledge, threatened regarding termination, suspension
or material alteration or amendment thereof. Each such contract
or agreement is a valid and binding obligation of the Company or
its Subsidiary, as the case may be, in accordance with its terms.
Section 5.18. Intellectual Property. The Company and
---------------------
its Subsidiaries own or have the right to use all of its
registered trademarks, service marks and copyrights used by the
Company or its Subsidiaries. To the Company's Knowledge, the
Company and its Subsidiaries own or have the legal right to use,
by license or otherwise, all of its Intellectual Property which
is material to the operation of its business. To the Company's
Knowledge, the continued operation of the business of the Company
and such Subsidiaries as currently conducted will not interfere
with, infringe upon, misappropriate or conflict with any
Intellectual Property of another Person.
ARTICLE VI
----------
CONDUCT OF BUSINESS PENDING THE MERGER
Section 6.1 Conduct of Business of the Company.
----------------------------------
Prior to the Effective Time, except as contemplated, permitted or
required by this Agreement:
(a) The Company will conduct, and will cause each of
its Subsidiaries to conduct, its business in the ordinary course
in accordance with past practice, and will use, and will cause
each of its Subsidiaries to use, its reasonable best efforts to
preserve intact its present business organization and to preserve
relationships with customers, suppliers and others having
business dealings with them.
(b) The Company will not, and will not permit any of
its Subsidiaries to: (i) amend or propose to amend the
certificate of incorporation or bylaws of the Company or any of
its Subsidiaries; (ii) split, combine or reclassify the
outstanding capital stock of, or issue or authorize or propose
the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of, or other
ownership interests in, the Company or any of its Subsidiaries;
(iii) or declare, set aside or pay any dividend, distribution, or
other payment to any stockholder, director or officer of the
Company or any of its Subsidiaries, other than payments made in
accordance with existing practices; (iv) directly or indirectly
redeem, purchase or otherwise acquire or agree to redeem,
purchase or otherwise acquire any shares of capital stock of, or
other ownership interests in, the Company or any of its
Subsidiaries other than existing contractual rights of repurchase
at cost upon termination of employment; or (v) agree to do any of
the foregoing.
(c) Except with the written consent of ICG, which
consent will not be unreasonably withheld, the Company will not,
and will not permit any of its Subsidiaries to: (i) encumber,
issue, deliver or sell or agree to issue, deliver or sell any
shares of capital stock of, or other equity interests (including
any option, warrant or other similar right to acquire any equity
interest) in the Company or any of its Subsidiaries, except for
shares issued under the Company's Employee Stock Purchase Plan
and except for options to purchase an aggregate of up to 150,000
shares of Company Common Stock, exercisable for fair market value
on the date of grant, issued consistent with past practices to
employees either hired before or after October 12, 1997 and
officers hired after October 12, 1997; (ii) acquire, lease or
dispose of any assets other than in the ordinary course of
business consistent with past practice; (iii) create, assume or
incur any indebtedness except in the ordinary course of business
consistent with past practice; (iv) encumber any of its assets
other than in connection with equipment leases incurred in the
ordinary course of business consistent with past practice;
(v) enter into any other material transaction other than in each
case in the ordinary course of business consistent with past
practice; (vi) make any payment with respect to any indebtedness
of the Company or its Subsidiaries except such payments that are
scheduled to come due prior to the Effective Time; (vii) acquire
by merging or consolidating with, or by acquiring assets of, or
by purchase a substantial ownership interest in, or by any other
method, any business or any other Person; or (viii) agree to do
any of the foregoing.
(d) Except with the written consent of ICG, which
consent will not be unreasonably withheld, and except as required
to comply with applicable Legal Requirements or existing Company
Benefit Plans, the Company will not, and will not permit any of
its Subsidiaries to: (i) adopt, terminate or amend any bonus,
profit sharing, compensation, severance, termination, stock
option, pension, retirement, deferred compensation, employment or
other Company Benefit Plan, agreement, trust, fund or other
arrangement for the benefit or welfare of any director, officer
or current or former employee; (ii) increase in any manner the
compensation or benefits of any director, officer or employee
(except normal increases in the ordinary course of business
consistent with past practice); (iii) except as permitted under
Section 6.1(c)(i), grant any award or option under any bonus,
incentive, performance or other compensation plan or arrangement
or Company Benefit Plan; (iv) take any action to fund or in any
other way secure the payment of compensation or benefits
(including any option, warrant or other similar right to acquire
any equity interest) under any employee plan, agreement, contract
or arrangement or Company Benefit Plan (except in the ordinary
course of business consistent with past practice); or (v) agree
to do any of the foregoing.
(e) The Company will not take or agree to take, and
will cause its Subsidiaries not to take or agree to take, any
action that would: (i) make any representation or warranty of the
Company set forth in this Agreement untrue or incorrect so as to
cause the condition set forth in Section 8.3(a) of this Agreement
not to be fulfilled as of the Effective Time; or (ii) result in
any breach of this Agreement or of the other conditions of this
Agreement set forth in Section 8.1 or Section 8.3 of this
Agreement not to be satisfied as of the Effective Time.
(f) The Company will not, and will not permit any of
its Subsidiaries to enter into any transaction with any officer,
stockholder, director, consultant or employee of the Company of
any Subsidiary thereof or any person or entity that is an
"affiliate" or "associate" of any of the foregoing, as those
terms are defined in Rule 12b-2 under the Exchange Act, whether
or not such transaction would be in the ordinary course of
business.
(g) The Company will take no action that reasonably
could be expected to adversely affect the qualification of the
Merger for pooling-of-interests accounting treatment under GAAP.
(h) The Company and its Subsidiaries will (i) not take
any action to initiate, solicit or encourage, directly or
indirectly, any inquires or the making or implementation of any
proposal or offer (including, without limitation, any proposal or
offer to its stockholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase
of all or any significant portion of the assets or any equity
securities of, the Company or any of its Subsidiaries (any such
proposal or offer being hereinafter referred to as an
"Acquisition Proposal"), or engage in any negotiations
concerning, or provide any confidential information or data to,
or have any discussions with, any person or other entity or group
as defined in Section 13(d)(3) of the Exchange Act relating to an
Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal; (ii)
immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties
previously conducted with respect to any of the foregoing and
take the necessary steps to inform the individuals or entities
referred to above of the obligations undertaken in this Section
6.1(h); and (iii) notify ICG immediately if any such inquiries or
proposals are received by, any such information is requested from
or any such negotiations or discussions are sought to be
initiated or continued with, the Company or any of its
Subsidiaries. Nothing contained in this Section 6.1(h) will
prohibit the Board of Directors of the Company from (1)
furnishing information to, or entering into discussions or
negotiations with, any person or other entity or group that makes
an Acquisition Proposal or recommending to its stockholders that
they accept such Acquisition Proposal, if (A) the Board of
Directors of the Company reasonably determines in good faith,
after consultation with outside counsel, that such action is
consistent with its fiduciary duties to stockholders imposed by
law, (B) prior to furnishing such information to, or entering
into discussions or negotiations with, such person or entity, the
Company provides written notice to ICG to the effect that it is
furnishing information to, or entering into discussions or
negotiations with, such person or entity, and (C) subject to any
confidentiality agreement with such other party (which the
Company determines in good faith, after consultation with outside
counsel, is required to be executed in order for the Board of
Directors to act consistently with its fiduciary duties to
stockholders imposed by law), the Company keeps ICG informed of
the status (not the terms) of any such discussions or
negotiations; and (2) to the extent applicable, complying with
Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal. Nothing in this Section 6.1(h) shall (x)
permit any party to terminate this Agreement (except as
specifically provided in Section 9.1(d)), (y) permit any party to
enter into any agreement with respect to an Acquisition Proposal
during the term of this Agreement (it being agreed that during
the term of this Agreement, no party shall enter into any
agreement with any person that provides for, or in any way
facilitates, an Acquisition Proposal (other than a
confidentiality agreement in customary form)), or (z) breach any
obligation of any party under this Agreement.
(i) The Board of Directors of the Company will
recommend to the stockholders of the Company the approval of the
Merger, unless the Board of Directors reasonably determines in
good faith, after consultation with outside counsel, that such
action would be inconsistent with its fiduciary duties to
stockholders as required by law and, if such determination is
made, will give written notice to ICG of such determination
within two Business Days of the making of such determination.
Upon the issuance of such written notice to ICG, and upon the
written election of ICG, the Company will negotiate in good faith
with ICG for a period of two Business Days regarding such
adjustments in the terms of the Merger as would enable the Board
of Directors of the Company, consistent with its fiduciary duties
to the stockholders, to proceed to recommend the Merger to the
stockholders of the Company as contemplated in this Agreement.
(j) Upon the request of ICG, the Company will
prepare and deliver to ICG, within twenty days after such
request, such financial statements (including audited financial
statements) as may be required by ICG to meet its financial
reporting obligations (including requirements under applicable
securities laws).
(k) The Company shall take no action that reasonably
could be expected to adversely affect the qualification of the
Merger as a reorganization under Section 368(a) of the Code.
(l) The Company will use its reasonable best efforts
to dispose of all of its interest in Internetcom do Brazil, S.A.,
or, alternatively, acquire and hold more than 51 percent of the
equity interests of such company.
Section 6.2 Conduct of Business of ICG. Prior to
--------------------------
the Effective Time, except as contemplated, permitted or required
by this Agreement:
(a) ICG will conduct, and will cause each of its
Subsidiaries to conduct, its business in the ordinary course in
accordance with past practice, and will use, and will cause each
of its Subsidiaries to use, its reasonable best efforts to
preserve intact its present business organization and to preserve
relationships with customers, suppliers and others having
business dealings with them.
(b) ICG will not take or agree to take, and will cause
its Subsidiaries not to take or agree to take, any action that
would (i) make any representation or warranty of ICG set forth in
this Agreement untrue or incorrect so as to cause the condition
set forth in Section 8.2(a) of this Agreement not to be fulfilled
as of the Effective Time or (ii) result in any breach of this
Agreement or of the other conditions set forth in Section 8.1 or
Section 8.2 of this Agreement not to be satisfied as of the
Effective Time.
(c) Without the prior written consent of the Company,
for a period ending upon the earlier of the termination of this
Agreement or twelve months after the date of this Agreement, ICG
will not except as provided in this Agreement (i) acquire or
agree to acquire any voting securities or direct or indirect
rights to acquire any voting securities of the Company or (ii)
(1) make or participate in any "solicitation" of "proxies" to
vote (as such terms are used in the proxy rules of the SEC) with
respect to the voting of any securities of the Company, (2) form,
join or in any way participate in a group within the meaning of
Section 13(d)(3) of the Exchange Act with respect to any voting
securities of the Company or (3) otherwise act, alone or with
others, to seek to control the management, Board of Directors or
policies of the Company. ICG has not taken any of these actions
prior to the date of this Agreement.
(d) The Board of Directors of ICG will recommend to
the stockholders of ICG the approval of the Merger, unless the
Board of Directors reasonably determines in good faith, after
consultation with outside counsel, that such action would be
inconsistent with its fiduciary duties to its stockholders as
required by law and, if such determination is made, will give
written notice to the Company within two Business Days of the
making of such determination. Upon the issuance of such written
notice to the Company, and upon the election of the Company, ICG
will negotiate in good faith with the Company for a period of two
Business Days regarding such adjustments in the terms of the
Merger as would enable the Board of Directors of ICG, consistent
with its fiduciary duties to the stockholders, to proceed to
recommend the Merger to the stockholders of ICG as contemplated
by this Agreement.
(e) ICG shall take no action that reasonably could be
expected to adversely affect the qualification of the Merger for
pooling-of-interests accounting treatment under GAAP.
(f) ICG shall take no action that reasonably could be
expected to adversely affect the qualification of the Merger as a
reorganization under Section 368(a) of the Code.
(g) ICG shall not enter into any agreement with any
Person for the purchase or other acquisition by such Person of
more than 50 percent of the ICG Common Stock, unless such Person
agrees in writing prior to the Effective Time to vote in favor of
the Merger.
ARTICLE VII
-----------
ADDITIONAL AGREEMENTS
Section 7.1 Access and Information. Each of the
----------------------
Company and ICG and their respective Subsidiaries will afford to
the other and to the other's accountants, counsel and other
representatives full access during normal business hours (and at
such other times as the parties may mutually agree) throughout
the period prior to the Effective Time to all of its properties,
books, contracts, commitments, records and personnel.
Section 7.2 SEC Filings.
-----------
(a) The Company and ICG will prepare jointly, and as
soon as reasonably practicable after the date of this Agreement,
file with the SEC a joint proxy statement/registration statement
(the "Preliminary Joint Proxy Statement/Prospectus") comprising
preliminary proxy materials of the Company and ICG under the
Exchange Act with respect to the Merger and a Registration
Statement on Form S-4 and preliminary prospectus of ICG under the
Securities Act with respect to the ICG Common Stock to be issued
in the Merger, and will thereafter use their respective
reasonable best efforts to respond to any comments of the SEC
with respect thereto and to cause a definitive joint proxy
statement/registration statement (including all supplements and
amendments thereto, the "Joint Proxy Statement/Prospectus") and
proxy to be mailed to the Company's and ICG's stockholders as
promptly as practicable.
(b) As soon as reasonably practicable after the date
hereof, the Company and ICG will prepare and file any other
filings relating to the Merger and the other transactions
contemplated hereby that are required to be filed by each under
the Exchange Act and other applicable Legal Requirements
(collectively "Other Filings"), and will use their reasonable
best efforts to respond to any comments of the SEC or any other
appropriate government official with respect thereto.
(c) The Company, on the one hand, and ICG, on the
other, will cooperate with each other and provide all information
necessary to prepare the Preliminary Joint Proxy
Statement/Prospectus, the Joint Proxy Statement/Prospectus and
the Other Filings (collectively "SEC Filings") and will provide
promptly to the other party any information that such party may
obtain that could necessitate amending any such document.
(d) Each of the Company and ICG will notify the other
promptly of the receipt of any comments from the SEC or its staff
or any other government official and of any requests by the SEC
or its staff or any other government official for amendments or
supplements to any of the SEC Filings or for additional
information and will supply the other with copies of all
correspondence between the Company or any of its representatives
or ICG or any of its representatives, as the case may be, on the
one hand, and the SEC or its staff or any other government
official, on the other hand, with respect thereto. If at any
time prior to the Effective Time, any event occurs that should be
set forth in an amendment of, or a supplement to, any of the SEC
Filings, the Company and ICG promptly will prepare and file such
amendment or supplement and will distribute such amendment or
supplement as required by applicable Legal Requirements,
including, in the case of an amendment or supplement to the Joint
Proxy Statement/Prospectus, mailing such supplement or amendment
to the Company's stockholders.
(e) ICG covenants that the SEC Filings (other than any
information provided by the Company for inclusion in the SEC
Filings) (i) will comply in all material respects with the
Securities Act and the Exchange Act and (ii) will not contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make
the statements contained therein, in light of the circumstances
under which they are made, not misleading.
(f) The Company covenants that the SEC Filings (other
than any information provided by ICG for inclusion in the SEC
Filings) (i) will comply in all material respects with the
Securities Act and the Exchange Act and (ii) will not contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
(g) ICG will be responsible for all reasonable
expenses incurred in complying with this Section 7.2, including
all registration, qualification and filing fees, printing
expenses, fees and disbursements of counsel (other than counsel
to the Company) and applicable blue-sky fees and expenses.
(h) (i) ICG will indemnify, defend, and hold
harmless the Company, its officers, directors, employees and
agents and each other Person, if any, who controls any of the
foregoing within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities (collectively, "Losses"), joint or
several, to which any of the foregoing may become subject under
the Securities Act or the Exchange Act or otherwise, insofar as
such Losses (or actions in respect thereof) arise out of or are
based upon (A) an untrue statement or alleged untrue statement of
a material fact contained in any SEC Filing, or (B) the omission
or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading, provided that such misstatement or omission was based
on or omitted from information provided by ICG in writing for
inclusion in the SEC Filings or was made in reliance upon and in
conformity with such information. ICG promptly will reimburse
the Company and each such officer, director, employee, agent and
controlling Person for any legal or any other expenses reasonably
incurred by any of them in connection with investigating or
defending any such Losses (or action in respect thereof).
(ii) If this Agreement is terminated prior to the
consummation of the Merger, the Company will indemnify, defend
and hold harmless each of ICG and Acquisition Sub and their
officers, employees and agents and directors and each other
Person, if any, who controls any of the foregoing within the
meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any Losses, joint or several, to which any
of the foregoing may become subject under the Securities Act or
the Exchange Act or otherwise, insofar as such Losses (or actions
in respect thereof) arise out of or are based upon (A) an untrue
statement or alleged untrue statement of a material fact
contained in any SEC Filing or (B) the omission or alleged
omission to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading,
provided that the misstatement or omission was based on or
omitted from information provided by the Company in writing for
use in the SEC Filings or was made in reliance upon and in
conformity with such information. The Company promptly will
reimburse ICG and Acquisition Sub and each such officer,
director, employee, agent and controlling Person for any legal or
any other expenses reasonably incurred by any of them in
connection with investigating or defending any such Losses (or
action in respect thereof).
(iii) For purposes of this Section 7.2, (A)
"Indemnifying Party" means the Person having an obligation
hereunder to indemnify any other Person pursuant to this
Section 7.2, (B) "Indemnified Party" means the Person having the
right to be indemnified pursuant to this Section 7.2 and (C) any
information concerning the Company that is included in any SEC
Filing that is provided to the Company or its counsel for review
within a reasonable period before filing or use thereof and to
which the Company has not provided written notice of objection to
ICG will be deemed to have been provided by the Company for
inclusion in such SEC Filing. Whenever any claim for
indemnification arises under this Section 7.2, the Indemnified
Party will promptly notify the Indemnifying Party in writing of
such claim and, when known, the facts constituting the basis for
such claim (in reasonable detail). Failure by the Indemnified
Party so to notify the Indemnifying Party will not relieve the
Indemnifying Party of any liability hereunder except to the
extent that such failure materially prejudices the Indemnifying
Party.
(iv) After such notice, if the Indemnifying Party
undertakes to defend any such claim, then the Indemnifying Party
will be entitled, if it so elects, to take control of the defense
and investigation with respect to such claim and to employ and
engage attorneys of its own choice to handle and defend such
claim, at the Indemnifying Party's cost, risk and expense, upon
notice to the Indemnified Party of such election, which notice
acknowledges the Indemnifying Party's obligation to provide
indemnification hereunder. The Indemnifying Party will not
settle any third-party claim that is the subject of
indemnification without the written consent of the Indemnified
Party, which consent will not be unreasonably withheld; provided
however, that the Indemnifying Party may settle a claim without
the Indemnified Party's consent if the settlement (A) makes no
admission or acknowledgment of liability or culpability with
respect to the Indemnified Party, (B) includes a complete release
of the Indemnified Party and (C) does not require the Indemnified
Party to make any payment or forego or take any action. The
Indemnified Party will cooperate in all reasonable respects with
the Indemnifying Party and its attorneys in the investigation,
trial and defense of any lawsuit or action with respect to such
claim and any appeal arising therefrom (including the filing in
the Indemnified Party's name of appropriate cross claims and
counterclaims) and the Indemnifying Party will reimburse the
Indemnified Party for all reasonable direct out-of-pocket
expenses incurred by the Indemnified Party in connection with
such cooperation. The Indemnified Party may, at its own expense,
participate in any investigation, trial and defense of such
lawsuit or action controlled by the Indemnifying Party and any
appeal arising therefrom. If, after receipt of a claim notice
pursuant to Section 7.2(h)(iii), the Indemnifying Party does not
undertake to defend any such claim, the Indemnified Party may,
but will have no obligation to, contest any lawsuit or action
with respect to such claim and the Indemnifying Party will be
bound by the result obtained with respect thereto by the
Indemnified Party (including the settlement thereof without the
consent of the Indemnifying Party). If there are one or more
defenses available to the Indemnified Party that conflict with,
or are additional to, those available to the Indemnifying Party,
the Indemnified Party will have the right, at the expense of the
Indemnifying Party, to participate in the defense of the lawsuit
or action; provided however, that the Indemnified Party may not
settle such lawsuit or action without the consent of the
Indemnifying Party, which consent will not be unreasonably
withheld.
(v) If the indemnification provided for in this
Section 7.2(h) is for any reason unavailable to the Indemnified
Party in respect of any Losses (or action in respect thereof)
then the Indemnifying Party will, in lieu of indemnifying the
Indemnified Party, contribute to the amount paid or payable by
the Indemnified Party as a result of such Losses (or action in
respect thereof), in such proportion as is appropriate to reflect
the relative fault of the Indemnifying Party on the one hand and
the Indemnified Party on the other with respect to the statement
or omission that resulted in such Losses (or action in respect
thereof) as well as any other relevant equitable considerations.
Relative fault with respect to an untrue or alleged untrue
statement or omission of a material fact will be determined by
reference to whether the untrue or alleged untrue statement or
omission of a material fact related to information supplied by
the Indemnifying Party on the one hand or the Indemnified Party
on the other, the intent of the parties and their relative
Knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable
by the Indemnified Party as a result of the Losses (or action in
respect thereof) referred to above will be deemed to include any
legal or other expenses reasonably incurred by the Indemnified
Party in connection with investigating, trying or defending any
such action or claim. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
Section 7.3 Meetings of Stockholders. Each of the
------------------------
Company and ICG will take all action necessary, in accordance
with the DGCL, the rules and regulations of the National
Association of Securities Dealers, Inc. ("NASD") and the
certificate of incorporation and bylaws of the Company or ICG, as
applicable, to duly call, give notice of, convene and hold a
meeting of its stockholders as promptly as practicable, to
consider and vote upon the adoption and approval of this
Agreement (as a plan of merger under Section 251 of the DGCL),
the Merger and the other transactions contemplated by this
Agreement (each, individually, the "Meeting"), to the extent such
approval is required by the DGCL, the NASD or the certificate of
incorporation of the Company or ICG, as applicable. Each of the
Company and ICG will use its best efforts to hold such meetings
at the same date and time.
Section 7.4 Compliance with the Securities Act.
----------------------------------
Prior to the Closing Date, the Company will cause to be delivered
to ICG a letter from the Company, identifying all Persons who
are, in its opinion, as of the date of this Agreement,
"affiliates" of the Company as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act. The
Company shall use its reasonable best efforts to cause each such
Person to deliver to ICG not later than October 20, 1997, a
written agreement substantially in the form of Exhibit A. The
Company will, as of the date of the Meeting of its stockholders,
identify other Persons who at that time are affiliates, and use
its reasonable best efforts to cause each such Person to deliver
to ICG on a prompt basis such a written agreement. ICG may cause
the ICG Certificates evidencing shares of ICG Common Stock issued
to such Persons to bear a legend referring to the applicability
of paragraphs (c) and (d) of Rule 145 under the Securities Act.
Section 7.5 Reasonable Best Efforts. Without
-----------------------
limiting the termination and other rights of the parties under
this Agreement (and subject to the parties' rights to take
certain actions pursuant to Section 6.1(h), Section 6.1(i) and
Section 6.2(d) consistent with the fiduciary duties of their
respective Boards of Directors) each of the parties to this
Agreement will use its commercially reasonable best efforts to
take, or cause to be taken, all appropriate action, and to do, or
cause to be done, all things necessary, proper or advisable under
applicable Legal Requirements to consummate and make effective
the transactions contemplated by this Agreement in the most
expeditious manner practicable, including the satisfaction of all
conditions to the Merger.
Section 7.6 Confidentiality and Public
--------------------------
Announcements. Each party to this Agreement agrees that it will
-------------
treat this Agreement and all negotiations and communications
between them relating to this Agreement, the Merger or otherwise,
and all information disclosed to a party by the other party, as
confidential. No party to this Agreement will make any public
announcements or otherwise communicate with any news media with
respect to this Agreement or any of the transactions contemplated
by this Agreement without prior approval of the other party,
which approval will not unreasonably be withheld, as to the
timing and contents of any such announcement as may be reasonable
under the circumstances; provided however, that nothing contained
herein will prevent any party from promptly making all filings
with Governmental Entities that may, in its reasonable judgment,
be required or advisable in connection with the execution and
delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement so long as such party
gives timely notice to the other parties of the anticipated
disclosure and cooperates with the other party in designing
reasonable procedural and other safeguards to preserve, to the
maximum extent possible, the confidentiality of all information
furnished by the other party pursuant to this Agreement.
Section 7.7 Notification. In the event of, or after
------------
obtaining Knowledge of the occurrence or threatened occurrence
of, any fact or circumstance that would cause or constitute a
breach or violation of any of its representations, warranties,
covenants or other agreements set forth herein, each party to
this Agreement promptly will give notice thereof to the other
party and will use its best efforts to prevent or remedy such
breach.
Section 7.8 HSR Act Filings. ICG and the Company
---------------
each will make or cause to be made an appropriate filing of a
Notification and Report Form pursuant to the HSR Act no later
than 15 Business Days after the date of this Agreement. Each
such filing will request early termination of the waiting period
imposed by the HSR Act. The Company and ICG each will use its
reasonable best efforts to respond or cause a response to be made
as promptly as reasonably practicable to any inquiries received
from the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "Antitrust Division")
for additional information or documentation and to respond as
promptly as reasonably practicable to all inquiries and requests
received from any other Governmental Entity in connection with
antitrust matters; provided however, that nothing contained
herein will be deemed to preclude either the Company or ICG from
negotiating reasonably with any Governmental Entity regarding the
scope and content of any such requested information or
documentation. The Company and ICG each will use their
respective reasonable best efforts to overcome any objections
that may be raised by the FTC, the Antitrust Division or any
other Governmental Entity having jurisdiction over antitrust
matters. Notwithstanding the foregoing, neither ICG nor the
Company will be required to make any significant change in the
operations or activities of the business (or any material assets
employed therein) of ICG or any of its Affiliates, or of the
Company or any of its Affiliates, as the case may be, if ICG or
the Company, as the case may be, determines in good faith that
such change would be materially adverse to the operations or
activities of the business (or any material assets employed
therein) of ICG or any of its Affiliates or the Company or any of
its Affiliates, as the case may be.
Section 7.9 Indemnification of Executives.
-----------------------------
(a) Indemnification. ICG will cause the Surviving
---------------
Corporation to, and, should the Surviving Corporation fail or be
unable to do so, ICG shall, indemnify, defend and hold harmless
each person who is now, or has been at any time prior to the date
of this Agreement or who becomes prior to the Effective Time, an
officer or director of the Company (each, an "Executive"),
against all losses, expenses, damages, liabilities, costs,
judgments, and amounts paid in settlement in connection with any
claim, action, suit, proceeding, or investigation based on or
arising out of, in whole or in part, any actions or omissions of
such Executive as an officer or director of the Company on or
prior to the Effective Time, including actions or omissions
relating to any of the transactions contemplated by this
Agreement, to the fullest extent permitted under the DGCL, the
certificate of incorporation and bylaws of the Company and the
Indemnification Agreements, a list of which has been provided to
ICG. ICG will cause the Surviving Corporation to pay expenses in
advance of the final disposition of any such claim, action, suit,
proceeding, or investigation to each Executive to the fullest
extent permitted by applicable Legal Requirements upon receipt of
any undertaking required or contemplated by applicable Legal
Requirements. Without limiting the foregoing, in any case in
which approval of or a determination by the Surviving Corporation
is required to effectuate any indemnification, (i) the Executives
will conclusively be deemed to have met the applicable standards
for indemnification with respect to any actions or omissions of
such Executives as an officer or director of the Company on or
prior to the Effective Time relating to any of the transactions
contemplated by this Agreement and (ii) ICG shall cause the
Surviving Corporation to direct, at the election of any
Executive, that the determination of any such approval shall be
made by independent counsel selected by the Executive and
reasonably acceptable to ICG. If any such claim, action, suit,
proceeding, or investigation is brought against any Executive
(whether arising before or after the Effective Time), (i) the
Executive may retain counsel satisfactory to him or her that is
reasonably acceptable, and (ii) ICG will pay or will cause the
Surviving Corporation to pay all reasonable fees and expenses of
such counsel for the Executive, as such fees and expenses are
incurred, upon receipt of a written undertaking by the Executive
that the Executive will repay the amounts so paid if it
ultimately is determined in a final non-appealable judgment by a
court of competent jurisdiction that he is not entitled to be
indemnified by the Surviving Corporation as authorized by the
DGCL. Neither ICG nor the Surviving Corporation shall have any
obligation hereunder to any Executive when and if a court of
competent jurisdiction shall ultimately determine in a final non-
appealable judgment that such Executive is not entitled to
indemnification hereunder.
(b) The Surviving Corporation shall maintain in effect
for a period of one year after the Effective Time the policy of
officers' and directors' liability insurance maintained by the
Company on the date of this Agreement, with coverage in amount
and scope at least as favorable as the Company's existing
directors' and officers' liability insurance coverage; provided
that such policy shall not be required to be maintained if
equivalent coverage is provided to such Persons under another
policy of officers' and directors' liability insurance maintained
by ICG or any of its Affiliates; and provided further that in
satisfying the obligations under this provision, the Surviving
Corporation shall not be obligated to pay annual premiums in
excess of 200% of the amount per annum paid by the Company in its
last full fiscal year. The amount per annum of premiums paid by
the Company in its last full fiscal year equaled $426,500.
(c) Successors. If ICG or the Surviving Corporation
----------
or any of its successors or assigns (i) consolidates with or
merges into any other Person and will not be the continuing or
surviving Person of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets
to any Person, then and in each such case, proper provisions will
be made so that the successors and assigns of ICG or the
Surviving Corporation assume the obligations set forth in this
Section 7.9.
Section 7.10 Employee Benefits. For a period of at
-----------------
least one year after the Effective Time, ICG will cause the
Surviving Corporation to make generally available to the
employees of the Company employee benefits, including severance
benefits and accrued vacation time, which are no less favorable
than those currently afforded to the employees of the Company.
On the Effective Date, the Company's employee stock purchase plan
shall be terminated and any cash in participants' accounts will
be refunded to them.
ARTICLE VIII
------------
CONDITIONS PRECEDENT
Section 8.1 Conditions to Each Party's Obligation to
----------------------------------------
Effect the Merger. The respective obligations of each party to
-----------------
effect the Merger will be subject to the fulfillment at or prior
to the Effective Time of the following conditions:
(a) This Agreement, the Merger and the transactions
contemplated by this Agreement shall have been duly approved, to
the extent required by applicable law or rule by (i) the holders
of the outstanding Company Stock entitled to vote, (ii) the
holders of the outstanding ICG Common Stock entitled to vote, and
(iii) ICG as the sole stockholder of Acquisition Sub.
(b) The waiting period applicable to the consummation
of the Merger under the HSR Act shall have expired or been
earlier terminated.
(c) The Registration Statement on Form S-4 that
includes the Joint Proxy Statement/Prospectus shall have become
effective in accordance with the provisions of the Securities Act
and any necessary state securities law approvals shall have been
obtained and no stop orders with respect thereto shall have been
issued by the SEC and remain in effect.
(d) No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any Legal Requirement that
remains in effect and has the effect of making the transactions
contemplated by this Agreement illegal or otherwise prohibiting
the transactions contemplated by this Agreement, or that
questions the validity or the legality of the transactions
contemplated by this Agreement and that could reasonably be
expected to materially and adversely affect the value of the
business of the Company, it being agreed that each party will use
its reasonable best efforts to have any such injunction lifted.
All material consents of Governmental Entities required to be
obtained with respect to the Merger and the other transactions
contemplated by this Agreement shall have been obtained.
(e) As of the Effective Time, the shares of ICG Common
Stock issued in connection with the Merger will be quoted on
NASDAQ, subject to satisfaction, in each case, of applicable
NASDAQ requirements upon official notice of issuance.
Section 8.2 Conditions to Obligation of the Company
---------------------------------------
to Effect the Merger. The obligation of the Company to effect
--------------------
the Merger will be subject to the fulfillment at or prior to the
Effective Time of the additional following conditions:
(a) The representations and warranties of ICG
contained in this Agreement shall be true and correct in all
material respects as of the Effective Time, with the same force
and effect as if made as of the Effective Time, except (i) for
changes contemplated by this Agreement, (ii) for those
representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such
date), and (iii) in all such cases, for such breaches or
inaccuracies of such representations and warranties as do not
have a Material Adverse Effect on ICG, and the Company shall have
received a certificate of ICG to such effect signed by the Chief
Executive Officer of ICG. For purposes of determining whether
there has been a failure to satisfy the condition set forth in
this Section 8.2(a), there shall not be considered any change in
the stock price of capital stock of ICG after the date of this
Agreement.
(b) ICG shall have performed or complied in all
material respects with all material agreements and covenants
required by this Agreement to be performed or complied with by it
prior to the Effective Time, and the Company shall have received
a certificate of ICG to such effect signed by the Chief Executive
Officer of ICG.
(c) David W. Garrison shall have been appointed to the
Board of Directors of ICG effective as of the Effective Time.
(d) The opinion of BT Alex. Brown referenced in
Section 5.4 shall not have been withdrawn.
(e) The Company shall have received a written opinion
of Pillsbury Madison & Sutro LLP, or other evidence, in form and
substance reasonably satisfactory to the Company, to the effect
that the Merger will constitute a reorganization within the
meaning of Section 368 of the Code. In rendering such opinion,
counsel may rely upon representations of the parties contained
herein and in certificates of officers of the Company and others.
Section 8.3 Conditions to Obligations of ICG and
------------------------------------
Acquisition Sub to Effect the Merger. The obligations of ICG and
------------------------------------
Acquisition Sub to effect the Merger will be subject to the
fulfillment at or prior to the Effective Time of the additional
following conditions:
(a) The representations and warranties of the Company
contained in this Agreement shall be true and correct in all
material respects as of the Effective Time, with the same force
and effect as if made as of the Effective Time, except (i) for
changes contemplated by this Agreement, (ii) for those
representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such
date), and (iii) in all such cases, for such breaches or
inaccuracies of such representations and warranties as do not
have a Material Adverse Effect on the Company, and ICG shall have
received a certificate of the Company to such effect signed by
the Chief Executive Officer of the Company. For purposes of
determining whether there has been a failure to satisfy the
condition set forth in this Section 8.3(a), there shall not be
considered any change in the stock price or capital stock of the
Company after the date of this Agreement.
(b) The Company shall have performed or complied in
all material respects with all material agreements and covenants
required by this Agreement to be performed or complied with by it
on or prior to the Effective Time, and ICG shall have received a
certificate of the Company to such effect signed by the Chief
Executive Officer of the Company.
(c) The opinion of Gleacher NatWest, Inc. referenced
in Section 4.4 shall not have been withdrawn.
(d) Prior to the Effective Time, the Company shall
have disposed of all of its interest in Internetcom do Brazil,
S.A. or, alternatively, shall have acquired, and holds as of the
Effective Time, more than 51 percent of the equity interests of
such company.
ARTICLE IX
----------
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be
-----------
terminated at any time prior to the Effective Time, whether
before or after approval by the stockholders of the Company or
ICG:
(a) by mutual written consent of the Board of
Directors of ICG and the Board of Directors of the Company;
(b) by either ICG or the Company (i) if at the Meeting
of its stockholders (including any postponement or adjournment
thereof), the Merger is not approved and adopted by the
affirmative vote specified herein, (ii) after March 1, 1998 or
(iii) if its independent accountants advise it in writing that
the Merger will not qualify for pooling-of-interests accounting
treatment under GAAP;
(c) by the Company, if it receives notice from
ICG of the determination of the Board of Directors of ICG as
provided in Section 6.2(d);
(d) by ICG, if it receives notice from the Company of
the determination of the Board of Directors of the Company as
provided in Section 6.1(i);
(e) by ICG, if any Person (other than ICG and any of
its Affiliates) shall have acquired before the Effective Time or
the termination of this Agreement 50 percent or more of the
outstanding Company Stock, unless such Person shall have
delivered to ICG within two Business Days of such acquisition
definitive written confirmation to the effect that such Person
will vote in favor of the Merger at the Meeting and take no
action to prevent or delay the Merger.
Section 9.2 Remedies.
--------
(a) In the event of the termination of this Agreement
or breach of any provision of this Agreement by either ICG or the
Company, ICG and the Company shall be entitled to all remedies
available at law, provided that, subject to the specific
performance remedy in the succeeding sentence, the remedies
specified in Section 9.2(b) and Section 9.2(c) shall be the sole
remedies allowable to ICG or the Company, as the case may be, as
a result of the events specified therein. Notwithstanding
anything to the contrary in this Agreement, in the event of a
breach of any provision of this Agreement prior to the
termination of this Agreement, the non-breaching party shall be
entitled to all available equitable remedies.
(b) Subject to Section 9.2(d), if (i)(w) ICG receives
notice from the Company of the determination of the Board of
Directors of the Company as provided in Section 6.1(i), (x) the
Board of Directors of the Company fails to recommend to the
stockholders of the Company the approval of the Merger prior to
March 2, 1998, or withdraws such recommendation, (y) the Merger
is not consummated as a direct result of the failure of the
Company to obtain stockholder approval as provided in Section
8.1(a)(i) or (z) the condition set forth in Section 8.2(d) fails
to be satisfied, and the giving of such notice or such failure or
withdrawal is not the result of the failure of ICG to satisfy the
conditions set forth in Section 8.2(a) or Section 8.2(b), (ii)
any Person (other than ICG and any of its Affiliates) shall have
acquired before the Effective Time or the termination of this
Agreement 50 percent or more outstanding Company Stock and such
Person fails to timely deliver the written confirmation to ICG as
provided in Section 9.1(e), or (iii) if the Company fails to
satisfy the conditions set forth in either Section 8.3(a) or
Section 8.3(b) and in the case of Section 8.3(b) such failure
prevented the consummation of the Merger prior to March 2, 1998,
the Company will promptly pay to ICG by wire transfer, in
immediately available funds, the Termination Fee.
(c) Subject to Section 9.2(d), if (i)(w) the Company
receives notice from ICG of the determination of the Board of
Directors of ICG as provided in Section 6.2(d), (x) the Board of
Directors of ICG fails to recommend to the stockholders of ICG
the approval of the Merger prior to March 2, 1998, or withdraws
such recommendation, (y) if the Merger is not consummated as a
direct result of the failure of ICG to obtain stockholder
approval as provided in Section 8.1(a)(ii) or (z) the condition
set forth in Section 8.3(c) fails to be satisfied, and the giving
of such notice or such failure or withdrawal is not the result of
the failure of the Company to satisfy the conditions set forth in
Section 8.3(a) or Section 8.3(b), or (ii) if ICG fails to satisfy
the conditions set forth in either Section 8.2(a) or Section
8.2(b) and in the case of Section 8.2(b) such failure prevented
the consummation of the Merger prior to March 2, 1998, ICG shall
promptly pay to the Company by wire transfer, in immediately
available funds, the Termination Fee.
(d) Notwithstanding anything to the contrary herein,
no party shall have any liability under the Agreement, including
Section 9.2(a), Section 9.2(b) or Section 9.2(c), in the event
the Agreement is terminated or terminable as a consequence of the
nonfulfillment of any of the conditions set forth in Section
8.1(b), Section 8.1(c), Section 8.1(d), Section 8.1(e), Section
8.2(c) or Section 8.2(e), unless such nonfulfillment is caused by
that party's material breach of any of its covenants or
obligations under this Agreement.
(e) If the Company or ICG terminates the Agreement as
a consequence of any failure to satisfy the conditions set forth
in Section 8.2(a) or Section 8.3(a), for purposes of determining
whether payment of the Termination Fee under Section 9.2(b) or
Section 9.2(c) is required, the party so terminating the
Agreement on that basis shall bear the burden of proof of
demonstrating by clear and convincing evidence that such failure
occurred and in so doing may not introduce into evidence, nor may
a court consider in its deliberation, any change in the stock
price of the capital stock of either party whether or not such
change is in conjunction with or otherwise relates to the event
giving rise to the breach or otherwise.
Section 9.3 Amendment. This Agreement may be
---------
amended by ICG and the Company by or pursuant to action taken by
their respective Boards of Directors at any time before or after
approval of this Agreement by the stockholders of the Company and
ICG and prior to the Effective Time, but, after either such
approval, no amendment will be made that changes the Exchange
Ratio as provided in Section 3.1 or changes, in any way adverse
to such stockholders, the terms of the ICG Common Stock or that
in any other way materially adversely affects the rights of such
stockholders, without the further approval of such stockholders.
This Agreement may not be amended except by an instrument in
writing signed on behalf of ICG and the Company.
Section 9.4 Waiver. At any time prior to the
------
Effective Time, subject to Section 9.3, ICG and the Company, by
or pursuant to action taken by their respective Boards of
Directors, may (i) extend the time for performance of any of the
obligations or other acts of the other party to this Agreement,
(ii) waive any inaccuracies in the representations and warranties
set forth in this Agreement or in any documents delivered
pursuant to this Agreement and (iii) waive compliance with any of
the agreements or conditions set forth in this Agreement. Any
agreement on the part of a party to this Agreement to any such
extension or waiver will be valid if set forth in an instrument
in writing signed on behalf of such party.
ARTICLE X
---------
GENERAL PROVISIONS; DEFINITIONS
Section 10.1 Non-Survival of Representations,
--------------------------------
Warranties and Agreements. No representations and warranties
-------------------------
contained in this Agreement will survive beyond the Closing Date.
This Section 10.1 will not limit any covenant or agreement of the
parties to this Agreement that by its terms requires performance
after the Closing Date.
Section 10.2 Notices. All notices or other
-------
communications under this Agreement will be in writing and will
be given (and will be deemed to have been duly given upon
receipt) by delivery in person, by cable, telegram, telex or
other standard form of telecommunications, or by registered or
certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to the Company: NETCOM On-Line Communication
Services, Inc.
Two North Second Street, Plaza A
San Jose, California 95113
Attention: David W. Garrison, Chief
Executive Officer and
Chairman of the Board
Telecopy No.: 408-881-3430
With a copy to: Pillsbury, Madison & Sutro LLP
2700 Sand Hill Road
Menlo Park, California 94028
Attention: Jorge A. Del Calvo
Telecopy No.: 415-233-4545
If to ICG: ICG Communications, Inc.
9605 East Maroon Circle
Englewood, Colorado 80112
Attention: J. Shelby Bryan,
President and Chief
Executive Officer and
H. Don Teague, General
Counsel
Telecopy No.: 303-575-6278
With a copy to: Sherman & Howard L.L.C.
633 Seventeenth Street
Suite 3000
Denver, Colorado 80202
Attention: Robert Mintz, Esq.
Telecopy No.: 303-298-0940
or to such other addresses as any party may have furnished to the
other parties in writing in accordance with this Section 10.2.
Section 10.3 Fees and Expenses. Except as provided
-----------------
in Section 9.2, whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and
the transactions contemplated by this Agreement will be paid by
the party incurring such expenses.
Section 10.4 Specific Performance. The parties to
--------------------
this Agreement agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that, in accordance
with Section 9.2(a), the parties will be entitled to enforce
specifically the terms and provisions of this Agreement in any
court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled
at law or in equity, and no party will raise any defense to the
institution of such equitable relief.
Section 10.5 Third Party Beneficiaries. The parties
-------------------------
to this Agreement agree that the Company's stockholders,
officers, directors and employees are intended third party
beneficiaries of the terms of this Agreement, to the extent such
terms refer expressly to such Persons, with full rights hereunder
as if each of them were a party to this Agreement.
Section 10.6 Entire Agreement; Miscellaneous. This
-------------------------------
Agreement will be of no force or effect until executed and
delivered by all of the parties to this Agreement. This Agreement
(including the documents and instruments referred to in this
Agreement) when executed and delivered, constitutes the entire
agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any
of them, with respect to the subject matter of this Agreement.
This Agreement may be executed in two or more counterparts which
together will constitute a single agreement. This Agreement may
be delivered by facsimile. Any certificate delivered pursuant to
this Agreement will be made without personal liability on the
part of the officer or employee of the Person giving such
certificate.
Section 10.7 Governing Law and Venue; Waiver of Jury
---------------------------------------
Trial.
-----
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE
UNDER, AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND
GOVERNED BY AND IN ACCORDANCE WITH, THE LAW OF THE STATE OF
DELAWARE. The parties hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the
Federal courts of the United States of America located in the
State of Delaware solely in respect of the interpretation and
enforcement of the provisions of this Agreement and of the
documents referred to in this Agreement, and in respect of the
transactions contemplated hereby, and hereby waive, and agree not
to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document,
that it is not subject thereto or that such action, suit or
proceeding may not be brought or is not maintainable in said
courts or that the venue thereof may not be appropriate or that
this Agreement or any such document may not be enforced in or by
such courts, and the parties hereto irrevocably agree that all
claims with respect to such action or proceeding shall be heard
and determined in such a Delaware State or Federal court. The
parties hereby consent to and grant any such court jurisdiction
over the person of such parties and over the subject matter of
such dispute and agree that mailing of process or other papers in
connection with any such action or proceeding in the manner
provided in Section 10.2 or in such other manner as may be
permitted by law shall be valid and sufficient service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH
PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER
VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 10.7.
[SIGNATURES ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be signed by their respective officers thereunder
duly authorized all as of the date first written above.
ICG COMMUNICATIONS, INC.
By: /s/ J. Shelby Bryan
-----------------------------------
Name: J. Shelby Bryan
Title: President and Chief
Executive Officer
NETCOM ON-LINE COMMUNICATION
SERVICES, INC.
By: /s/ David W. Garrison
-------------------------------
Name: David W. Garrison
Title: Chief Executive Officer
and Chairman of the
Board
<PAGE>
Exhibit A
to Agreement and
Plan of Merger
FORM OF AFFILIATE AGREEMENT
Gentlemen:
The undersigned is a holder of shares of Common Stock, par
value $0.01 per share ("Common Stock"), of NETCOM On-Line
Communication Services, Inc., a Delaware corporation ("NETCOM"),
and will be entitled to receive in connection with the merger
(the "Merger") of a wholly-owned Delaware subsidiary of ICG
Communications, Inc., a Delaware corporation ("ICG"), with and
into NETCOM, shares of Common Stock, par value $0.01 per share,
of ICG (the "Securities").
The undersigned acknowledges that the undersigned may be
deemed an "affiliate" of NETCOM within the meaning of Rule 145
("Rule 145") promulgated under the Securities Act of 1933, as
amended (the "Act"), and/or as such term is used in and for
purposes of Accounting Series Releases 130 and 135, as amended,
of the Securities and Exchange Commission (the "Commission"),
although nothing contained herein shall be construed as an
admission of such status.
If in fact the undersigned were an affiliate of NETCOM under
the Act, the undersigned's ability to sell, assign or transfer
any Securities received by the undersigned in exchange for any
shares of NETCOM pursuant to the Merger may be restricted unless
such transaction is registered under the Act or an exemption from
such registration is available. The undersigned understands that
such exemptions are limited and the undersigned has obtained
advice of counsel as to the nature and conditions of such
exemptions, including instruction with respect to the
applicability to the sale of such Securities of Rules 144 and
145(d) promulgated under the Act.
The undersigned hereby represents to and covenants to ICG
that the undersigned will not sell, assign or transfer any
Securities received by the undersigned in exchange for shares of
Common Stock pursuant to the Merger except (i) pursuant to an
effective registration statement under the Act, (ii) by a
transaction in conformity with the volume and other limitations
of Rule 145 or Rule 144 under the Act ("Rule 144"), to the extent
applicable, or any other applicable rules promulgated by the
Commission or (iii) in a transaction which, in the opinion of
independent counsel reasonably satisfactory to ICG, or as
described in a "no-action" or interpretative letter from the
Staff of the Commission, is not required to be registered under
the Act.
In the event of a sale of Securities pursuant to Rule 145,
or, if applicable, Rule 144, the undersigned will supply ICG with
evidence of compliance with such Rule, in the form of customary
seller's and broker's Rule 145 or, if applicable, Rule 144,
representation letters or as ICG may otherwise reasonably
request. The undersigned understands that ICG may instruct its
transfer agent to withhold the transfer of any Securities
disposed of by the undersigned in a manner inconsistent with this
letter.
The undersigned acknowledges and agrees that appropriate
legends will be placed on certificates representing Securities
received by the undersigned in the Merger or held by a transferee
thereof, which legends will be removed (i) by delivery of
substitute certificates upon receipt of an opinion in form and
substance reasonably satisfactory to ICG to the effect that such
legends are no longer required for the purposes of the Act and
the rules and regulations of the Commission promulgated
thereunder or (ii) in the event of a sale of the Securities which
has been registered under the Act.
The undersigned further represents to, and covenants with
NETCOM and ICG that the undersigned will not, during the period
beginning on the date that ICG gives written notice that
consummation of the Merger is reasonably expected to occur within
sixty days of the date of such notice, sell, transfer or
otherwise dispose of, or reduce any risk relative to, the
Securities received by the undersigned in the Merger or any other
shares of the capital stock of ICG until after such time as
results covering at least 30 days of operations of ICG (including
the combined operations of NETCOM) have been published by ICG in
the form of a quarterly earnings report, or an annual report on
Form 10-K, if such 30-day period includes the end of ICG's fiscal
year, an effective registration statement filed with the
Commission, a report to the Commission on Form 10-K, 10-Q, or 8-
K, or any other public filing or announcement which includes such
results of operations.
The undersigned acknowledges that it has carefully reviewed
this letter and understands the requirements hereof and the
limitations imposed upon the distribution, sale, transfer or
other disposition of Securities.
Very truly yours,
--------------------------------------
[Name]
[Address]
Dated: October , 1997
--
As an inducement to the above individual to deliver this
letter, ICG agrees that for so long and to the extent necessary
to permit such individual to sell the Securities pursuant to Rule
145 and, to the extent applicable, Rule 144 under the Act, ICG
shall use all reasonable efforts to file, on a timely basis, all
reports and data required to be filed by it with the Commission
pursuant to Section 13 of the Securities and Exchange Act of
1934.
Very truly yours,
ICG COMMUNICATIONS, INC.
By:
-----------------------------------
Name:
-----------------------------
Title:
----------------------------
AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this
"Amendment") is dated December 15, 1997 and is entered into by
and among ICG Communications, Inc., a Delaware corporation
("ICG"), ICG Acquisition, Inc., a Delaware corporation
("Acquisition Sub"), and NETCOM On-Line Communication Services,
Inc., a Delaware corporation (the "Company").
RECITALS
--------
A. ICG and the Company entered into an Agreement and Plan
of Merger dated October 12, 1997 (the "Agreement") pursuant to
which Acquisition Sub will merge with and into the Company.
B. Capitalized terms used but not defined in this
Amendment shall have the meanings ascribed thereto in the
Agreement.
C. ICG and the Company desire to amend the Agreement to
(i) include Acquisition Sub as a party to the Agreement, (ii)
modify the conversion of the common stock, $.01 par value, of
Acquisition Sub and (iii) provide for the Surviving Corporation
to assume certain obligations of ICG under the Agreement.
D. The Board of Directors of each of ICG, Acquisition Sub
and the Company has determined that this Amendment is in the best
interests of their respective corporations and stockholders.
NOW, THEREFORE, in consideration of the foregoing
premises, the parties to this Amendment agree as follows:
1. The Agreement is hereby amended so that each obligation
of ICG under the Agreement, financial or otherwise, which is to
be fulfilled from and after the Effective Time (except those
obligations under Sections 3.7, 7.9(a) and 7.9(c) of the
Agreement) shall be the obligation of the Surviving Corporation,
and ICG shall hereby be released from each such obligation
thereunder. ICG agrees that it shall, in its capacity as the sole
stockholder, directly or indirectly, of the Surviving
Corporation, use its best efforts to cause the Surviving
Corporation to satisfy all such obligations. Nothing contained
in this Amendment shall affect the obligations of ICG prior to
the Effective Time under the Agreement, including without
limitation, its obligations under Section 9.2(c) of the
Agreement.
2. Section 3.1(c) of the Agreement is hereby deleted in
its entirety and replaced with the following:
"(c) All of the shares of common stock, par value $.01
per share, of Acquisition Sub issued and outstanding
immediately prior to the Effective Time (except shares
subject to Section 3.1(d)) will be converted into and
will thereafter evidence and become, a total of ten
shares of common stock, par value $.01 per share, of
the Surviving Corporation."
3. Except to the extent specifically amended herein, the
terms and conditions of the Agreement shall remain in full force
and effect.
4. This Amendment sets forth the entire agreement among
the parties hereto as to the subject matter herein, and may not
be amended or modified except in accordance with Section 9.3 of
the Agreement.
IN WITNESS WHEREOF, the parties have caused this
Amendment to be signed by their respective officers thereunder
duly authorized all as of the date first written above.
ICG COMMUNICATIONS, INC.
By: /s/ J. Shelby Bryan
-----------------------------
Name: J. Shelby Bryan
Title: President and Chief
Executive Officer
ICG ACQUISITION, INC.
By: /s/ H. Don Teague
---------------------------
Name: H. Don Teague
Title: Executive Vice President
NETCOM ON-LINE COMMUNICATION
SERVICES, INC.
By: /s/ David W. Garrison
---------------------------
Name: David W. Garrison
Title: Chief Executive Officer
and Chairman of the Board
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-3 Nos. 333-40495, 333-40495-01, 333-18839,
33-96660, 33-08729 and 333-38823 and Form S-8 Nos. 333-45213,
333-39737, 333-25957 and 33-14127) of ICG Communications, Inc.,
ICG Holdings (Canada), Inc., and IntelCom Group, and in the
related Prospectuses of our report dated February 5, 1997, with
respect to the consolidated financial statements of NETCOM On-
Line Communication Services, Inc. (NETCOM) included in NETCOM's
Annual Report (Form 10-KSB) for the year ended December 31, 1996
filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Jose, California
February 4, 1998
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
FORM 10-KSB/A
Amendment No. 1
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended
December 31, 1996 TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission File Number 0-25216
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0317705
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
2 N. Second Street, Plaza A
San Jose, California 95113
(Address of principal executive offices)
Issuer's telephone number: (408) 881-3516
---------
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $0.01 per share
Preferred Stock Purchase Rights
(Title of Class)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No .
--- ---
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. .
---
The registrant's revenues for the fiscal year ended December 31, 1996 were
$120,540,000.
As of March 20, 1997, the aggregate market value of the registrant's voting
stock held by non-affiliates of the registrant, based on the closing price for
the registrant's Common Stock in the Nasdaq National Market on such date, was
approximately $99,830,000. This calculation does not reflect a determination
that certain persons are affiliates of the registrant for any other purposes.
The number of shares of Common Stock outstanding on March 20, 1997 was
11,683,286.
DOCUMENTS INCORPORATED BY REFERENCE
Items 9, 10, 11 and 12 of Part III incorporate information by reference
from the definitive proxy statement for the registrant's 1997 Annual Meeting of
Stockholders.
Transitional Small Business Disclosure Format: Yes No X .
--- ---
<PAGE>
The Registrant hereby amends the following items, financial statements,
exhibits or other portions of its Annual Report on Form 10-KSB for fiscal year
ended December 31, 1996, as set forth herein:
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
Exhibits.
--------
The exhibits listed under Item 13(a) are filed or incorporated by reference
herein.
(a) Exhibits
--------
The Exhibits listed below are filed or incorporated by reference herein.
Exhibit No. Description
3.1(2) Amended and Restated Certificate of Incorporation.
3.1a(5) Certificate of Designation, Preferences and Rights of the Series C
Participating Preferred Stock of the Registrant.
3.2(5) Amended and Restated Bylaws.
4.1(1) Specimen Common Stock Certificate.
10.1(1) Office Building Lease by and between Pacific Gateway Properties,
Inc. and the Registrant dated February 1, 1994.
10.2(1) Office Building Lease between Pacific Gateway Properties, Inc. and
the Registrant dated May 11, 1994.
10.3(1) Office Building Lease between Pacific Gateway Properties, Inc. and
the Registrant dated August 26, 1994.
10.4(1) Amended and Restated Registration Rights Agreement among the
Registrant and certain stockholders of the Registrant dated
September 9, 1994.
10.5(1) Amended and Restated Stockholders Agreement among the Registrant
and certain stockholders of the Registrant dated September 9,
1994.
10.6(5) 1993 Stock Option Plan, as amended.
10.7(1) 1994 Employee Stock Purchase Plan.
10.8(1) Form of Incentive Stock Option Agreement used in connection with
1993 Stock Option Plan.
10.9(1) Form of Nonstatutory Stock Option Agreement used in connection
with 1993 Stock Option Plan.
10.10(1) Form of Indemnity Agreement.
10.11(1) Agreement between the Registrant and Dwight Ryan dated October 1,
1993.
10.12(1) Loan and Security Agreement between the Registrant and Silicon
Valley Bank dated May 1994.
10.13(1) Collateral Assignment, Patent Mortgage and Security Agreement
between the Registrant and Silicon Valley Bank dated May 26, 1994.
10.14(1) Loan Modification Agreement between the Registrant and Silicon
Valley Bank dated September 13, 1994.
10.15(1) Stock Purchase Agreement entered into September 9, 1994 among the
Registrant, Robert J. Rieger and the purchasers of the
Registrant's Series B Preferred Stock.
10.16(1) Stock Purchase Agreement entered into September 9, 1994 among the
Registrant, Robert A. Rositano, Sr. and the purchasers of the
Registrant's Series B Preferred Stock.
10.17(1) Form of Stock Repurchase Agreement entered into September 9, 1994
between the Registrant and certain stockholders of the Registrant.
10.18(1) Shareholders Agreement among Robert J. Rieger, Ruthann Plucknett,
Robert A. Rositano, Sr., Janice Rositano and the Registrant dated
October 20, 1994.
10.19(1) Independent Contractor Agreement between Stephen Getsy and the
Registrant dated December 8, 1994.
10.20(1) Brochure Bundling Agreement between the Registrant and Hayes
Microcomputer Products, Inc. dated April 28, 1994.
10.21(1) Joint Marketing and Distribution Agreement between the Registrant
and Tandem Computers Incorporated dated October 18, 1994.
10.22(1) Agreement between the Registrant and Auto-Graphics dated July 17,
1994.
10.23(1) Terms and Conditions agreed upon by the Registrant and ClariNet
Communications Corp. dated September 30, 1994.
10.24(1) Revenue Plan Application for service between the Registrant and
WilTel, Inc. dated October 1, 1994, as amended effective November
1, 1994.
10.25(1) Distribution Agreement between the Registrant and Ingram Micro
Inc. dated September 15, 1994.
10.26(1) Letter Agreement between the Registrant and Silicon Valley Bank
dated November 9, 1994.
10.27(2) Employee letter agreement between the Registrant and David W.
Garrison, dated February 1, 1995.
10.28(2) Distribution Agreement dated January 18, 1995 between the
Registrant and Merisel Americas, Inc.
10.29(3) Employee letter agreement between the Registrant and Rick C.
Francis dated April 24, 1995.
39
<PAGE>
Exhibit No. Description
10.30(3) Employee letter agreement between the Registrant and Donald P.
Hutchison dated April 25, 1995.
10.31(3) Employee letter agreement between the Registrant and Robert E.
Tomasi dated April 25, 1995.
10.32(3) Amendment to David W. Garrison employee letter agreement, dated as
of April 20, 1995.
10.33(4) Loan and Security Agreement between the Registrant, Silicon Valley
Bank and Imperial Bank dated May 31, 1995.
10.34(3) Settlement Agreement and Mutual Release, among the Registrant,
John A. Whalen, Jr. and other parties.
10.35(3) Employee Letter Agreement between the Registrant and Donald P.
Hutchison, dated May 9, 1995.
10.36(4) Employee Letter Agreement between the Registrant and John Zeisler,
dated as of July 17, 1995.
10.37(4) Employee Letter Agreement between the Registrant and Eric V.
Goffney, dated as of August 22, 1995.
10.38(5) Horizon Center Office Lease Agreement between the Registrant and
Horizon Center LLC, dated as of December 11, 1995.
10.39(5) Rights Agreement between the Registrant and Chemical Mellon
Shareholder Services, LLC, as Rights Agent, dated as of March 7,
1996.
10.40(5) Employee Letter Agreement between the Registrant and Clifton
Thomas Weatherford, dated as of December 19, 1995.
10.41(5) Employee Letter Agreement between the Registrant and Eric W.
Spivey, dated as of December 19, 1995.
10.42(5) Lease Agreement between Park West E-3 Associates and the
Registrant, dated as of February 23, 1996.
10.43(6) Stockholder Rights Agreement dated as of March 7, 1996.
10.44(7) Amended and Restated 1993 Stock Option Plan.
10.45(8) First Amendment to Employee Letter Agreement between the
Registrant and Eric V. Goffney, dated as of November 1, 1996.
10.46(8) Transition Agreement and Release between the Registrant and Donald
Hutchison, dated November 1, 1996.
10.47(8) 1993 Stock Option Plan, as amended.
11.1(8) Statement of computation of earnings per share.
21.1(8) Subsidiaries.
23.1(8) Consent of Ernst & Young LLP.
24.1(8) Power of Attorney.
27.1 Financial Data Schedule.
- - -----
(1) Incorporated by reference to the exhibit of the same number from the
Company's Registration Statement on Form SB-2, No.
33-86012-LA, as amended.
(2) Incorporated by reference to the Company's Form 10-KSB for the fiscal year
ended December 31, 1994.
(3) Incorporated by reference to the exhibit of the same number from the
Company's Registration Statement on Form SB-2, No.
33-91634-LA, as amended.
(4) Incorporated by reference to the exhibit of the same number from
the Company's Registration Statement on Form SB-2, No. 33-98910,
as amended.
(5) Incorporated by reference to the Company's Form 10-KSB for the fiscal
year ended December 31, 1995.
(6) Filed with the Commission on March 18, 1996 and is incorporated by
reference.
(7) Filed with the Commission on May 14, 1996 and is incorporated by
reference.
(8) Incorporated by reference to the Company's Form 10-KSB for the fiscal
year ended December 31, 1996.
B. Reports on Form 8-K.
None.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
DATE: May 27, 1997
By /s/ DAVID W. GARRISON
-----------------------------------
David W. Garrison
Chairman of the Board and
Chief Executive Officer
<PAGE>
FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
[ARTICLE] 5
[MULTIPLIER] 1,000
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-START] JAN-01-1996
[PERIOD-END] DEC-31-1996
[CASH] 73,408
[SECURITIES] 849
[RECEIVABLES] 2,180
[ALLOWANCES] (896)
[INVENTORY] 464
[CURRENT-ASSETS] 78,489
[PP&E] 107,476
[DEPRECIATION] (23,103)
[TOTAL-ASSETS] 169,634
[CURRENT-LIABILITIES] 24,843
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 116
[OTHER-SE] 144,791
[TOTAL-LIABILITY-AND-EQUITY] 169,634
[SALES] 120,540
[TOTAL-REVENUES] 120,540
[CGS] 88,396
[TOTAL-COSTS] 169,263
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] (44,242)
[INCOME-TAX] 23
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (44,265)
[EPS-PRIMARY] (3.85)
[EPS-DILUTED] 0
</TABLE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: September 30, 1997
------------------
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission File Number 0-25216
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
(Exact name of the registrant as specified in its charter)
DELAWARE 77-0317705
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2 N. SECOND STREET, PLAZA A
SAN JOSE, CALIFORNIA 95113
(Address of principal executive offices)
Registrant's telephone number: (408) 881-3516
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Number of shares outstanding of the registrant's common stock, par value $.01
per share, as of November 4, 1997 was 11,774,546.
1
<PAGE>
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements . . . . . . . . . . . 3
Condensed Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996 . . . . . . . . . . 3
Condensed Consolidated Statements of Operations and Other
Operating Data for the Three Months Ended September 30, 1997
and September 30, 1996 . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Operations and Other
Operating Data for the Nine Months Ended September 30, 1997
and September 30, 1996 . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1997
and September 30, 1996 . . . . . . . . . . . . . . . . . . . 6
Notes to Condensed Consolidated Financial Statements . . . . . . 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations . . . . . . 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 18
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
When used in this report, the words "estimate," "project," "intend" and "expect"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to risks and uncertainties that could cause actual
results to differ materially, including competitive pressures, new product
introductions by the Company and its competitors and changes in the rates of
customer acquisition and retention. For a discussion of such risks, see "Risk
Factors" on page 16. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release updates or revisions to these
statements.
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents ................ $ 66,733 $ 73,408
Short term investments ................... -- 849
Accounts receivable, net ................. 1,808 1,284
Prepaid expenses and other current assets 2,835 2,948
------------- ------------
Total current assets .................. 71,376 78,489
Property and equipment at cost, net ...... 77,908 84,373
Deferred subscriber acquisition costs, net 2,363 5,595
Deposits and other assets ................ 1,244 1,177
------------- ------------
Total assets ..................... $ 152,891 $ 169,634
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Trade accounts payable ................... $ 7,132 $ 7,517
Accrued payroll and related expenses ..... 4,547 3,727
Other accrued expenses and liabilities ... 9,868 10,669
Deferred revenue ......................... 5,260 2,930
Short term capital lease obligations ..... 2,342 --
------------- ------------
Total current liabilities ............. 29,149 24,843
------------- ------------
Long term capital lease obligations ...... 4,013 --
------------- ------------
Commitments and contingencies
Stockholders' equity:
Common Stock .......................... 117 116
Additional paid-in capital ............ 206,700 205,506
Accumulated deficit ................... (87,259) (62,042)
Cumulative translation adjustment and
other ............................ 171 1,211
------------- ------------
Total stockholders' equity.......... 119,729 144,791
------------- ------------
Total liabilities and stock-
holders' equity ................ $ 152,891 $ 169,634
============= ============
See accompanying notes
</TABLE>
3
<PAGE>
<TABLE>
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER OPERATING DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
Three Months Ended
-----------------------------
September 30, September 30,
1997 1996
------------- -------------
(unaudited)
<S> <C> <C>
Revenues ...................................... $ 40,106 $ 32,036
Costs and expenses:
Cost of revenues ............................ 29,668 24,319
Product development ......................... 1,637 1,816
Sales and marketing ......................... 11,790 14,702
General and administrative .................. 5,198 6,122
Restructuring and related charges ........... 167 --
----------- -----------
Total costs and expenses .................. 48,460 46,959
----------- -----------
Loss from operations .......................... (8,354) (14,923)
Gain on investment ............................ 641 --
Interest income and other ..................... 886 1,321
----------- -----------
Loss before provision for income taxes ........ (6,827) (13,602)
Provision for income taxes .................... -- 4
----------- -----------
Net Loss ...................................... $ (6,827) $ (13,606)
=========== ===========
Net loss per share ............................ $ (0.58) $ (1.17)
=========== ===========
Shares used in computing net loss per share ... 11,719 11,604
=========== ===========
OTHER OPERATING DATA:
EBITDA (See Note 8) ......................... $ 259 $ (6,458)
=========== ===========
Approximate number of subscribers at
end of period ............................... 542 562
=========== ===========
See accompanying notes
</TABLE>
4
<PAGE>
<TABLE>
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS AND OTHER OPERATING DATA
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
Nine Months Ended
-----------------------------
September 30, September 30,
1997 1996
------------- -------------
(unaudited)
<S> <C> <C>
Revenues ..................................... $ 120,131 $ 84,161
Costs and expenses:
Cost of revenues ........................... 87,218 61,480
Product development ........................ 4,924 4,460
Sales and marketing ........................ 38,732 36,986
General and administrative ................. 16,544 17,404
Restructuring and related charges .......... 1,879 --
----------- -----------
Total costs and expenses ................. 149,297 120,330
----------- -----------
Loss from operations ......................... (29,166) (36,169)
Gain (loss) on investment .................... 1,274 (1,200)
Interest income and other .................... 2,688 4,605
----------- -----------
Loss before provision for income taxes ....... (25,204) (32,764)
Provision for income taxes ................... 13 11
----------- -----------
Net loss ..................................... $ (25,217) $ (32,775)
=========== ===========
Net loss per share ........................... $ (2.16) $ (2.86)
=========== ===========
Shares used in computing net loss per share .. 11,698 11,454
=========== ===========
OTHER OPERATING DATA:
EBITDA (See Note 8) ........................ $ (2,397) $ (17,097)
=========== ===========
Approximate number of subscribers at end
of period .................................. 542 562
=========== ===========
See accompanying notes
</TABLE>
5
<PAGE>
<TABLE>
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<CAPTION>
Nine Months Ended
-----------------------------
September 30, September 30,
1997 1996
------------- -------------
(unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss .................................... $ (25,217) $ (32,775)
Adjustments to reconcile net loss to net
cash used in operating activities:
Write-off of fixed assets and deferred
subscriber acquisition costs .......... 992 --
Depreciation and amortization ........... 25,495 20,272
Loss on disposal of assets .............. 277 124
(Gain) loss in investment ............... (1,274) 1,200
Changes in assets and liabilities:
Accounts receivable, net .............. (524) (1,356)
Prepaid expenses and other current
assets .............................. 345 (985)
Deferred subscriber acquisition
costs, net .......................... (4,267) (11,989)
Deposits and other assets ............. (67) (534)
Trade accounts payable ................ (225) (2,400)
Accrued payroll and related expenses .. 820 3,197
Other accrued expenses and liabilities (301) 6,479
Deferred revenue ...................... 2,330 1,801
----------- -----------
Total adjustments ....................... 23,601 15,809
----------- -----------
Net cash used in operating activities ......... (1,616) (16,966)
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment .......... (7,852) (45,438)
Proceeds from disposal of property and
equipment ................................. 253 --
Proceeds from sale of Excite ................ 1,351 --
----------- -----------
Net cash used in investing activities ......... (6,248) (45,438)
----------- -----------
FINANCING ACTIVITIES
Proceeds from issuance of debt .............. 1,578 --
Repayment of debt ........................... (1,361) --
Proceeds from exercise of stock options and
purchases under employee stock purchase
plan ...................................... 1,195 2,338
----------- -----------
Net cash provided by financing activities ..... 1,412 2,338
----------- -----------
Net decrease in cash and cash equivalents ..... (6,452) (60,066)
Effects of exchange rates on cash ............. (233) 155
Cash and cash equivalents at beginning
of period ................................... 73,408 146,001
----------- -----------
Cash and cash equivalents at end of period .... $ 66,733 $ 86,090
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid ................................. $ 274 $ --
=========== ===========
Income taxes paid ............................. $ 15 $ 11
=========== ===========
SUPPLEMENTAL INFORMATION ON NONCASH INVESTING AND
FINANCING ACTIVITIES
Purchases of equipment under capital lease
obligations ................................. $ 6,138 $ --
=========== ===========
See accompanying notes
</TABLE>
6
<PAGE>
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM PERIODS
The unaudited interim information has been prepared on the same basis as
the annual consolidated financial statements and, in the opinion of the
Company's management, reflects normal recurring adjustments necessary for a fair
presentation of the information for the periods presented. Operating results for
any quarter are not necessarily indicative of results for any future periods.
The following information should be read in conjunction with the financial
statements and the notes contained in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996.
2. DEFERRED SUBSCRIBER ACQUISITION COSTS, NET
Subscriber acquisition costs, which relate directly to potential
subscribers, are recorded separately from ordinary operating costs and do not
include indirect costs. Subscriber acquisition costs are deferred and amortized
over a period determined by calculating the ratio of current revenues related to
the direct response advertising versus the total expected revenues, or twelve
months, whichever is shorter.
The Company capitalized subscriber acquisition costs of approximately
$1,084,000 and $4,081,000 for the three months ended September 30, 1997 and
September 30, 1996, respectively. Amortization and write-offs of deferred
subscriber acquisition costs for the three months ended September 30, 1997 and
September 30, 1996 was $1,589,000 and $3,568,000, respectively. The Company
capitalized subscriber acquisition costs of approximately $4,156,000 and
$11,989,000 for the nine months ended September 30, 1997 and September 30, 1996,
respectively. Amortization and write-offs of deferred subscriber acquisition
costs for the nine months ended September 30, 1997 and September 30, 1996 was
$7,388,000 and $7,961,000, respectively.
3. PROPERTY AND EQUIPMENT AT COST, NET
<TABLE>
Property and equipment consist of the following (in thousands):
<CAPTION>
September 30, December 31,
1997 1996
-------- --------
(unaudited)
<S> <C> <C>
Property and equipment at cost $119,266 $107,476
Less: accumulated depreciation and
amortization (41,358) (23,103)
-------- --------
Property and equipment at cost, net $ 77,908 $ 84,373
======== ========
</TABLE>
7
<PAGE>
4. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares of common stock and dilutive common stock equivalent shares from stock
options (using the treasury stock method).
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, ("SFAS 128") "Earnings per Share," which the Company is
required to adopt on December 31, 1997. SFAS 128 requires changes to the method
currently used to compute earnings per share and to restate all prior periods.
The new requirements for calculating primary earnings per share exclude the
dilutive effect of stock options. The impact of SFAS 128 on the calculation of
historically reported primary or fully diluted earnings per share for the period
subsequent to the Company's initial public offering is not expected to be
material, as the Company has recorded losses and has therefore excluded the
impact of stock options, as these would have been anti-dilutive.
5. STOCKHOLDERS' EQUITY
The components of the stockholders' equity are as follows (in thousands,
except share amounts):
<TABLE>
<CAPTION>
Common Additional
Stock Paid-In
Shares Amount Capital
----------- ---------- -----------
<S> <C> <C> <C>
Balance at December 31, 1996 11,630,900 $ 116 $ 205,506
Issuance under employee stock
purchase plan 62,600 1 705
Exercise of stock options 51,500 - 489
Cumulative translation
adjustment - - -
Unrealized gain - - -
Net loss - - -
----------- ---------- -----------
Balance at September 30, 1997 11,745,000 $ 117 $ 206,700
=========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Translation Total
Accumulated Adjustment Stockholders'
Deficit and Other Equity
----------- ---------- -----------
<S> <C> <C> <C>
Balance at December 31, 1996 $ (62,042) $ 1,211 $ 144,791
Issuance under employee stock
purchase plan - - 706
Exercise of stock options - - 489
Cumulative translation
adjustment - (500) (500)
Unrealized gain - (540) (540)
Net loss (25,217) - (25,217)
---------- --------- ----------
Balance at September 30, 1997 $ (87,259) $171 $ 119,729
========== ========= ==========
</TABLE>
6. RESTRUCTURING AND RELATED CHARGES
Restructuring and related charges of $167,000 and $1,879,000 during the
three and nine months ended September 30,1997, respectively, are the result of a
decision by management to restructure operations of the Company's subsidiary in
the United Kingdom. The restructure charge includes $1,356,000 in accrued
expenses for costs to terminate excess leased office facilities and a write-off
of office equipment, furniture and building improvements as a result of
consolidating office space, a $356,000 write-down of previously capitalized
deferred subscriber acquisition costs, and $167,000 for severance costs.
8
<PAGE>
The following table depicts the activity in the Company's restructuring accrual
for 1997 (in thousands):
<TABLE>
<CAPTION>
Additions During Additions During
Q2 Q3
--------------------------------------
<S> <C> <C>
Payments on canceled or vacated
facilities $588 -
Payments for legal and other
support 132 -
Payments to employees
involuntarily terminated - 167
======================================
Total Restructuring Accrual $720 $167
======================================
</TABLE>
<TABLE>
<CAPTION>
Balance at
Expenditures September 30,
During Q3 1997
-------------------------------------
<S> <C> <C>
Payments on canceled or vacated
facilities $132 $456
Payments for legal and other
support 37 95
Payments to employees
involuntarily terminated 81 86
=====================================
Total Restructuring Accrual $250 $637
=====================================
</TABLE>
7. INCOME TAXES
The provision for income taxes for the three months ended September 30,
1997 and 1996, in the amount of $0 and $4,000, respectively, and for the nine
months ended September 30, 1997 and 1996 in the amount of $13,000 and $11,000,
respectively, consists entirely of international and state minimum taxes since
the Company incurred pre-tax losses in each period.
8. OTHER OPERATING DATA
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
has been included in other operating data. The Company believes EBITDA is a cash
flow measure used by analysts, investors and other interested parties in the
on-line and Internet services industries. Accordingly, this information has been
disclosed herein to permit a more complete analysis of the Company's operating
performance.
9. SUBSEQUENT EVENTS
On October 12, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with ICG Communications, Inc., a Delaware
corporation ("ICG"), pursuant to which ICG has agreed to acquire the Company
through a tax-free merger (the "Merger") of a newly formed Delaware subsidiary
of ICG with and into the Company. Under the terms of the Merger Agreement, each
share of the Company's common stock would be exchanged for 0.8628 shares of
common stock of ICG ("ICG Common Stock"), subject to adjustment as described
below. The closing price of a share of ICG Common Stock on the NASDAQ National
Market on October 10, 1997 was $26.25.
The exchange ratio will be subject to adjustment as follows: If the
volume weighted average price for one share of ICG Common Stock for the ten
consecutive trading days ending two trading days prior to the closing of the
Merger (the "ICG Closing Price") drops below $22.125, the exchange ratio will be
adjusted to equal the fraction obtained by dividing $19.0625 by the ICG Closing
Price; in addition, if the ICG Closing Price drops below $19.00 per share, the
exchange
9
<PAGE>
ratio will be fixed at 1.0078 shares of ICG Common Stock for each share
of the Company's Common Stock.
The Merger has been unanimously approved by the Boards of Directors of
both ICG and the Company. Either party may terminate the Merger Agreement
without liability if such party's independent auditors render written advice
that the Merger will not qualify for pooling-of-interests accounting treatment,
or upon the occurrence of other specified events. The Merger is subject to the
effectiveness of a registration statement registering the shares of ICG Common
Stock that will be issued pursuant to the Merger Agreement. In addition, the
consummation of the Merger is conditioned upon approval by the stockholders of
both ICG and the Company, certain regulatory approvals, required consents and
other customary closing conditions. The parties expect the transaction to close
during the first quarter of 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the
condensed consolidated financial statements and the notes thereto included in
Item 1 of this Quarterly Report, and the financial statements and the notes
thereto and Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1996.
OVERVIEW
The Company's revenues are derived from providing Internet solutions to
business and individual customers, principally through monthly dial-up,
dedicated connection and web site hosting services. Revenues from monthly
subscriptions have increased substantially since the Company's inception as a
result of increases in the Company's customer base due to the growth of the
Internet services market generally, the expansion of the Company's services and
distribution channels and diversification of the Company's product offerings.
Currently, sales to small businesses and individuals represent a majority
of the Company's revenues. Small business and individual revenues are comprised
primarily of recurring dial-up, web site hosting and dedicated connection
revenues. In addition, the Company also receives revenues from non-access
services, primarily from business customers. These revenues include virtual web
server hosting and domain name services. The Company charges set-up fees on
certain of these services. A majority of the Company's accounts are billed
monthly pursuant to a pre-authorized credit card account or are prepaid
annually.
During 1997, the Company has introduced new products designed to better
meet the needs of people using the Internet for small business applications.
These include products which provide greater dial-up access reliability and
customer support for additional monthly charges, dedicated line services to
connect to local area networks and web servers and web site hosting services.
The Company believes that these services should result in higher average revenue
per subscriber in the future.
10
<PAGE>
The Company is also committed to expanding its customer base by various
means, including developing relationships with corporate partners in order to
deliver new products and services to customers. The Company's ability to improve
revenues and operating margins will depend in part on its ability to attract new
customers and retain its existing customers. There can be no assurance that the
Company's investments in its telecommunications infrastructure, customer support
capabilities, new services offerings and software releases will ensure a high
level of customer retention. For more information on risks facing the Company,
see "Risk Factors" on page 16.
The Company's operating results have fluctuated in the past and may
fluctuate significantly in the future as a result of a variety of factors, some
of which are outside the Company's control. The Company expects that it will
incur net losses for the foreseeable future. The Company has operating
subsidiaries in Canada and the United Kingdom and has an investment in Brazil
with Grupo Itamarati, a Brazilian conglomerate. There can be no assurance of
future revenue growth or that the Company will be able to achieve and then
sustain profitability or positive cash flow.
During October of 1997 the Company entered into the Merger Agreement with
ICG. The Merger is expected to close in the first quarter of 1998, pending
certain conditions and approval by the stockholders of both companies and
regulatory entities. On or about November 7, 1997, ICG and the Company intend to
file with the Securities and Exchange Commission a joint proxy statement-
prospectus that contains a more complete description of the proposed Merger,
including a discussion of risks associated with the proposed Merger.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
REVENUES
Revenues increased by $8,070,000, or 25.2%, to $40,106,000 for the three
months ended September 30, 1997 from $32,036,000 for the three months ended
September 30, 1996. Revenues increased by $35,970,000, or 42.7%, to $120,131,000
for the nine months ended September 30, 1997 from $84,161,000 for the nine
months ended September 30, 1996. The revenue increase was due to an increase in
average revenue per customer, which resulted from an increase in the mix of
dedicated and web site hosting customers relative to dial-up customers, sales of
the Company's premium dial-up products and growth in the Internet market
generally. During the third quarter of 1997, the Company experienced growth in
non-dial up services and a decrease in dial up accounts. The total number of
customers decreased to approximately 542,000 accounts as of September 30, 1997
from approximately 562,000 accounts as of September 30, 1996.
International revenues increased by $2,822,000 to $3,553,000 for the
three months ended September 30, 1997 compared to the same period in 1996.
International revenues increased by $8,057,000 to $9,046,000 for the nine months
ended September 30, 1997 compared to the same period in 1996. The increase in
international revenues is due to increased subscriber base for the Company's
international operations which began in 1996.
11
<PAGE>
COST OF REVENUES
The Company's cost of revenues was $29,668,000 for the three months ended
September 30, 1997 and $24,319,000 for the three months ended September 30,
1996, decreasing to 74.0% from 75.9% of revenues, respectively. The decrease in
consolidated cost of revenues as a percentage of revenue was primarily
attributable to network and payroll expenses increasing at a slower rate than
revenues. The increase in absolute dollars was due to increases in depreciation
and telephone expenses related to supporting the customer network. Consolidated
gross margin for the quarters ended September 30, 1997 and September 30, 1996
was 26.0% and 24.1%, respectively. Domestic gross margin for the same period was
28.2% and 30.5%, respectively. Cost of revenues was $87,218,000 for the nine
months ended September 30, 1997 and $61,480,000 for the nine months ended
September 30, 1996, decreasing to 72.6% from 73.1% of revenues, respectively.
Consolidated gross margin for the nine months ended September 30, 1997 and
September 30, 1996 was 27.4% and 26.9%, respectively. Domestic gross margin for
the same period was 30.5% and 32.2%, respectively.
11
<PAGE>
The Company's international operations cost of revenues for the three
months ended September 30, 1997 was $3,407,000, an increase of $855,000 over the
same period in 1996. International cost of revenues for the nine months ended
September 30, 1997 was $10,054,000, an increase of $5,001,000 over the same
period in 1996. The increase in international cost of revenues in absolute
dollars is due primarily to increased network and payroll related costs. The
Company expects that cost of revenues for international operations will continue
to increase in absolute dollars in the foreseeable future.
PRODUCT DEVELOPMENT
Product development expenses were $1,637,000 for the three months ended
September 30, 1997 and $1,816,000 for the three months ended September 30, 1996,
representing 4.1% and 5.7% of revenues, respectively. Product development
expenses were $4,924,000 for the nine months ended September 30, 1997 and
$4,460,000 for the nine months ended September 30, 1996, representing 4.1% and
5.3% of revenues, respectively. International product development expenses for
the three and nine months ended September 30, 1997 were $239,000 and $831,000,
respectively. The Company plans to continue expenditures on product development
as it develops new software products and upgrades existing products. It is
expected that product development expenses as a percentage of revenue will
remain relatively stable.
SALES AND MARKETING
Sales and marketing expenses decreased $2,912,000 or 19.8%, to
$11,790,000 for the three months ended September 30, 1997 from $14,702,000 for
the three months ended September 30, 1996, decreasing to 29.4% from 45.9% of
revenues, respectively. The decrease in absolute dollars and in expenses as a
percentage of revenue was due to decreases in marketing programs, salaries and
wages and subscriber acquisition costs. Sales and marketing expenses increased
$1,746,000, or 4.7%, to $38,732,000 for the nine months ended September 30, 1997
from $36,986,000 for the nine months ended September 30, 1996. Although sales
and marketing expenses increased in absolute dollars during the nine months, the
expenses as a percentage of revenue decreased to
12
<PAGE>
32.2% from 43.9% for the nine months ended September 30, 1997 and
September 30, 1996, respectively. The increase in absolute dollars was primarily
attributable to increased costs associated with the Company's international
expansion and increased commissions. Additionally, during 1997, the Company
began selling disks and charging the disk costs to cost of revenues as they were
shipped. Prior to 1997, certain disk costs were capitalized as deferred
subscriber acquisition costs and amortized to sales and marketing expense over
twelve months, as the disks were distributed free of charge.
International sales and marketing expenses (including costs incurred
domestically relating to international operations) increased by $160,000 to
$3,030,000 for the three months ended September 30, 1997 and by $2,691,000 to
$9,202,000 for the nine months ended September 30, 1997 compared to the same
periods in 1996. Sales and marketing expenses are expected to continue to
increase in absolute dollars.
Certain of the Company's subscriber acquisition costs are capitalized and
amortized over a twelve-month period using the straight-line method. The Company
capitalized subscriber acquisition costs of approximately $1,084,000 and
$4,081,000 for the three months ended September 30, 1997 and September 30, 1996,
respectively. Amortization and write-offs of deferred subscriber acquisition
costs for the three months ended September 30, 1997 and September 30, 1996 was
$1,589,000 and $3,568,000, respectively. The Company capitalized subscriber
acquisition costs of approximately $4,156,000 and $11,989,000 for the nine
months ended September 30, 1997 and September 30, 1996, respectively.
Amortization and write-offs of deferred subscriber acquisition costs for the
nine months ended September 30, 1997 and September 30, 1996 was $7,388,00 and
$7,961,000, respectively.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased $924,000, or 15.1%, to
$5,198,000 for the three months ended September 30, 1997 from $6,122,000 for the
three months ended September 30, 1996, decreasing to 13.0% from 19.1% of
revenues, respectively. General and administrative expenses decreased $860,000,
or 4.9%, to $16,544,000 for the nine months ended September 30, 1997 from
$17,404,000 for the nine months ended September 30, 1996, decreasing to 13.8%
from 20.7% of revenues, respectively. The decrease in general and administrative
expenses in absolute dollars and as a percentage of revenue for the three and
nine month periods ending September 30, 1997 was primarily due to costs incurred
during the same period in 1996 in establishing the Company's subsidiary in the
United Kingdom, moving a significant portion of the Company's operations into
new buildings and incurring bad debt expenses from writing-off accounts
receivable balances determined to be uncollectable.
International general and administrative expenses decreased by $125,000
to $571,000 for the three months ended September 30, 1997 and decreased by
$71,000 to $1,888,000 for the nine months ended September 30, 1997 compared to
the same periods in 1996. General and administrative expenses are expected to
increase in absolute dollars in the future.
13
<PAGE>
RESTRUCTURING AND RELATED CHARGES
Restructuring and related charges of $167,000 and $1,879,000 during the
three and nine months ended September 30, 1997, respectively, are the result of
a decision by management to restructure operations of the Company's subsidiary
in the United Kingdom. The restructure charge is comprised of $1,356,000 in
accrued expenses for costs to terminate excess leased office facilities and a
write-off of office equipment, furniture and building improvements as a result
of consolidating office space, a $356,000 write-down of previously capitalized
deferred subscriber acquisition costs and $167,000 for severance costs.
INTEREST INCOME AND OTHER
Net interest income and other was $886,000 and $1,321,000, respectively,
for the three months ended September 30, 1997 and 1996. Net interest income and
other was $2,688,000 and $4,605,000, respectively, for the nine months ended
September 30, 1997 and 1996. The decrease was due to the Company's lower average
cash and cash equivalents during 1997 as compared to the same period in 1996. In
addition, during 1997, the Company incurred interest expense on capital leases
of $159,000 and $311,000 for the three and nine month periods ended September
30, 1997, respectively, compared to insignificant amounts incurred during the
same periods in the prior year. The Company invests its cash and cash
equivalents primarily in high grade commercial paper and United States treasury
bills.
NET LOSS
Revenue growth and decreases in cost of revenues and operating
expenditures as a percentage of revenue, offset by international expansion and
restructuring charges related to the UK operations, resulted in reduced net
losses of $6,827,000 and $25,217,000, for the three months and nine months ended
September 30, 1997, respectively, as compared to net losses of $13,606,000 and
$32,775,000 for the three and nine months ended September 30, 1996,
respectively. International net losses for the three and nine months ended
September 30, 1997 were $4,069,000 and $15,341,000 as compared to net losses of
$5,499,000 and $12,712,000 for the three and nine months ended September 30,
1996, respectively.
The Company believes EBITDA (Earnings before interest, taxes,
depreciation and amortization) is a cash flow measure used by analysts,
investors and other interested parties in the on-line and Internet services
industries. EBITDA for the three and nine months ended September 30, 1997,
resulted in positive EBITDA of $259,000 and reduced losses of $2,397,000,
respectively, as compared to the losses of $6,458,000 and $17,097,000 for the
three and nine months ended September 30, 1996. EBITDA before restructuring and
related charges of $167,000 and $1,879,000, respectively, for the three and nine
months ended September 30, 1997 was positive $426,000 and a loss of $518,000,
respectively. Domestic EBITDA for the three and nine months ended September 30,
1997 was positive $3,211,000 and $9,179,000, respectively.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through cash
generated from collection of revenues and private and public sales of equity
securities. The Company's operating activities used cash of approximately
$396,000 and $11,981,000 for the three months ended September 30, 1997 and
September 30, 1996, respectively. The Company's operating activities used cash
of approximately $1,616,000 and $16,966,000 for the nine months ended September
30, 1997 and September 30, 1996, respectively. During the nine months ended
September 30, 1997, cash used in operating activities was primarily affected by
the net loss, gains on investments, deferred subscriber acquisition costs and a
$2.1 million payment to the Brazilian investment made in September 1997. These
uses of cash were primarily offset by depreciation and amortization and
increases in deferred revenue. During the nine months ended September 30, 1996,
cash from operations was reduced primarily by the net loss, increases in
accounts receivable, and decreases in deferred subscriber acquisition costs and
accounts payable. These uses of cash were partially offset by depreciation and
amortization, loss on investments, and increases in accrued payroll and related
expenses, other accrued expenses and liabilities and deferred revenue.
Investing activities used cash of $1,997,000 and $13,699,000 for the
three months ended September 30, 1997 and September 30, 1996, respectively.
Investing activities used cash of $6,248,000 and $45,438,000 for the nine months
ended September 30, 1997 and September 30, 1996, respectively. The Company's
investing activities have consisted primarily of equipment purchases for new
local access areas and network expansion. Capital expenditures were $2,512,000
and $7,852,000 for the three and nine month periods ended September 30, 1997,
respectively, which were offset mainly by the sale of short term investments.
Financing activities provided cash of $1,412,000 and $2,338,000 for the
nine months ended September 30, 1997 and September 30, 1996, respectively. For
the nine months ended September 30, 1997, financing activities consisted
primarily of the exercise of stock options and proceeds from issuance of debt
relating to financing of equipment which was partially offset by repayments of
debt relating to the capital leases entered into during the period. For the nine
month period ended September 30, 1996, financing activities consisted of
proceeds from the exercise of stock options and purchases under the employee
stock purchase plan.
Although the Company has no material capital commitments (other than for
its network expansion and operating infrastructure program), a substantial
portion of the proceeds of its May 1995 and November 1995 public offerings has
been used for, and the Company expects to continue to use cash for, additional
equipment purchases and subscriber acquisition costs.
As of September 30, 1997, the Company had cash and cash equivalents of
$66,733,000 and working capital of $42,227,000. The Company used $2,826,000 and
$6,452,000 for the three and nine months ended September 30, 1997, respectively.
Although the Company may seek to secure additional funding in the future, the
Company believes that existing cash and cash equivalents, together with existing
sources of liquidity, will be sufficient to fund its operations, capital
expenditures, working capital and other cash requirements for the next year, in
the absence of material competitive or operating changes.
15
<PAGE>
RISK FACTORS
The following factors, in addition to the factors discussed in the
Company's Report on Form 10-KSB for the fiscal year ended December 31, 1996 and
other information contained elsewhere herein, should be considered carefully in
evaluating the Company and its business.
OPERATING LOSSES; FLUCTUATIONS IN OPERATING RESULTS. Although the Company
has experienced revenue growth in each of its fiscal years since incorporation,
it experienced net losses of $100,000 for 1994, $14,064,000 for 1995,
$44,265,000 for 1996 and $25,217,000 in the first nine months of 1997, and had
an accumulated deficit of $87,259,000 as of September 30, 1997. The net loss
incurred during the nine months ending September 30, 1997 included a loss of
$15,341,000 related to international operations.
These losses are also reflected in the Company's operating margins, which
decreased from a loss of 1% for 1994 to a loss of 31% for 1995 and a loss of 40%
for 1996. During the first nine months of 1997, the Company's operating margin
was a loss of 24%. The Company's current focus is on targeting the business
customer (individuals and groups), which the Company believes will result in
increased revenues per subscriber, although at reduced subscriber growth rates.
The Company anticipates increases in its expenses related to product
development, marketing, sales, general and administrative, network and customer
support. There can be no assurance of future revenue growth or that in the
future the Company will achieve or sustain profitability or positive cash flow
from operations.
Changes in the Company's customer base or in customers' usage patterns
may increase costs as a percentage of revenues. These changes could further
increase the Company's need to hire additional personnel and increase the
Company's expenses related to product development, marketing, network
infrastructure and customer support. An increase in peak time usage or an
overall increase in usage by customers could adversely affect the Company's
ability to consistently meet the demands for its services. As a result, the
Company may need to hire additional personnel and increase expenses related to
network infrastructure capacity with minimal corresponding increases in revenue
on a per customer basis.
The Company has adopted strategies designed to attract business customers
which may result in an increase in costs as a percentage of revenues. The
introduction of new technologies may also increase the costs and complexities of
providing acceptable customer services. There can be no assurance that the
Company's operating margins will not be materially adversely affected in the
future by these factors or strategies.
COMPETITION. The market for Internet services is increasingly competitive
and there are few barriers to entry. The Company believes that its ability to
compete successfully depends upon a number of factors, including market
presence; the capacity, reliability and security of its network infrastructure;
ease of access to and navigation of the Internet; the pricing policies of its
16
<PAGE>
competitors and suppliers; the timing of introductions of new products and
services by the Company and its competitors; the Company's ability to support
existing and emerging industry standards; and industry and general economic
trends.
The Company's current and prospective competitors include many large
companies that have substantially greater market presence and financial,
technical, marketing and other resources than the Company. The Company competes
or expects to compete directly or indirectly with other national and regional
commercial Internet services providers, with established on-line services
companies which offer Internet connectivity, with national long distance
carriers, with regional telephone companies, with cable operators and with other
local and regional Internet service providers.
Increased competition in general could result in significant reductions
in the average selling price of the Company's services. In addition, the Company
expects to see increased pressure to obtain and retain customers that could
result in increased sales and marketing expenses and related subscriber
acquisition costs, which could materially adversely affect the Company's
profitability. There can be no assurance that the Company will be able to offset
the effects of any such competition or resulting price reductions through an
increase in the number of its customers, higher revenue from enhanced services,
cost reductions or otherwise. Increased competition could result in erosion of
the Company's market share and adversely affect the Company's operating results.
There can be no assurance that the Company will have financial resources,
technical resources, technical expertise or marketing and support capabilities
to continue to compete successfully.
NEW AND UNCERTAIN MARKET. The market for Internet connectivity services
and related software products is relatively new. Because current and future
competitors are likely to introduce competing Internet connectivity and/or
on-line services and products, it is difficult to predict the rate at which the
market will grow or at which new or increased competition will result in market
saturation. If demand for Internet services fails to grow, grows more slowly
than anticipated, or becomes saturated with competitors, the Company's business,
operating results and financial condition will be materially adversely affected.
VOLATILITY OF STOCK PRICE. The market price of the Company's common stock
has been and is expected to continue to be subject to significant fluctuations
in response to numbers of customers, announcements of technological innovations,
new products or new services by the Company or its competitors,
quarter-to-quarter variations in the Company's operating results and other
events or factors. For example, a shortfall in revenue, in number of customers,
or an increase in losses from levels expected by securities analysts could have
an immediate and significant adverse effect on the market price of the Company's
common stock. In addition, the stock market in recent years has experienced
extreme price and volume fluctuations that have particularly affected the market
prices of many high technology companies and that in some cases have been
unrelated or disproportionate to the operating performance of companies. These
fluctuations, as well as general economic and market conditions and the adverse
performance of companies within the Internet market segment, may adversely
affect the market price of the common stock.
17
<PAGE>
ITEM 3 OF PART I IS NOT APPLICABLE AND HAS BEEN OMITTED.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 8-K.
A current report on Form 8-K, dated October 23, 1997 was filed by
Registrant with the Securities and Exchange Commission to report under
Item 5 thereof the Registrant's execution of a definitive Agreement and
Plan of Merger with ICG Communications Inc.
dated October 12, 1997.
ITEMS 1, 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NETCOM ON-LINE COMMUNICATION
SERVICES, INC.
Date: November 6, 1997 By /s/ David W. Garrison
------------------------------------
David W. Garrison
Chairman of the Board, President and
Chief Executive Officer
By /s/ Kurt E. Johnson
------------------------------------
Kurt E. Johnson
Chief Financial Officer
<PAGE>
FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
[ARTICLE] 5
[MULTIPLIER] 1,000
<S> <C>
[PERIOD-TYPE] 3-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-START] JUL-01-1997
[PERIOD-END] SEP-30-1997
[CASH] 66,733
[SECURITIES] 0
[RECEIVABLES] 1,808
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 71,376
[PP&E] 119,266
[DEPRECIATION] (41,358)
[TOTAL-ASSETS] 152,891
[CURRENT-LIABILITIES] 29,149
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 117
[OTHER-SE] 119,729
[TOTAL-LIABILITY-AND-EQUITY] 152,891
[SALES] 40,106
[TOTAL-REVENUES] 40,106
[CGS] 29,668
[TOTAL-COSTS] 48,460
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] (6,827)
[INCOME-TAX] 0
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (6,827)
[EPS-PRIMARY] (.58)
[EPS-DILUTED] 0
</TABLE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1997
REGISTRATION NO. 333-39737
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
---------------
ICG COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4813, 4899 84-1342022
(JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
---------------
9605 EAST MAROON CIRCLE
P.O. BOX 6742
ENGLEWOOD, COLORADO 80155-6742
(303) 572-5960
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
H. DON TEAGUE
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
ICG COMMUNICATIONS, INC.
9605 EAST 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 COPIES TO:
<TABLE>
<S> <C>
LEONARD GUBAR, ESQ. JORGE A. DEL CALVO, ESQ.
AUDREY A. ROHAN, ESQ. PILLSBURY MADISON & SUTRO LLP
REID & PRIEST LLP 2550 HANOVER STREET
40 WEST 57TH STREET PALO ALTO, CALIFORNIA 94304-1115
NEW YORK, NEW YORK 10019 (650) 233-4500
(212) 603-2000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
---------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
==============================================================================
PROPOSED
MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE PER SECURITY AGGREGATE REGISTRATION
REGISTERED REGISTERED OR PER UNIT OFFERING PRICE FEE(1)
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value per share....... 11,866,388 not applicable not applicable $68,538
==============================================================================
</TABLE>
(1) Previously paid.
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(a), MAY DETERMINE.
- - --------------------------------------------------------------------------
- - --------------------------------------------------------------------------
<PAGE>
[LOGO OF ICG APPEARS HERE]
9605 EAST MAROON CIRCLE
ENGLEWOOD, COLORADO 80112
December 17, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of ICG
Communications, Inc., a Delaware corporation ("ICG"), to be held at 9:00 a.m.
on Wednesday, January 28, 1998, at the Inverness Hotel & Golf Club, 200
Inverness Drive West, Englewood, Colorado.
At this important meeting, you will be asked to approve the issuance (the
"ICG Share Proposal") of ICG common stock, par value $.01 per share (the "ICG
Common Stock") in connection with the Agreement and Plan of Merger, dated
October 12, 1997, as amended (the "Merger Agreement"), by and among ICG, ICG
Acquisition, Inc., a Delaware corporation ("Acquisition Sub"), and NETCOM On-
Line Communication Services, Inc., a Delaware corporation ("NETCOM"). Pursuant
to the terms of the Merger Agreement, Acquisition Sub will be merged with and
into NETCOM (the "Merger"). The consummation of the Merger will result in,
among other things, the conversion of the outstanding shares of the common
stock of NETCOM into the right to receive shares of ICG Common Stock. As a
result, ICG will become the holder of all the outstanding shares of common
stock of NETCOM and the holders of shares of common stock of NETCOM
outstanding immediately prior to the Merger will become holders of shares of
ICG Common Stock. The proposed Merger is described in the accompanying Joint
Proxy Statement-Prospectus, the forepart of which includes a summary of the
terms of the Merger and certain other information relating to the proposed
transaction. Approval of the ICG Share Proposal requires the affirmative vote
of a majority of votes cast by the holders of the outstanding shares of ICG
Common Stock present, in person or by proxy, at the ICG Special Meeting.
Gleacher NatWest Inc. ("Gleacher NatWest") was retained by ICG to act as its
independent financial advisor in connection with the Merger. As discussed in
the accompanying Joint Proxy Statement-Prospectus, Gleacher NatWest has
delivered to the ICG Board of Directors its written opinion, which is annexed
to the accompanying Joint Proxy Statement-Prospectus as Annex C, that, as of
October 12, 1997, and based upon and subject to certain matters stated in its
written opinion, the exchange ratio offered by ICG to the NETCOM stockholders
pursuant to the Merger is fair, from a financial point of view, to ICG and its
stockholders.
ON OCTOBER 12, 1997 YOUR BOARD OF DIRECTORS DETERMINED THAT THE MERGER IS
FAIR TO, AND IN THE BEST INTERESTS OF, ICG AND ITS STOCKHOLDERS. YOUR BOARD OF
DIRECTORS HAS APPROVED THE TERMS OF THE MERGER AGREEMENT AND THE MERGER BY
UNANIMOUS VOTE AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE
THE ICG SHARE PROPOSAL.
Information concerning the matters to be considered and voted upon at the
Special Meeting is set forth in the attached Notice of Special Meeting and
Joint Proxy Statement-Prospectus. It is important that your shares be
represented at the Special Meeting, regardless of the number you hold.
Therefore, please sign, date and return your proxy card as soon as possible,
whether or not you plan to attend the Special Meeting. This will not prevent
you from voting your shares in person if you subsequently choose to attend the
Special Meeting.
Sincerely,
[SIGNATURE OF J. SHELBY BRYAN APPEARS HERE]
J. Shelby Bryan
President and Chief Executive
Officer
<PAGE>
ICG COMMUNICATIONS, INC.
9605 EAST MAROON CIRCLE
ENGLEWOOD, COLORADO 80112
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AT 9:00 A.M. ON JANUARY 28, 1998
----------------
To the Stockholders of ICG Communications, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders ("Special
Meeting") of ICG Communications, Inc., a Delaware corporation ("ICG"), will be
held at the Inverness Hotel & Golf Club, 200 Inverness Drive West, Englewood,
Colorado, at 9:00 a.m., on Wednesday, January 28, 1998 for the following
purposes:
1. To consider and vote upon a proposal to approve the issuance (the "ICG
Share Proposal") of ICG common stock, par value $.01 per share ("ICG Common
Stock"), in connection with the Agreement and Plan of Merger, dated October
12, 1997, as amended (the "Merger Agreement"), by and among ICG, ICG
Acquisition, Inc., a Delaware corporation ("Acquisition Sub"), and NETCOM
On-Line Communication Services, Inc., a Delaware corporation ("NETCOM"),
pursuant to which Acquisition Sub will be merged with and into NETCOM (the
"Merger"), and each share of NETCOM common stock issued and outstanding
immediately prior to the effective time of the Merger (the "Effective
Time") (except for common stock of NETCOM issued and outstanding
immediately prior to the Effective Time and owned directly or indirectly by
NETCOM, which will be canceled and retired), shall be converted into the
right to receive and there shall be issued in exchange for such share,
shares of ICG Common Stock. The proposed Merger is described in the
accompanying Joint Proxy Statement-Prospectus, the forepart of which
includes a summary of the terms of the Merger and certain other information
relating to the proposed transaction; and
2. To vote to adjourn the Special Meeting of Stockholders to solicit
additional proxies in the event that the number of proxies sufficient to
approve the ICG Share Proposal has not been received by the time of the
Special Meeting.
Only stockholders of record at the close of business on December 15, 1997,
are entitled to receive notice of and to vote at the Special Meeting or any
adjournments or postponements thereof. Holders of ICG Common Stock are
entitled to one vote on each matter considered and voted on at the Special
Meeting for each share of ICG Common Stock held of record at the close of
business on such date. Approval of the ICG Share Proposal requires the
affirmative vote of a majority of the votes cast by the holders of the
outstanding shares of ICG Common Stock present, in person or by proxy, at the
Special Meeting.
The matters to be considered at the Special Meeting are more fully described
in the accompanying Joint Proxy Statement-Prospectus, and the Annexes thereto,
which form a part of this Notice.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, HOWEVER, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A
POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER
ATTENDING THE SPECIAL MEETING MAY VOTE IN PERSON EVEN IF THAT STOCKHOLDER HAS
RETURNED A PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE OF H. DON TEAGUE
APPEARS HERE]
H. Don Teague
Executive Vice President, General
Counsel and Secretary
Dated: December 17, 1997
<PAGE>
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
TWO NORTH SECOND STREET, PLAZA A
SAN JOSE, CALIFORNIA 95113
[LOGO OF NETCOM APPEARS HERE]
December 17, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
NETCOM On-Line Communication Services, Inc., a Delaware corporation
("NETCOM"), to be held at 8:00 a.m. on Wednesday, January 28, 1998 at the
Fairmont Hotel, 170 South Market Street, San Jose, California.
At this important meeting you will be asked to consider a single proposal to
approve and adopt the Agreement and Plan of Merger, dated October 12, 1997, as
amended (the "Merger Agreement"), by and among NETCOM, ICG Communications,
Inc., a Delaware corporation ("ICG"), and ICG Acquisition, Inc., a Delaware
corporation ("Acquisition Sub"), providing for the merger (the "Merger") of
Acquisition Sub with and into NETCOM. The consummation of the Merger will
result in, among other things, the conversion of the outstanding shares of the
common stock of NETCOM into the right to receive shares of common stock of
ICG. As a result, ICG will become the holder of all the outstanding shares of
common stock of NETCOM and the holders of shares of common stock of NETCOM
outstanding immediately prior to the Merger will become holders of shares of
common stock of ICG. Under Delaware law, the holders of NETCOM common stock
are not entitled to appraisal rights in connection with the Merger.
ADDITIONAL INFORMATION REGARDING THE MERGER AND THE MERGER AGREEMENT IS SET
FORTH IN THE ACCOMPANYING JOINT PROXY STATEMENT-PROSPECTUS AND THE ANNEXES
THERETO, WHICH YOU ARE URGED TO READ CAREFULLY IN THEIR ENTIRETY. PLEASE DO
NOT SEND ANY SHARE CERTIFICATES AT THIS TIME.
The Board of Directors of NETCOM have received the written opinion, dated as
of October 12, 1997, of BT Alex. Brown Incorporated, which is annexed to the
accompanying Joint Proxy Statement-Prospectus as Annex B, that, as of such
date and based upon and subject to certain matters stated therein, the
exchange ratio in the Merger was fair, from a financial point of view, to the
holders of NETCOM Common Stock.
NETCOM'S BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS AND
CONDITIONS OF THE PROPOSED MERGER AND HAS UNANIMOUSLY DETERMINED THAT THE
TERMS OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE
FAIR TO, AND IN THE BEST INTERESTS OF, NETCOM AND ITS STOCKHOLDERS.
ACCORDINGLY, YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
THE ADOPTION OF THE MERGER AGREEMENT AND THE AUTHORIZATION OF THE MERGER AND
THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
In view of the importance of the action to be taken at this Special Meeting
of NETCOM stockholders, we urge you to review carefully the accompanying
Notice of Special Meeting of Stockholders and the Joint Proxy Statement-
Prospectus, including the Annexes thereto, which also include information on
NETCOM and ICG.
Whether or not you expect to attend the Special Meeting, please complete,
sign and date the enclosed proxy and return it in the enclosed envelope as
promptly as possible.
Very truly yours,
[SIGNATURE OF DAVID W. GARRISON
APPEARS HERE]
David W. Garrison
Chief Executive Officer and Chairman
of the Board
<PAGE>
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
TWO NORTH SECOND STREET, PLAZA A
SAN JOSE, CALIFORNIA 95113
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 28, 1998
To the Stockholders of NETCOM On-Line Communication Services, Inc.:
The Special Meeting of Stockholders of NETCOM On-Line Communication
Services, Inc., a Delaware corporation ("NETCOM"), will be held at the
Fairmont Hotel, 170 South Market Street, San Jose, California, on Wednesday,
January 28, 1998 at 8:00 a.m. (the "Special Meeting"), for the following
purposes:
1. To consider and vote on a single proposal (the "Merger Proposal") to
adopt the Agreement and Plan of Merger, dated October 12, 1997, as amended
(the "Merger Agreement"), by and among ICG Communications, Inc., a Delaware
corporation ("ICG"), ICG Acquisition, Inc., a Delaware corporation
("Acquisition Sub"), and NETCOM, providing for the merger (the "Merger") of
Acquisition Sub with and into NETCOM, and to authorize the Merger and the
other transactions contemplated by the Merger Agreement. The consummation
of the Merger will result in, among other things, the conversion of the
outstanding shares of the common stock of NETCOM into the right to receive
shares of common stock of ICG (except as provided in Section 3.1(b) of the
Merger Agreement). As a result, ICG will become the holder of all the
outstanding shares of common stock of NETCOM and the holders of shares of
common stock of NETCOM outstanding immediately prior to the Merger will
become holders of shares of common stock of ICG, all as more fully
described in the accompanying Joint Proxy Statement-Prospectus. A copy of
the Merger Agreement is attached as Annex A to the accompanying Joint Proxy
Statement-Prospectus; and
2. To vote to adjourn the Special Meeting of Stockholders to solicit
additional proxies in the event that the number of proxies sufficient to
approve the Merger Agreement has not been received by the date of the
Special Meeting of Stockholders.
The Board of Directors of NETCOM has fixed the close of business on December
15, 1997, as the record date for the determination of the holders of NETCOM
common stock entitled to notice of, and to vote at, the Special Meeting and
adjournments or postponements thereof. The Merger Proposal requires the
affirmative vote of the holders of a majority of the outstanding shares of
NETCOM common stock entitled to vote at the Special Meeting. The proposal to
adjourn the Special Meeting of Stockholders to solicit additional proxies
requires the affirmative vote of the holders of a majority of NETCOM common
stock present in person or by proxy at the Special Meeting of Stockholders.
Information regarding the proposed Merger, the Merger Agreement and related
matters is contained in the accompanying Joint Proxy Statement-Prospectus and
the Annexes thereto, which are incorporated by reference herein and form a
part of this Notice.
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, HOWEVER, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A
POSTAGE PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY STOCKHOLDER
ATTENDING THE SPECIAL MEETING MAY VOTE IN PERSON EVEN IF THAT STOCKHOLDER HAS
PREVIOUSLY RETURNED A PROXY.
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE OF DAVID W. GARRISON
APPEARS HERE]
David W. Garrison
Chief Executive Officer and Chairman
of the Board
Dated: December 17, 1997
PLEASE DO NOT SEND ANY SHARE CERTIFICATES AT THIS TIME.
<PAGE>
PROSPECTUS
ICG COMMUNICATIONS, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
JOINT PROXY STATEMENT
ICG COMMUNICATIONS, INC. NETCOM ON-LINE COMMUNICATION SERVICES, INC.
SPECIAL MEETING OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON
STOCKHOLDERS TO BE HELD ON JANUARY 28, 1998
JANUARY 28, 1998
--------------
This Joint Proxy Statement-Prospectus (this "Joint Proxy Statement-
Prospectus") is being furnished to the holders of common stock, par value $.01
per share (the "NETCOM Common Stock"), of NETCOM On-Line Communication
Services, Inc., a Delaware corporation ("NETCOM"), in connection with the
solicitation of proxies by the Board of Directors of NETCOM (the "NETCOM Board
of Directors") for use at a Special Meeting of Stockholders of NETCOM to be
held at the Fairmont Hotel, 170 South Market Street, San Jose, California, on
January 28, 1998, at 8:00 a.m., local time, and at any and all adjournments or
postponements thereof (the "NETCOM Special Meeting").
This Joint Proxy Statement-Prospectus is also being furnished to the holders
of common stock, par value $.01 per share (the "ICG Common Stock"), of ICG
Communications, Inc., a Delaware corporation ("ICG"), in connection with the
solicitation of proxies by the Board of Directors of ICG (the "ICG Board of
Directors") for use at the Special Meeting of Stockholders of ICG to be held
at the Inverness Hotel & Golf Club, 200 Inverness Drive West, Englewood,
Colorado on January 28, 1998, at 9:00 a.m., local time, and at any and all
adjournments or postponements thereof (the "ICG Special Meeting").
This Joint Proxy Statement-Prospectus relates to the proposed merger (the
"Merger") into NETCOM of ICG Acquisition, Inc., a wholly-owned Delaware
subsidiary of ICG ("Acquisition Sub"), pursuant to the Agreement and Plan of
Merger, dated October 12, 1997, as amended December 15, 1997 (as amended, the
"Merger Agreement"), by and among ICG, Acquisition Sub and NETCOM. Upon
consummation of the Merger, NETCOM will become a wholly-owned subsidiary of
ICG. In the Merger, each outstanding share of NETCOM Common Stock will be
converted into and represent the right to receive that number of shares of ICG
Common Stock equal to the Exchange Ratio, as defined below, and cash in lieu
of fractional shares of ICG Common Stock. The "Exchange Ratio" will equal
0.8628 shares of ICG Common Stock if the average of the Volume Weighted
Average Price of ICG Common Stock, as quoted on the Nasdaq National Market
("Nasdaq"), for the ten consecutive trading days ending two trading days prior
to the closing date of the Merger (the "ICG Closing Stock Price") is greater
than or equal to $22.125; provided, however, that if the ICG Closing Stock
Price is greater than or equal to $19.00 but less than $22.125, the Exchange
Ratio shall equal a fraction (rounded to the nearest ten-thousandth)
determined by dividing $19.0625 by the ICG Closing Stock Price; and provided
further, that if the ICG Closing Stock Price is less than $19.00, the Exchange
Ratio shall equal 1.0078. Consummation of the Merger is subject to various
conditions, including the affirmative vote of holders of a majority of the
outstanding shares of NETCOM Common Stock entitled to vote at the NETCOM
Special Meeting and the affirmative vote of a majority of votes cast by
holders of shares of ICG Common Stock present, in person or by proxy, at the
ICG Special Meeting. See "SUMMARY," "THE MERGER," and ANNEX A-1 and ANNEX A-2
to this Joint Proxy Statement-Prospectus.
This Joint Proxy Statement-Prospectus also constitutes the Prospectus of ICG
with respect to an estimated (as of December 15, 1997) maximum of 11,871,491
shares of ICG Common Stock to be issued in connection with the Merger. ICG
Common Stock is traded on Nasdaq under the symbol "ICGX." On December 15,
1997, the closing sales price for the ICG Common Stock as reported on Nasdaq
was $26.13 per share. Holders of NETCOM Common Stock and ICG Common Stock are
urged to obtain more recent market information relating to the closing sales
price for the ICG Common Stock.
The Boards of Directors of NETCOM, ICG and Acquisition Sub, and ICG as the
holder of all the outstanding capital stock of Acquisition Sub, have approved
the Merger Agreement. THE NETCOM BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT HOLDERS OF NETCOM COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT. THE ICG BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
HOLDERS OF ICG COMMON STOCK VOTE FOR THE ISSUANCE OF ICG COMMON STOCK PURSUANT
TO THE ICG SHARE PROPOSAL. See "THE MERGER--Interests of Certain Persons in
the Merger."
Proxies for the NETCOM Special Meeting may be revoked, subject to the
procedures described herein, at any time up to and including the date of the
NETCOM Special Meeting. See "THE NETCOM SPECIAL MEETING--Record Date; Voting
Rights; Proxies." Proxies for the ICG Special Meeting may be revoked, subject
to the procedures described herein, at any time up to and including the date
of the ICG Special Meeting. See "THE ICG SPECIAL MEETING--Record Date; Voting
Rights; Proxies."
SEE "RISK FACTORS" ON PAGE 26 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE EVALUATED IN CONNECTION WITH THE MERGER.
This Joint Proxy Statement-Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of NETCOM and ICG on or about December
19, 1997.
--------------
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 JOINT PROXY STATEMENT-PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS JOINT PROXY STATEMENT-PROSPECTUS IS DECEMBER 17, 1997.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS JOINT
PROXY STATEMENT-PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY NETCOM OR
ICG. THIS JOINT PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR THE SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO PURCHASE THE SECURITIES OFFERED BY THIS JOINT PROXY STATEMENT-
PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN
OFFER, OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF
THIS JOINT PROXY STATEMENT-PROSPECTUS NOR THE ISSUANCE OR SALE OF ANY
SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN SINCE THE DATE
HEREOF OR INCORPORATED BY REFERENCE HEREIN SINCE THE DATE HEREOF.
AVAILABLE INFORMATION
NETCOM and ICG are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and may be
available at the following Regional Offices of the Commission: Midwest
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such materials can be obtained
at prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The
Commission maintains a Web site that contains reports, proxy and information
statements and other materials that are filed through the Commission's
Electronic Data Gathering, Analysis, and Retrieval system. This Web site can
be accessed at http://www.sec.gov.
This Joint Proxy Statement-Prospectus does not contain all the information
set forth in the Registration Statement on Form S-4 and exhibits relating
thereto, including any amendments (the "Registration Statement"), of which
this Joint Proxy Statement-Prospectus is a part, and which ICG has filed with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"). Reference is made to such Registration Statement for further
information with respect to ICG and the securities of ICG offered hereby.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified in
its entirety by reference to the copy of the applicable document filed with
the Commission or attached as an annex hereto. The information in this Joint
Proxy Statement-Prospectus concerning NETCOM and ICG has been furnished by
NETCOM and ICG, respectively.
2
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by ICG and NETCOM with the Commission (ICG
Commission File No. 1- 11965; NETCOM Commission File No. 0-25216) under
Section 13(a) or 15(d) of the Exchange Act are hereby incorporated by
reference in this Joint Proxy Statement-Prospectus:
ICG documents
1. Proxy Statement on Schedule 14A filed May 16, 1997;
2. Annual Report on Form 10-K for the fiscal year ended September 30,
1996;
3. Transition Report on Form 10-K/A for the transition period from
October 1, 1996 to December 31, 1996;
4. Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1997;
5. Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1997;
6. Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997;
7. Current Report on Form 8-K dated February 20, 1997;
8. Current Report on Form 8-K dated February 24, 1997;
9. Current Report on Form 8-K dated September 18, 1997;
10. Current Report on Form 8-K dated September 29, 1997;
11. Current Report on Form 8-K dated October 21, 1997; and
12. The description of ICG Common Stock set forth in ICG's Registration
Statement on Form 8-A filed pursuant to Section 12 of the Exchange
Act and any amendment or report filed for the purpose of updating
such description.
NETCOM documents
1. Annual Report on Form 10-KSB/A for the fiscal year ended December
31, 1996;
2. Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1997;
3. Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1997;
4. Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997; and
5. Current Report on Form 8-K dated October 23, 1997.
6. The description of NETCOM Common Stock set forth in NETCOM's
Registration Statement on Form 8-A filed pursuant to Section 12 of
the Exchange Act and any amendment or report filed for the purpose
of updating such description.
In addition, all reports and other documents filed by ICG or NETCOM pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the
date hereof and prior to the ICG Special Meeting or the NETCOM Special Meeting
shall be deemed to be incorporated by reference herein and to be a part hereof
from the date of filing of such reports and documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Joint Proxy
Statement-Prospectus to the extent that a statement contained herein, or in
any other subsequently filed document that also is incorporated or deemed to
be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of the Registration Statement,
this Joint Proxy Statement-Prospectus, or any amendment or supplement hereto.
THIS JOINT PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
FILED BY ICG OR NETCOM WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH.
THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS
ARE SPECIFICALLY INCORPORATED BY REFERENCE HEREIN) ARE AVAILABLE, WITHOUT
CHARGE, UPON WRITTEN OR ORAL REQUEST BY ANY PERSON, INCLUDING ANY BENEFICIAL
OWNER, TO WHOM THIS JOINT PROXY STATEMENT-PROSPECTUS IS DELIVERED, FROM: A)
ICG COMMUNICATIONS, INC., 9605 EAST MAROON CIRCLE, P.O. BOX 6742, ENGLEWOOD,
COLORADO 80155-6742, ATTENTION: INVESTOR RELATIONS (TEL. (800) 408-4253); AND
B) NETCOM ON-LINE COMMUNICATION SERVICES, INC., TWO NORTH SECOND STREET, PLAZA
A, SAN JOSE, CALIFORNIA 95113, ATTENTION: INVESTOR RELATIONS (TEL. (408) 881-
3516). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD
BE MADE BY JANUARY 20, 1998.
3
<PAGE>
FORWARD LOOKING STATEMENTS
THIS JOINT PROXY STATEMENT-PROSPECTUS CONTAINS AND INCORPORATES BY REFERENCE
CERTAIN FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 WITH RESPECT TO THE RESULTS OF
OPERATIONS AND BUSINESSES OF ICG AND NETCOM. THESE FORWARD LOOKING STATEMENTS
INVOLVE CERTAIN RISKS AND UNCERTAINTIES. FACTORS THAT MAY CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED, PROJECTED, FORECAST, ESTIMATED
OR BUDGETED IN SUCH FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE
FOLLOWING POSSIBILITIES: (i) HISTORICAL AND ANTICIPATED FUTURE OPERATING
LOSSES, NET LOSSES AND NEGATIVE CASH FLOWS; (ii) RISKS RELATED TO LOCAL
SERVICES AND SWITCHED SERVICES STRATEGIES OF ICG; (iii) CERTAIN FINANCIAL AND
OPERATING RESTRICTIONS OF ICG; (iv) SUBSTANTIAL INDEBTEDNESS; (v) RISKS
RELATED TO RAPID EXPANSION OF BUSINESS; INTEGRATION OF ACQUIRED BUSINESSES;
AND (vi) COMPETITION. IN ADDITION, FACTORS THAT COULD CAUSE ACTUAL RESULTS OF
ICG (ASSUMING CONSUMMATION OF THE MERGER) TO DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY OR PROJECTED, FORECAST, ESTIMATED OR BUDGETED IN FORWARD
LOOKING STATEMENTS RELATING TO THE RESULTS OF OPERATIONS AND BUSINESS OF ICG
FOLLOWING THE MERGER, INCLUDE (A) ANY COST SAVINGS OR REVENUE ENHANCEMENTS
THAT MAY BE REALIZED FROM THE MERGER (SEE "THE MERGER--RECOMMENDATION OF THE
BOARD OF DIRECTORS OF NETCOM; REASONS FOR THE MERGER," AND "--RECOMMENDATION
OF THE BOARD OF DIRECTORS OF ICG; REASONS FOR THE MERGER") AND (B) THE COSTS
ASSOCIATED WITH THE MERGER, SUCH AS THE FOLLOWING: (i) THE EXPECTED COST
SAVINGS TO BE REALIZED BEGINNING PRIMARILY IN 1998 THROUGH COMBINING CERTAIN
FUNCTIONS OF BOTH ICG AND NETCOM, MAKING CHANGES TO THE OPERATING STRUCTURE OF
BOTH COMPANIES TO ELIMINATE REDUNDANT FACILITIES AND BETTER SERVE THE COMBINED
COMPANY'S CUSTOMERS; AND (ii) COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION
OF THE BUSINESSES OF ICG AND NETCOM ARE GREATER THAN EXPECTED. SEE "RISK
FACTORS."
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION...................................................... 2
INCORPORATION OF DOCUMENTS BY REFERENCE.................................... 3
FORWARD LOOKING STATEMENTS................................................. 4
SUMMARY.................................................................... 7
Parties To The Merger.................................................... 7
The Meetings............................................................. 12
Recommendations of the Boards of Directors............................... 13
Opinions of Financial Advisors........................................... 13
The Merger............................................................... 13
Comparative Per Share Prices............................................. 17
Comparative Historical and Combined Per Share Data....................... 19
ICG Selected Financial Data.............................................. 20
NETCOM Selected Financial Data........................................... 22
Unaudited Pro Forma Combined Selected Financial Data for ICG and Netcom.. 24
RISK FACTORS............................................................... 26
Integration of the Two Companies......................................... 26
Substantial Dilution of Ownership Interest of Current ICG Stockholders... 26
The Effect of ICG Stock Price Fluctuations on the Consideration to be
Received by the Holders of NETCOM Common Stock in the Merger............ 26
Shares Eligible for Future Sale; Possible Volatility of Stock Price...... 26
Historical and Anticipated Future Operating Losses, Net Losses and
Negative Cash Flows..................................................... 27
Risks Related to Local Services and Switched Services Strategies of ICG.. 28
Certain Financial and Operating Restrictions of ICG...................... 29
Substantial Indebtedness of ICG.......................................... 29
Risks Related to Rapid Expansion of Business; Integration of Acquired
Businesses.............................................................. 30
Competition.............................................................. 31
Regulation............................................................... 32
Significant Capital Requirements of ICG.................................. 34
Dependence on Key Customers of ICG....................................... 34
Risks of Entry into Long Distance Business by ICG........................ 34
Risks of Entry into Data Transmission Business by ICG.................... 35
Dependence on Billing, Customer Service and Information Systems.......... 35
Risks Related to Joint Ventures and Strategic Alliances.................. 36
Rapid Technological Change............................................... 37
Dependence on Rights of Way and Other Third Party Agreements by ICG...... 37
Key Personnel............................................................ 37
Dependence on WorldCom and Other Suppliers by NETCOM..................... 38
Dependence on Network Infrastructure; Risk of System Failure; Security
Risks by NETCOM......................................................... 38
Dependence on Distribution and Marketing Relationships by NETCOM......... 39
New and Uncertain Market for NETCOM's Services and Products.............. 39
Limited Intellectual Property Protection by NETCOM....................... 39
No Dividends............................................................. 39
Potential Liability for Content of NETCOM................................ 40
Anti-Takeover Provisions................................................. 40
THE NETCOM SPECIAL MEETING................................................. 41
Purpose of the NETCOM Special Meeting.................................... 41
Record Date; Voting Rights; Proxies...................................... 41
</TABLE>
5
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<TABLE>
<S> <C>
Solicitation of Proxies................................................. 41
Quorum.................................................................. 41
Required Vote........................................................... 42
THE ICG SPECIAL MEETING................................................... 42
Purposes of the ICG Special Meeting..................................... 42
Record Date; Voting Rights; Proxies..................................... 42
Solicitation of Proxies................................................. 43
Quorum.................................................................. 43
Required Vote........................................................... 43
THE MERGER................................................................ 43
General................................................................. 43
Effective Time.......................................................... 44
Conversion of Shares; Procedures for Exchange of Certificates........... 44
Treatment of Stock Options.............................................. 45
Background of the Merger................................................ 45
Recommendation of the Board of Directors of NETCOM; Reasons for the
Merger................................................................. 48
Interests of Certain Persons in the Merger.............................. 50
Recommendation of the Board of Directors of ICG; Reasons for the
Merger................................................................. 51
Opinion of NETCOM's Financial Advisor................................... 52
Opinion of ICG's Financial Advisor...................................... 57
Federal Income Tax Consequences......................................... 60
Accounting Treatment.................................................... 61
Certain Legal Matters................................................... 61
Federal Securities Law Consequences..................................... 62
Listing................................................................. 62
Appraisal Rights........................................................ 62
THE MERGER AGREEMENT...................................................... 62
The Merger.............................................................. 62
Effective Time.......................................................... 63
Terms of the Merger..................................................... 63
Fractional Shares....................................................... 64
Surrender and Payment................................................... 64
Conditions to Consummation of the Merger................................ 65
Representations and Warranties.......................................... 66
Conduct of Business Pending the Merger.................................. 66
Covenants............................................................... 68
Effect on Employee Benefit Plans........................................ 69
No Solicitation......................................................... 69
Indemnification......................................................... 70
Termination; Remedies; Fees and Expenses................................ 71
Amendment; Waiver....................................................... 73
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF ICG AND
NETCOM................................................................... 74
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 81
LEGAL MATTERS............................................................. 82
EXPERTS................................................................... 82
STOCKHOLDER PROPOSALS..................................................... 82
</TABLE>
Annexes:
Annex A-1--Agreement and Plan of Merger, dated October 12, 1997, among ICG
and NETCOM.
Annex A-2--Amendment, dated December 15, 1997, to Agreement and Plan of
Merger, dated October 12, 1997, among ICG, NETCOM and Acquisition Sub.
Annex B--Opinion of BT Alex. Brown Incorporated.
Annex C--Opinion of Gleacher NatWest Inc.
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The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement- Prospectus. This summary is not intended to be a
complete description of the matters covered in this Joint Proxy Statement-
Prospectus and is subject to and qualified in its entirety by reference to the
more detailed information contained elsewhere in this Joint Proxy Statement-
Prospectus, including the Annexes hereto, and in the documents incorporated by
reference in this Joint Proxy Statement-Prospectus. The Merger Agreement is set
forth in ANNEX A-1 and ANNEX A-2 to this Joint Proxy Statement-Prospectus and
reference is made thereto for a complete description of the terms of the
Merger. Stockholders are urged to read carefully the entire Joint Proxy
Statement-Prospectus, including the Annexes.
SUMMARY
PARTIES TO THE MERGER
NETCOM. NETCOM is one of the largest independent providers of high quality
Internet solutions to businesses and individuals. NETCOM offers customers
integrated Internet solutions aimed at enhancing customer productivity through
integration and application technologies. NETCOM provides packaged solutions to
address the Internet productivity needs of individuals and small and medium-
sized businesses. These offerings have led to significant growth, with revenue
increasing from approximately $2.4 million for the 1993 fiscal year to
approximately $120.1 million for the nine months ended September 30, 1997.
NETCOM operates a telecommunications network comprised of regional hubs
containing frame relay switches and high-performance routers, connecting a
backbone of leased Asynchronous Transfer Mode (ATM) and high-speed dedicated
data lines and 329 points-of-presence ("POPs") in the United States, United
Kingdom and Canada. The POPs allow customers in these areas to access the
Internet through a local telephone call or dedicated connection. The NETCOM
infrastructure is monitored by network control centers in each country in which
it operates.
NETCOM's revenue is derived from providing Internet solutions to business and
individual customers, principally through monthly dial-up, dedicated connection
and Web site hosting services. Currently, sales to small businesses and
individuals represent a majority of NETCOM's revenue. Small business and
individual revenue is comprised primarily of recurring dial-up, Web site
hosting and dedicated connection revenue. In addition, NETCOM also receives
revenue from non-access services, primarily from business customers. This
revenue includes virtual Web server hosting and domain name services. NETCOM
charges set-up fees on certain of these services.
Dial-Up Accounts. NETCOM's dial-up customers receive an integrated Internet
solution comprised of high quality access, software and 24 hours a day, seven
days a week, automated customer support. NETCOM customers can quickly register
using NETCOMplete software, available for both Windows and Macintosh platforms
via floppy disk or CD, and set up a NETCOM account by following a sequence of
simple, on-screen steps. All of the software needed to connect and access the
Internet is automatically installed and configured, eliminating the need for
complex set up procedures. NETCOMplete also provides an easy-to-use interface
as well as software from industry leading partners, bookmark managers, off-line
browsers and additional software that increase the value of a customer's
Internet experience.
NETCOM dial-up customers connect directly to the Internet via NETCOM's own
network which provides high speed, reliable access. All NETCOM dial-up accounts
allow access to the Internet's resources, including E-mail, the World Wide Web
and USENET newsgroups. In addition, all NETCOM dial-up account holders receive
a 1 Mb personal Web page, access to a daily customized newspage via E-mail, and
access to on-line financial, corporate and market information and analytical
tools. NETCOMplete Advantage and NETCOMplete Advantage Pro accounts provide
features such as additional E-mail addresses, enhanced support offerings,
software and virus updates and access to comprehensive research libraries.
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Network and Hosting Accounts. NETCOM offers Internet services including Web
site hosting and high-speed dedicated connections. The Internet services
offered to businesses are at various speeds, including 14.4 Kbps, 28.8 Kbps, 56
Kbps, T1 and T3 levels, depending upon the customer's needs. There are
currently no usage charges for any of NETCOM's dedicated accounts, and E-mail
service and USENET news feed are provided at no additional charge. Network
connections for the 56 Kbps and above services require the customer to obtain a
leased line from a local telephone company. In addition, NETCOM offers a
FrameConnect service, which provides an Internet connection based on frame
relay technology provided by local telephone carriers. NETCOM's high-speed
digital network provides subscribers with direct access to the full range of
Internet applications. As of September 30, 1997, NETCOM had approximately
11,000 network and hosting accounts.
NETCOM has developed relationships with leading global technology companies.
NETCOM is working in co-development relationships, development alliances or
commercial relationships with companies including Microsoft Corporation
(Microsoft Internet Explorer, Microsoft Internet News, Microsoft Outlook,
Microsoft NetMeeting), Netscape Communications Corporation (Netscape
Navigator), Lotus Development Corporation (Domino-based collaborative Instant
TeamRoom), Qualcomm, Inc. (Eudora Pro and Eudora Light E-mail applications),
McAfee Associates, Inc. (Webscan virus protection), Spyglass, Inc. (Surfwatch
and NETCOM Surfwatch Service), Cisco Systems, Inc. (Cisco IOS), Adobe Systems,
Inc. (PageMill), Whistle Communications Corporation (Whistle), Intel
Corporation (Quick Web technology), Tumbleweed Software Corporation (Tumbleweed
Posta), Symantec Corporation (Healthy PC.com) and 3Com Corporation (56 Kbps x2
technology).
As used in this Joint Proxy Statement-Prospectus, the term "NETCOM" refers to
NETCOM On-Line Communication Services, Inc. and its subsidiaries, unless the
context otherwise requires. The principal executive offices of NETCOM are
located at Two North Second Street, Plaza A, San Jose, California 95113; its
telephone number is (408) 881-3516.
ICG. ICG is one of the largest independent providers of competitive local
telephone services in the United States, based on estimates of the industry's
1996 revenue. Competitive local exchange carriers ("CLECs") seek to provide an
alternative to the incumbent local exchange carriers ("ILECs") for a full range
of telecommunications services in the increasingly deregulated
telecommunications industry. As a CLEC, ICG operates networks in four regional
clusters covering major metropolitan statistical areas in California, Colorado,
Ohio and the Southeast. ICG also provides a wide range of network systems
integration services and maritime and international satellite transmission
services. As a leading participant in the rapidly growing competitive local
telecommunications industry, ICG has experienced significant growth, with total
revenue increasing from $59.1 million for fiscal 1994 to $252.5 million for the
12-month period ended September 30, 1997.
The Federal Telecommunications Act of 1996 (the "Telecommunications Act") and
procompetitive state regulatory initiatives have substantially changed the
telecommunications regulatory environment in the United States. Due to these
regulatory changes, ICG is now permitted to offer all interstate and intrastate
telephone services, including competitive local dial tone. ICG is marketing and
selling local dial tone services in major metropolitan areas in the following
regions: California, which began service in late January 1997, followed by Ohio
in February 1997, Colorado in March 1997 and the Southeast in May 1997. During
the nine months ended September 30, 1997, ICG sold approximately 92,000 local
access lines, of which approximately 51,000 were in service at that date. As a
complement to its local exchange service, ICG has begun marketing bundled
service offerings which include long distance, enhanced telecommunications
services and data services. ICG has 18 operating high capacity digital voice
switches and 15 data communications switches, and plans to install additional
switches as demand warrants. To facilitate the expansion of its services, ICG
has entered into agreements with Lucent Technologies, Inc. ("Lucent"), Northern
Telecom Inc. ("Nortel") and Cascade Communications, Inc. ("Cascade") to
purchase a full range of switching systems, fiber optic cable, network
electronics, software and services. See "--Recent Developments."
8
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In developing its telecommunications service offerings, ICG continues to
invest significant resources to expand its network. This expansion is being
undertaken through a combination of constructing owned facilities, entering
into long-term agreements with other telecommunications carriers, establishing
strategic alliances with utility companies and potentially through additional
acquisitions. See "--Recent Developments."
TELECOM SERVICES
ICG operates local exchange networks in the following markets within its four
regional clusters: California (Sacramento, San Diego and portions of the Los
Angeles and San Francisco metropolitan areas); Colorado (Denver, Colorado
Springs and Boulder); Ohio (Akron, Cleveland, Columbus and Dayton) and the
Southeast (Birmingham, Charlotte, Louisville and Nashville). ICG plans to build
a network in Atlanta in conjunction with The Southern Company ("Southern").
Through its strategic alliance with Central and South West Corporation ("CSW"),
ICG is offering services in Austin, Corpus Christi, and San Antonio, Texas and
other selected areas of Texas, and expects to offer services in Tulsa, Oklahoma
and Dallas and Houston, Texas in the future. See "--Recent Developments." ICG
will continue to expand its network through construction, leased facilities,
strategic joint ventures and potentially through acquisitions. ICG operating
networks have grown from 780 fiber route miles at the end of fiscal 1994 to
3,021 fiber route miles as of September 30, 1997. Telecom Services revenue has
increased from $14.9 million for fiscal 1994 to $158.0 million for the 12-month
period ended September 30, 1997.
Strategy
ICG's objective is to become the dominant alternative to the ILEC in the
markets it serves. In furtherance of this objective, ICG has developed
strategies to aggressively market its broad range of telecommunications
services to business end users and to leverage its extensive network footprint
and its expertise in the provision of switched telecommunications services. The
key elements of this strategy are:
Expand Service Offerings. ICG's focus is to provide a wide range of local,
long distance and data communications services to business end users and
wholesale customers within its service areas, with an emphasis on local
exchange services. ICG believes that customers are increasingly demanding a
broad, full service approach to providing telecommunications services. By
offering a wide array of services bundled into customized packages, management
believes ICG will be better able to capture business from telecommunications-
intensive commercial accounts. To this end, ICG is complementing its core
competitive local exchange services with local toll and long distance services
tailored to the needs of its customers and expects to also provide tailored
data services.
Market Services to End Users. Management believes an end user strategy can
accelerate its penetration of the local services market and better leverage
ICG's network investment. In support of this strategy, ICG has substantially
increased its direct sales and marketing staff. ICG's sales force has grown
from 81 and 143 people at September 30, 1996 and December 31, 1996,
respectively, to approximately 400 people (including sales management,
technical sales support and administrative support) at September 30, 1997.
Concentrate Markets in Regional Clusters. ICG believes that by focusing on
regional clusters it will be able to more effectively service its customers'
needs and efficiently market, operate and control its networks. As a result,
ICG has concentrated its networks in regional clusters serving major
metropolitan areas in California, Colorado, Ohio and the Southeast. ICG is
expanding its network footprint to include certain cities in Texas (and may
also expand to cities in Arkansas, Louisiana and Oklahoma) through a strategic
alliance with CSW and intends to expand its network footprint to include
Atlanta through a strategic alliance with Southern. See "--Recent
Developments."
Network Connectivity. Significant amounts of telecommunications traffic are
carried within ICG's regional clusters. Management believes that integrating
these clusters through the connection of individual networks will
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provide significant benefits, including cost advantages. These cost advantages
would result from ICG's ability to carry regional traffic on-net, thereby
improving operating margins by reducing payments to other carriers for the use
of their facilities. Accordingly, ICG is in the process of connecting networks
within each of its California, Colorado and Ohio clusters with inter-city fiber
optic cable.
Expand Alliances with Utilities. ICG has established and is actively pursuing
strategic alliances with utility companies to take advantage of their existing
fiber optic infrastructures and customer relationships. This approach affords
ICG the opportunity to license or lease fiber optic facilities on a long-term
basis, which is more timely and cost effective than constructing facilities. In
addition, utilities possess conduit and other facilities that enable ICG to
more easily install additional fiber to extend existing networks in a given
market. Finally, management expects these strategic alliances to combine ICG's
expertise in providing high quality telecommunications services with the
utility's name recognition and customer relationships in marketing
telecommunications products and services to the utility's customer base.
NETWORK SERVICES
Through ICG's wholly owned subsidiary, ICG Fiber Optic Technologies, Inc.
("FOTI"), ICG supplies information technology services and selected networking
products, focusing on network design, installation, maintenance and support for
a variety of end users, including Fortune 1000 firms and other large businesses
and telecommunications companies. Revenue from Network Services was $66.0
million for the 12-month period ended September 30, 1997.
SATELLITE SERVICES
ICG's Satellite Services operations provide satellite voice and data services
to major cruise lines, commercial shipping vessels, yachts, the U.S. Navy and
offshore oil platforms. ICG also owns a teleport facility which provides
international voice and data transmission services. Revenue for Satellite
Services operations was $28.5 million for the 12-month period ended September
30, 1997. ICG has been considering the disposition of its Satellite Services
operations to better focus its efforts on its core Telecom Services unit,
although it has not approved or adopted a formal plan for such disposition.
RECENT DEVELOPMENTS
Network Expansion. ICG continues to expand its network footprint through
several strategic initiatives with utility companies and other
telecommunications carriers. In January 1997, ICG announced an agreement with a
subsidiary of Southern that will permit it to construct a 100-mile fiber optic
network in the Atlanta metropolitan area. In June 1997, ICG entered into an
indefeasible right of use ("IRU") agreement with Qwest Communications
Corporation for approximately 1,800 miles of fiber optic network and additional
broadband capacity in California, Colorado, Ohio and the Southeast. ICG expects
this new capacity will be used for the transmission of local, long distance and
data communications services in and between its markets.
CSW Strategic Alliance. In January 1997, ICG announced a strategic alliance
with CSW which is expected to develop and market telecommunications services in
Austin, Corpus Christi, Dallas, Houston and San Antonio, Texas. The venture
entity, a limited partnership named CSW/ICG ChoiceCom, L.P. ("ChoiceCom"), is
based in Austin, Texas. CSW holds 100% of the interest in ChoiceCom and ICG has
an option to purchase a 50% interest at any time prior to July 1, 2003.
Subsequent to July 1, 1999, if ICG has not exercised its option, CSW will have
the right to sell either 51% or 100% of the partnership interest in ChoiceCom
to ICG. CSW and ICG each have two representatives on the Management Committee
of the general partner of ChoiceCom. ChoiceCom is currently offering local
exchange, long haul and other services in certain cities in Texas and may
eventually offer these and other services in Arkansas, Louisiana, Oklahoma and
other cities in Texas.
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Cascade Agreement. In April 1997, ICG entered into an agreement with Cascade
for the purchase of high- speed frame relay and ATM switching products that
will enable ICG to provide high-speed data connectivity to its customers. In
addition, ICG has obtained turnkey services from Cascade for product planning
and deployment of the product, including program management, network design,
onsite operations support and training.
Acquisition of Communications Buying Group, Inc. On October 17, 1997, ICG
purchased approximately 91% of the outstanding capital stock of Communications
Buying Group, Inc. ("CBG"), an Ohio based local exchange and Centrex reseller
(the "CBG Acquisition"). The remaining approximately 9% will be purchased on or
before March 24, 1998, pursuant to the terms of the Stock Purchase Agreement
governing the CBG Acquisition. ICG paid total consideration of approximately
$46.5 million, plus the assumption of certain liabilities, and expects to pay
approximately $2.9 million for the purchase of the remaining approximately 9%
interest. Separately, on October 17, 1997, ICG sold approximately $16.0 million
of ICG Common Stock to certain shareholders of CBG.
CBG currently serves customers in Cleveland, Columbus and Akron, Ohio as well
as in surrounding areas. CBG has approximately 27,000 Centrex lines in service
and over 30,000 business lines in service, principally pursuant to various
resale and other agreements with Ameritech Corp., the ILEC in the markets it
serves. CBG focuses its sales and marketing efforts on small to medium-sized
businesses and provides a one-stop solution for the local and long distance
needs of its customers. For the calendar year 1996 and the nine months ended
September 30, 1997, CBG's revenue was approximately $21.4 million and $24.1
million, respectively, and EBITDA losses were approximately $(1.0) million and
$(1.3) million, respectively.
ICG believes that the business strategy of CBG is closely aligned with its
business strategy and that it can successfully leverage the services offered by
CBG to enhance its offering of similar services in its existing Ohio markets,
including all those currently served by CBG. The acquisition of CBG has doubled
ICG's current sales presence in Ohio to approximately 60 people. In addition,
ICG believes that its ability to migrate, over time, a portion of CBG's
existing customer base to its fiber optic facilities offers significant cost
savings. ICG believes that the transaction has significantly furthered its goal
of becoming the dominant alternative to the ILEC in Ohio.
Financings. In March 1997, ICG raised net proceeds of $192.4 million from the
sale of 11 5/8% Senior Discount Notes due 2007 (the "11 5/8% Notes") of ICG
Holdings, Inc. ("Holdings") and 14% Exchangeable Preferred Stock Mandatorily
Redeemable 2008 (the "14% Preferred Stock") of Holdings. Cash interest on the
11 5/8% Notes accrues at 11 5/8% per annum beginning March 15, 2002 and is
payable quarterly, commencing September 15, 2002. The 14% Preferred Stock
accrues dividends quarterly at an annual rate of 14% per annum. Dividends are
payable quarterly in cash or, on or prior to March 15, 2002, at the sole option
of Holdings, in additional shares of 14% Preferred Stock. ICG believes that its
liquidity was improved because the 11 5/8% Notes and the 14% Preferred Stock do
not require the payment of cash interest or cash dividends prior to 2002. The
11 5/8% Notes and the 14% Preferred Stock have been registered under the
Securities Act.
In September and October 1997, ICG's new wholly-owned subsidiary, ICG
Funding, LLC, a Delaware limited liability company ("ICG Funding"), completed a
private placement of $132.25 million of Exchangeable Limited Liability Company
Preferred Securities ("Preferred Securities"). The Preferred Securities are
mandatorily redeemable November 15, 2009 at a liquidation preference of $50.00
per security, plus accrued and unpaid dividends. Dividends on the Preferred
Securities will be cumulative at the rate of 6 3/4% per annum and will be paid
in cash through November 15, 2000 and, in cash or shares of ICG Common Stock,
at the option of ICG Funding, thereafter. The Preferred Securities are
exchangeable, at the option of the holder, into ICG Common Stock at an exchange
price of $24.025 per share. ICG Funding may, at its option, redeem the
Preferred Securities at any time on or after November 18, 2000. Prior to that
time, ICG Funding may redeem the Preferred Securities if the current market
value of ICG Common Stock equals or exceeds the exchange price, for at least 20
days of any consecutive 30-day trading period, by 170% prior to November 16,
1998; 160% from November
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16, 1998 through November 15, 1999; and 150% from November 16, 1999 through
November 15, 2000. ICG is obligated to register under the Securities Act the
Preferred Securities and the ICG Common Stock issuable upon exchange of the
Preferred Securities.
As used in this Joint Proxy Statement-Prospectus, the term "ICG" refers to
ICG Communications, Inc. and its subsidiaries, unless the context otherwise
requires. The principal executive offices of ICG are located at 9605 East
Maroon Circle, P.O. Box 6742, Englewood, Colorado 80155-6742; its telephone
number is 303-572-5960.
THE MEETINGS
TIMES, PLACES AND DATES
A Special Meeting of the stockholders of NETCOM will be held at the Fairmont
Hotel, 170 South Market Street, San Jose, California, on January 28, 1998, at
8:00 a.m., local time (including any and all adjournments or postponements
thereof, the "NETCOM Special Meeting").
A Special Meeting of the stockholders of ICG will be held at the Inverness
Hotel & Golf Club, 200 Inverness Drive West, Englewood, Colorado, on January
28, 1998 at 9:00 a.m., local time (including any and all adjournments or
postponements thereof, the "ICG Special Meeting").
PURPOSES OF THE MEETINGS
At the NETCOM Special Meeting, holders of NETCOM Common Stock will consider
and vote upon a proposal to approve and adopt an Agreement and Plan of Merger,
dated October 12, 1997, by and between NETCOM and ICG, a copy of which is
attached as Annex A-1 and Annex A-2 to this Joint Proxy Statement-Prospectus,
providing for the Merger of Acquisition Sub with and into NETCOM. As a result
of the Merger, NETCOM will become a wholly owned subsidiary of ICG. Holders of
NETCOM Common Stock will also consider and vote upon any other matter that may
properly come before the Special Meeting.
At the ICG Special Meeting, holders of ICG Common Stock will consider and
vote upon the ICG Share Proposal. Holders of ICG Common Stock will also
consider and vote upon any other matter that may properly come before the
Special Meeting.
VOTES REQUIRED; RECORD DATES
Approval and adoption of the Merger Agreement require the affirmative vote of
the holders of a majority of the outstanding shares of NETCOM Common Stock
entitled to vote thereon. Holders of NETCOM Common Stock are entitled to one
vote per share. Only holders of NETCOM Common Stock at the close of business on
December 15, 1997 (the "NETCOM Record Date") will be entitled to notice of and
to vote at the NETCOM Special Meeting. On the NETCOM Record Date there were
11,779,611 shares of NETCOM Common Stock outstanding and entitled to vote. See
"THE NETCOM SPECIAL MEETING."
The ICG Share Proposal requires approval by the affirmative vote of a
majority of the votes cast by the holders of the outstanding shares of ICG
Common Stock present, in person or by proxy, at the ICG Special Meeting.
Holders of ICG Common Stock are entitled to one vote per share. Only holders of
ICG Common Stock at the close of business on December 15, 1997 (the "ICG Record
Date") will be entitled to notice of and to vote at the ICG Special Meeting. On
the ICG Record Date there were 33,587,755 shares of ICG Common Stock
outstanding and entitled to vote. See "THE ICG SPECIAL MEETING."
As of the ICG Record Date, ICG's directors and executive officers and their
affiliates held approximately 7% of the outstanding shares of ICG Common Stock
entitled to vote at the ICG Special Meeting. See "THE ICG SPECIAL MEETING." As
of the NETCOM Record Date, NETCOM's directors and executive officers and
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their affiliates held approximately 2.3% of the shares of NETCOM Common Stock
entitled to vote at the NETCOM Special Meeting. See "THE NETCOM SPECIAL
MEETING."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Boards of Directors of each of NETCOM and ICG believe that the terms of
the Merger are fair to and in the best interests of their respective
stockholders and have by the unanimous vote of all directors approved the
Merger Agreement and the related transactions. The NETCOM Board of Directors
unanimously recommends that its stockholders approve and adopt the Merger
Agreement, and the ICG Board of Directors unanimously recommends that its
stockholders approve the ICG Share Proposal. See "THE MERGER--Background of the
Merger," "--Recommendation of the Board of Directors of NETCOM; Reasons for the
Merger,"
"--Recommendation of the Board of Directors of ICG; Reasons for the Merger" and
"--Interests of Certain Persons in the Merger."
OPINIONS OF FINANCIAL ADVISORS
NETCOM. BT Alex. Brown Incorporated ("BT Alex. Brown") delivered its written
opinion, dated as of October 12, 1997, to the NETCOM Board of Directors that,
as of such date and based upon and subject to certain matters stated in its
opinion, the Exchange Ratio is fair, from a financial point of view, to
NETCOM's stockholders. The full text of the written opinion of BT Alex. Brown,
which sets forth assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached hereto as Annex B
and is incorporated herein by reference. HOLDERS OF NETCOM COMMON STOCK ARE
URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. See "THE MERGER--
Opinion of NETCOM's Financial Advisor."
ICG. Gleacher NatWest Inc. ("Gleacher NatWest") delivered its written opinion
to the ICG Board of Directors to the effect that, as of October 12, 1997, and
based upon and subject to certain matters stated in its opinion, the Exchange
Ratio offered by ICG to the NETCOM stockholders pursuant to the Merger is fair,
from a financial point of view, to ICG and its stockholders. The full text of
the written opinion of Gleacher NatWest, which sets forth assumptions made,
matters considered and limitations on the review undertaken in connection with
the opinion, is attached hereto as Annex C and is incorporated herein by
reference. HOLDERS OF ICG COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH
OPINION IN ITS ENTIRETY. See "THE MERGER--Opinion of ICG's Financial Advisor."
THE MERGER
MERGER CONSIDERATION
At the effective time of the Merger (the "Effective Time"), each outstanding
share of NETCOM Common Stock (other than shares owned by NETCOM or its
subsidiaries, all of which will be canceled) will be automatically converted
into and represent the right to receive a number of shares of ICG Common Stock
equal to the Exchange Ratio. The Exchange Ratio will equal 0.8628 shares of ICG
Common Stock if the ICG Closing Stock Price is greater than or equal to
$22.125; provided, however, that if the ICG Closing Stock Price is greater than
or equal to $19.00 but less than $22.125, the Exchange Ratio shall equal a
fraction (rounded to the nearest ten-thousandth) determined by dividing
$19.0625 by the ICG Closing Stock Price; and provided further, that if the ICG
Closing Stock Price is less than $19.00, the Exchange Ratio shall equal 1.0078.
Cash will be paid in lieu of fractional shares. Upon consummation of the
Merger, Acquisition Sub will be merged with and into NETCOM and NETCOM, as the
surviving corporation in the Merger, will become a wholly-owned subsidiary of
ICG. See "THE MERGER AGREEMENT--Terms of the Merger."
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As of the NETCOM Record Date, options to purchase 1,870,045 shares of NETCOM
Common Stock were outstanding pursuant to NETCOM's stock option plan (the
"NETCOM Stock Option Plan"). The Merger Agreement provides that, following the
Effective Time, all outstanding options under the NETCOM Stock Option Plan will
become exercisable for a number of shares of ICG Common Stock and at an
exercise price calculated in accordance with the Exchange Ratio. See "THE
MERGER--Treatment of Stock Options."
CONDITIONS TO THE MERGER; TERMINATION
Consummation of the Merger is subject to various conditions, including, but
not limited to: (i) obtaining requisite stockholder and governmental approvals;
(ii) the absence of any preliminary or permanent injunction or other order by
any federal or state court which prevents the consummation of the Merger; (iii)
approval for listing on Nasdaq, subject to official notice of issuance, of the
ICG Common Stock to be issued in connection with Merger; and (iv) receipt by
NETCOM of the opinion of counsel to NETCOM at the closing of the Merger in
respect of certain federal income tax consequences of the Merger. See "THE
MERGER AGREEMENT--Conditions to Consummation of the Merger."
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of NETCOM or ICG: (i) by mutual consent of
the Boards of Directors of NETCOM and ICG; (ii) by either ICG or NETCOM (a) if
at the meeting of its stockholders, the Merger is not approved and adopted, (b)
if the Merger has not been consummated on or before March 1, 1998, or (c) if
their respective independent accountants advise in writing that the Merger will
not qualify for pooling-of-interests accounting treatment; (iii) by NETCOM if
any of the conditions to its obligation to consummate the Merger have not been
met or waived by NETCOM at such time as such condition is no longer capable of
satisfaction; or (iv) by ICG if any of the conditions to its obligation to
consummate the Merger have not been met or waived by ICG at such time as such
condition is no longer capable of satisfaction. In addition, either NETCOM or
ICG may terminate the Merger Agreement (a "Transaction Termination") if it
receives a notice from the other that its board of directors has determined in
good faith, after consultation with outside counsel, that the recommendation to
the stockholders that the Merger be approved would be inconsistent with the
fiduciary duty of the board of directors to stockholders.
If (i) (w) the Merger Agreement is terminated by ICG pursuant to a
Transaction Termination, (x) the NETCOM Board of Directors fails to recommend
to the stockholders of NETCOM the approval of the Merger prior to March 2,
1998, or withdraws such recommendation, (y) the Merger is not consummated as a
direct result of the failure of NETCOM to obtain stockholder approval, or (z)
the financial advisor to NETCOM withdraws its opinion as to the fairness of the
Merger to the stockholders of NETCOM, (ii) any person (other than ICG and any
of its Affiliates) shall have acquired before the Effective Time or the
termination of the Merger Agreement 50% or more of the outstanding NETCOM
Common Stock and such person fails to timely deliver to ICG written
confirmation that it will vote in favor of the Merger at the NETCOM meeting and
will take no action to prevent or delay the Merger, or (iii) if NETCOM (a)
breaches a material representation or warranty, or (b) fails to perform a
material covenant or agreement, which has the effect of preventing the
consummation of the Merger prior to March 2, 1998, NETCOM will promptly pay to
ICG $11,340,000. This termination fee could have the effect of discouraging a
third party from pursuing an acquisition transaction involving NETCOM. See "THE
MERGER AGREEMENT--No Solicitation" and "--Termination; Remedies; Fees and
Expenses."
If (i) (w) the Merger Agreement is terminated by NETCOM pursuant to a
Transaction Termination, (x) the ICG Board of Directors fails to recommend to
the stockholders of ICG the approval of the Merger prior to March 2, 1998, or
withdraws such recommendation, (y) the Merger is not consummated as a direct
result of the failure of ICG to obtain stockholder approval, or (z) the
financial advisor to ICG withdraws its opinion as to the fairness of the Merger
to the stockholders of ICG, or (ii) if ICG (a) breaches a material
representation or warranty, or (b)
14
<PAGE>
fails to perform a material covenant or agreement, which has the effect of
preventing the consummation of the Merger prior to March 2, 1998, ICG will
promptly pay to NETCOM $11,340,000. See "THE MERGER AGREEMENT--No Solicitation"
and "--Termination; Remedies; Fees and Expenses."
LISTING
It is a condition to the Merger that the shares of ICG Common Stock to be
issued in the Merger be authorized for listing on Nasdaq, subject to official
notice of issuance.
GOVERNMENTAL APPROVALS REQUIRED
The consummation of the Merger is subject to the expiration or termination of
the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). Such waiting period has terminated. See "THE
MERGER--Certain Legal Matters."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling-of-interests for accounting
and financial reporting purposes under generally accepted accounting principles
("GAAP"). Each of NETCOM and ICG may terminate the Merger Agreement if its
respective independent accountants advise it in writing that the Merger will
not qualify for pooling-of-interests accounting treatment. See "THE MERGER--
Accounting Treatment."
APPRAISAL RIGHTS
Under Delaware law, the holders of NETCOM Common Stock and ICG Common Stock
are not entitled to any appraisal rights in connection with the Merger. See
"THE MERGER--Appraisal Rights."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the NETCOM Board of Directors with
respect to the Merger Agreement and the transactions contemplated thereby,
NETCOM stockholders should be aware that certain members of NETCOM's management
and the NETCOM Board of Directors have certain interests in the Merger that are
in addition to the interests of stockholders of NETCOM generally. These
interests arise from, among other things, certain employee benefit plans,
indemnification and insurance arrangements and other matters which the
surviving corporation in the Merger (the "Surviving Corporation") and/or ICG
will assume or has agreed to provide after the Merger. In addition, it is a
condition to the Merger that subject to the consummation of the Merger, ICG
elect David W. Garrison, Chief Executive Officer and Chairman of the Board of
NETCOM, to the ICG Board of Directors. See "THE MERGER--Interests of Certain
Persons in the Merger."
RISK FACTORS
Holders of NETCOM Common Stock, in voting on the Merger, and holders of ICG
Common Stock, in voting on the ICG Share Proposal, should consider risks
associated with the Merger and with holding ICG Common Stock. See "RISK
FACTORS."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Merger is conditioned upon the delivery of an opinion of
counsel to NETCOM dated as of the closing date of the Merger to the effect that
the Merger will constitute a "reorganization" within the meaning of Section 368
of the Internal Revenue Code of 1986, as amended (the "Code"). See "THE
MERGER--Federal Income Tax Consequences." Accordingly, except as more fully
described under "THE MERGER--Federal Income Tax Consequences," no gain or loss
will be recognized by NETCOM stockholders as a result of
15
<PAGE>
the Merger, except with respect to cash received in lieu of fractional shares,
and no gain or loss will be recognized by ICG, NETCOM or Acquisition Sub as a
result of the Merger.
THE ICG COMMON STOCK
At November 30, 1997, the authorized capital stock of ICG consisted of: (a)
100,000,000 shares of common stock, par value $.01 per share, of which
33,512,820 shares were issued and outstanding; (b) 1,000,000 shares of
preferred stock, par value $.01 per share, of which no shares were issued and
outstanding; (c) 4,786,680 shares of ICG Common Stock issuable upon exchange of
outstanding preferred stock of ICG; and (d) 13,231,790 shares of ICG Common
Stock issuable with respect to all other options, warrants, convertible debt
and similar rights to acquire shares of ICG Common Stock. It is anticipated
that at the Effective Time, assuming an Exchange Ratio of 0.8628, approximately
10,161,626 shares of ICG Common Stock will be issued to the holders of NETCOM
Common Stock, and an additional 1,586,683 shares of ICG Common Stock will be
issuable upon the exercise of options which were previously exercisable for
shares of NETCOM Common Stock. The aggregate of such 11,748,309 shares will
represent approximately 26% of the outstanding ICG Common Stock after such
issuance. The ICG Common Stock trades on Nasdaq under the symbol "ICGX."
COMPARATIVE RIGHTS OF STOCKHOLDERS
The rights of NETCOM stockholders currently are governed by Delaware law,
NETCOM's Restated Certificate of Incorporation as amended, and NETCOM's By-
laws. Upon consummation of the Merger, stockholders of NETCOM will become
stockholders of ICG, which is also a Delaware corporation, and their rights as
stockholders of ICG will be governed by Delaware law, ICG's Certificate of
Incorporation and ICG's By-laws. For a comparison of the rights of NETCOM
stockholders and the rights of ICG stockholders, see "COMPARISON OF STOCKHOLDER
RIGHTS."
SURRENDER OF STOCK CERTIFICATES
At the Effective Time, the Surviving Corporation will instruct American Stock
Transfer & Trust Company, in its capacity as exchange agent for the Merger (the
"Exchange Agent"), to mail to each holder of record of NETCOM Common Stock a
transmittal letter as soon as practicable. The transmittal letter will contain
instructions with respect to the surrender of certificates representing NETCOM
Common Stock to be exchanged for ICG Common Stock. See "THE MERGER--Conversion
of Shares; Procedures for Exchange of Certificates."
16
<PAGE>
COMPARATIVE PER SHARE PRICES
ICG
The ICG Common Stock has been quoted on Nasdaq since March 25, 1997 under the
symbol "ICGX," and was previously listed on the American Stock Exchange
("AMEX") from August 5, 1996 to March 24, 1997 under the symbol "ICG." Prior to
August 5, 1996, the Common Shares of ICG Holdings (Canada), Inc., a Canadian
federal corporation and subsidiary of ICG ("Holdings-Canada"), had been listed
on the AMEX under the symbol "ITR" from January 14, 1993 through February 28,
1996, and under the symbol "ICG" thereafter through August 2, 1996. Holdings-
Canada Common Shares ceased trading on the AMEX at the close of trading on
August 2, 1996. Holdings-Canada Common Shares, which were listed on the
Vancouver Stock Exchange ("VSE") under the symbol "IHC.A," ceased trading on
the VSE at the close of trading on March 12, 1997.
The following table sets forth, for the fiscal periods indicated, the high
and low closing sale prices of the Holdings-Canada Common Shares as reported on
the AMEX through August 2, 1996, and the high and low closing sales prices of
the ICG Common Stock as reported on the AMEX from August 5, 1996 through March
24, 1997 and on Nasdaq from March 25, 1997 through the date indicated below.
<TABLE>
<CAPTION>
AMERICAN STOCK
EXCHANGE/NASDAQ(1)
------------------
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1995
First Quarter......................................... $ 17.88 $ 12.38
Second Quarter........................................ 14.13 9.38
Third Quarter......................................... 13.25 6.63
Fourth Quarter........................................ 14.00 8.00
FISCAL YEAR ENDED SEPTEMBER 30, 1996
First Quarter......................................... $ 12.75 $ 8.63
Second Quarter........................................ 17.88 10.25
Third Quarter......................................... 27.38 17.13
Fourth Quarter(1)..................................... 25.88 18.50
THREE MONTHS ENDED DECEMBER 31, 1996(2)................. $ 22.25 $ 14.00
FISCAL YEAR ENDED DECEMBER 31, 1997(2)
First Quarter......................................... $ 18.13 $ 10.38
Second Quarter........................................ 21.13 8.63
Third Quarter......................................... 24.63 17.75
Fourth Quarter through December 15, 1997.............. 28.63 19.75
</TABLE>
- - --------
(1) Effective at the close of trading on August 2, 1996, Holdings-Canada Common
Shares ceased trading on the AMEX and the ICG Common Stock commenced
trading on the AMEX on August 5, 1996. Effective March 25, 1997, the ICG
Common Stock ceased trading on the AMEX and commenced trading on Nasdaq.
(2) ICG changed its fiscal year end to December 31 from September 30, effective
January 1, 1997.
17
<PAGE>
NETCOM
Since December 1994, the NETCOM Common Stock has been quoted on Nasdaq under
the symbol "NETC." The following table sets forth the high and low closing sale
prices of the NETCOM Common Stock as reported by Nasdaq for each of the
quarters in the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL YEAR ENDED DECEMBER 31, 1995
First Quarter............................................... $30.00 $22.00
Second Quarter.............................................. 27.13 20.00
Third Quarter............................................... 47.13 25.63
Fourth Quarter.............................................. 82.75 36.00
FISCAL YEAR ENDED DECEMBER 31, 1996
First Quarter............................................... $38.00 $20.38
Second Quarter.............................................. 44.00 23.88
Third Quarter............................................... 27.13 16.00
Fourth Quarter.............................................. 18.50 13.00
FISCAL YEAR ENDED DECEMBER 31, 1997
First Quarter............................................... $14.63 $ 8.31
Second Quarter.............................................. 16.75 8.44
Third Quarter............................................... 16.63 11.81
Fourth Quarter through December 15, 1997.................... 23.50 12.63
</TABLE>
On October 10, 1997, the last trading day prior to public announcement that
ICG and NETCOM executed the Merger Agreement, the last reported sale prices per
share of ICG Common Stock and NETCOM Common Stock on Nasdaq were $26.25 and
$15.13, respectively, or a pro forma equivalent per share of NETCOM Common
Stock (based on an Exchange Ratio of 0.8628) of $22.65. NETCOM AND ICG
STOCKHOLDERS SHOULD OBTAIN CURRENT MARKET QUOTATIONS FOR THE ICG COMMON STOCK.
18
<PAGE>
COMPARATIVE HISTORICAL AND COMBINED PER SHARE DATA
The following historical earnings (loss) per share and stockholders' equity
(deficit) per share of ICG and NETCOM, and pro forma loss per share and
stockholders' equity (deficit) per share give effect to the Merger (using the
closing price of ICG Common Stock on December 15, 1997) as though it occurred
on September 30, 1997 for the balance sheet and October 1, 1993 for the
statement of operations. The equivalent pro forma combined loss per share and
stockholders' equity (deficit) per share is based upon an assumed share
exchange ratio of 0.8628 provided by the Merger Agreement as discussed in the
footnotes below. The comparative historical and combined per share data are not
necessarily indicative of the results that actually would have occurred if the
Merger had been completed on October 1, 1993 or which may be expected in the
future. The combined financial information should be read in conjunction with
the historical consolidated financial statements of ICG and NETCOM incorporated
by reference herein and in conjunction with the Unaudited Pro Forma Combined
Condensed Financial Statements of ICG and NETCOM included elsewhere herein.
NETCOM's fiscal year ends December 31. The historical Consolidated Financial
Statements of NETCOM have been recast and reclassified to conform with ICG's
historical financial statement presentation.
Neither ICG nor NETCOM has ever paid cash dividends. It is anticipated that
ICG will retain all earnings, when attained, for use in the expansion of its
business and therefore it does not anticipate paying any cash dividends in the
foreseeable future.
Estimated direct costs of the Merger and other costs of consolidation have
not been determined and are not included in pro forma combined loss per share
for the periods indicated. Such amounts are not expected to be significant to
the combined operations of the companies.
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS
YEARS ENDED ENDED ENDED
SEPTEMBER 30, DECEMBER SEPTEMBER
---------------------- 31, 30,
1994 1995 1996 1996 1997
------ ------ ------ -------- ---------
Historical earnings (loss) per
share:
<S> <C> <C> <C> <C> <C>
ICG (1)........................ $(1.56) (3.25) (6.70) (1.56) (7.00)
NETCOM......................... 0.01 (1.22) (3.45) (0.99) (2.16)
Pro forma combined loss per
share (2)...................... (0.93) (2.44) (5.86) (1.46) (5.92)
Equivalent pro forma loss per
share (3)...................... (0.80) (2.11) (5.06) (1.26) (5.11)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER SEPTEMBER
31, 30,
1996 1997
-------- ---------
<S> <C> <C>
Historical stockholders' equity (deficit) per share:
ICG................................................... $ (2.07) (8.78)
NETCOM................................................ 12.45 10.19
Pro forma combined stockholders' equity (deficit) per
share ................................................ 1.87 (3.87)
Equivalent pro forma stockholders' equity (deficit) per
share (3)............................................. 1.61 (3.34)
</TABLE>
- - --------
(1) ICG's historical loss per share is based on the weighted average number of
shares outstanding. Weighted average number of shares outstanding for
fiscal 1994 and 1995 represents Holdings-Canada common shares outstanding.
Weighted average number of shares outstanding for fiscal 1996, the three
months ended December 31, 1996 and the nine months ended September 30, 1997
represents Holdings-Canada common shares for the period from October 1,
1995 through August 2, 1996 and ICG Common Stock and Holdings-Canada Class
A common shares (not owned by ICG) outstanding for the periods subsequent
to August 5, 1996.
(2) During fiscal 1996, ICG changed its method of accounting for long-term
telecom services contracts to recognize revenue as services are provided.
Pro forma combined loss per share for the year ended September 30, 1996
represents loss per share before the cumulative effect of this change in
accounting.
(3) Equivalent pro forma loss per share and equivalent pro forma stockholders'
equity (deficit) per share represents the pro forma combined loss per share
and pro forma combined stockholders' equity (deficit) per share,
respectively, multiplied by an assumed Exchange Ratio of 0.8628, as
provided by the Merger Agreement.
19
<PAGE>
ICG SELECTED FINANCIAL DATA
The following table sets forth the selected financial data of ICG for each
fiscal year in the five-year period ended September 30, 1996, the three-month
period ended December 31, 1996 and the nine-month periods ended September 30,
1996 and 1997. Such selected financial data have been derived from, and should
be read in conjunction with, ICG's Annual Report on Form 10-K for the fiscal
year ended September 30, 1996, Transition Report on Form 10-K/A for the
transition period from October 1, 1996 to December 31, 1996 and Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1997, which are
incorporated by reference herein. See "INCORPORATION OF DOCUMENTS BY REFERENCE"
and "AVAILABLE INFORMATION." Interim unaudited selected financial data reflect,
in the opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the information set forth therein.
Results of operations for the nine months ended September 30, 1997 are not
necessarily indicative of results of operations for the entire year or
predictive of future periods. ICG's development and expansion activities,
including acquisitions, during the periods shown below materially affect the
comparability of this data from one period to another.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------
1992 1993 1994 1995 1996
------- ------ ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Telecom services(1).... $ 1,061 4,803 14,854 32,330 87,681
Network services....... 4,955 21,006 36,019 58,778 60,116
Satellite services(2).. 1,468 3,520 8,121 20,502 21,297
Other.................. 126 147 118 -- --
------- ------ ------- ------- --------
Total revenue.......... 7,610 29,476 59,112 111,610 169,094
------- ------ ------- ------- --------
Operating costs......... 5,423 18,961 38,165 78,846 135,253
Selling, general and
administrative
expenses............... 3,921 10,702 28,015 62,954 76,725
Depreciation and
amortization........... 1,602 3,473 8,198 16,624 30,368
Net loss on disposal of
long-lived assets...... -- -- -- -- --
Provision for impairment
of long-lived assets... -- -- -- 7,000 9,917
------- ------ ------- ------- --------
Total operating costs
and expenses.......... 10,946 33,136 74,378 165,424 252,263
------- ------ ------- ------- --------
Operating loss.......... (3,336) (3,660) (15,266) (53,814) (83,169)
Interest expense........ (525) (2,523) (8,481) (24,368) (85,714)
Other income, net....... 12 325 925 3,398 10,218
------- ------ ------- ------- --------
Loss before income
taxes, minority
interest, share of
losses and cumulative
effect of change in
accounting............. (3,849) (5,858) (22,822) (74,784) (158,665)
Income tax benefit...... 174 1,552 -- -- 5,131
------- ------ ------- ------- --------
Loss before minority
interest, share of
losses and cumulative
effect of change in
accounting............. (3,675) (4,306) (22,822) (74,784) (153,534)
Minority interests,
including preferred
stock dividends........ 21 (303) 435 (1,123) (25,306)
Share of losses of joint
venture and
investment............. -- -- (1,481) (741) (1,814)
------- ------ ------- ------- --------
Loss before cumulative
effect of change in
accounting............. (3,654) (4,609) (23,868) (76,648) (180,654)
Cumulative effect of
change in accounting(1) -- -- -- -- (3,453)
------- ------ ------- ------- --------
Net loss................ $(3,654) (4,609) (23,868) (76,648) (184,107)
======= ====== ======= ======= ========
Loss per share.......... $ (0.42) (0.39) (1.56) (3.25) (6.83)
======= ====== ======= ======= ========
Weighted average number
of shares of ICG Common
Stock outstanding(3)... 8,737 11,671 15,342 23,604 26,955
======= ====== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION> NINE MONTHS
ENDED
THREE MONTHS SEPTEMBER 30,
ENDED ------------------
DECEMBER 31, 1996 1996 1997
----------------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Telecom services(1).... 34,787 74,168 123,187
Network services....... 15,981 44,398 50,059
Satellite services(2).. 6,188 15,129 22,306
Other.................. -- -- --
------- -------- --------
Total revenue.......... 56,956 133,695 195,552
------- -------- --------
Operating costs......... 49,929 108,143 179,000
Selling, general and
administrative
expenses............... 24,253 58,097 111,943
Depreciation and
amortization........... 9,825 25,449 37,624
Net loss on disposal of
long-lived assets...... -- 4,098 1,035
Provision for impairment
of long-lived assets... -- 9,994 --
------- -------- --------
Total operating costs
and expenses.......... 84,007 205,781 329,602
------- -------- --------
Operating loss.......... (27,051) (72,086) (134,050)
Interest expense........ (24,454) (70,499) (82,315)
Other income, net....... 6,670 11,666 16,948
------- -------- --------
Loss before income
taxes, minority
interest, share of
losses and cumulative
effect of change in
accounting............. (44,835) (130,919) (199,417)
Income tax benefit...... -- 5,131 --
------- -------- --------
Loss before minority
interest, share of
losses and cumulative
effect of change in
accounting............. (44,835) (125,788) (199,417)
Minority interests,
including preferred
stock dividends........ (4,988) (22,091) (24,981)
Share of losses of joint
venture and
investment............. -- (1,586) --
------- -------- --------
Loss before cumulative
effect of change in
accounting............. (49,823) (149,465) (224,398)
Cumulative effect of
change in accounting(1) -- -- --
------- -------- --------
Net loss................ (49,823) (149,465) (224,398)
======= ======== ========
Loss per share.......... (1.56) (5.42) (7.00)
======= ======== ========
Weighted average number
of shares of ICG Common
Stock outstanding(3)... 31,840 27,560 32,066
======= ======== ========
</TABLE>
(continued)
20
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1992 1993 1994 1995 1996
-------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(4)............... $ (1,734) (187) (7,068) (30,190) (42,884)
Net cash used by
operating activities... (1,126) (2,839) (7,532) (43,039) (47,361)
Net cash used by
investing activities... (10,696) (13,401) (51,452) (71,342) (131,200)
Net cash (used) provided
by financing
activities............. (12,277) 30,382 49,428 377,772 360,227
Capital
expenditures(5)........ 12,599 20,685 54,921 88,495 175,148
</TABLE>
<TABLE>
<CAPTION>
THREE
MONTHS NINE MONTHS ENDED
ENDED SEPTEMBER 30,
DECEMBER 31, ------------------
1996 1996 1997
------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OTHER DATA:
EBITDA(4)............... (17,226) (32,545) (95,391)
Net cash used by
operating activities... (8,639) (38,759) (71,224)
Net cash used by
investing activities... (82,339) (109,962) (304,540)
Net cash (used) provided
by financing
activities............. (170) 368,640 283,187
Capital
expenditures(5)........ 78,238 151,926 204,154
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments available
for sale.................................................. $ 388,191
Working capital............................................ 376,835
Property and equipment, net................................ 565,252
Total assets............................................... 1,131,650
Current portion of long-term debt and capital lease
obligations............................................... 7,859
Long-term debt and capital lease obligations, less current
portion................................................... 929,571
Redeemable preferred securities of subsidiaries ($406.1
million liquidation value)................................ 393,618
Common stock and additional paid-in capital................ 308,511
Accumulated deficit........................................ (593,038)
Stockholders' deficit...................................... (284,527)
</TABLE>
- - --------
(1) During fiscal 1996, ICG changed its method of accounting for long-term
telecom services contracts to recognize revenue as services are provided.
Other than the cumulative effect of adopting this new method of accounting,
the effect of this change in accounting for the periods presented was not
significant.
(2) Revenue from Satellite Services is generated through ICG's satellite (voice
and data) operations and, after January 1995, also includes revenue from
maritime communications operations. ICG completed the sale of four of its
teleports in March 1996, and has reported results of operations from these
assets through December 31, 1995.
(3) Weighted average number of shares outstanding for fiscal years 1992, 1993,
1994 and 1995 represents Holdings-Canada common shares outstanding.
Weighted average number of shares outstanding for fiscal 1996, the three
months ended December 31, 1996 and the nine months ended September 30, 1996
and 1997 represents Holdings-Canada common shares outstanding for the
period October 1, 1995 through August 2, 1996 and ICG Common Stock and
Holdings-Canada Class A common shares (not owned by ICG) outstanding for
the periods subsequent to August 5, 1996.
(4) EBITDA consists of revenue less operating costs and selling, general and
administrative expenses. EBITDA is provided because it is a measure
commonly used in the telecommunications industry. EBITDA is presented to
enhance an understanding of ICG's operating results and is not intended to
represent cash flows or results of operations in accordance with GAAP for
the periods indicated. EBITDA is not a measurement under GAAP and is not
necessarily comparable with similarly titled measures of other companies.
Net cash flows from operating, investing and financing activities as
determined using GAAP are also presented in Other Data.
(5) Capital expenditures include assets acquired under capital leases and
through the issuance of debt or warrants.
21
<PAGE>
NETCOM SELECTED FINANCIAL DATA
The following table sets forth selected financial data (except for other
operating data) of NETCOM for the period from August 27, 1992 (inception) to
December 31, 1992 and each fiscal year in the four-year period ended December
31, 1996 and the nine-month periods ended September 30, 1996 and 1997. Such
data have been derived from, and should be read in conjunction with, NETCOM's
Annual Report on Form 10-KSB/A for the fiscal year ended December 31, 1996 and
Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997,
which are incorporated by reference herein. See "INCORPORATION OF DOCUMENTS BY
REFERENCE" and "AVAILABLE INFORMATION." Interim unaudited selected financial
data reflect, in the opinion of management, all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the information set
forth therein. Results of operations for the nine months ended September 30,
1997 are not necessarily indicative of results of operations for a full year or
predictive of future periods. NETCOM's development and expansion activities,
including acquisitions, during the periods shown below materially affect the
comparability of this data from one period to another.
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 27, 1992
(INCEPTION) TO YEARS ENDED DECEMBER 31,
DECEMBER 31, ------------------------------------
1992 1993 1994 1995(1) 1996
--------------- ------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 356 2,412 12,359 52,422 120,540
Costs and expenses:
Cost of revenues....... 140 1,133 6,711 36,641 88,396
Product development.... -- 69 328 2,240 6,020
Sales and marketing.... 15 371 3,080 18,771 51,237
General and
administrative........ 180 597 2,345 11,016 23,610
Restructuring and
related charges....... -- -- -- -- --
------ ------- -------- -------- -------
Total costs and
expenses.............. 335 2,170 12,464 68,668 169,263
Income (loss) from
operations............. 21 242 (105) (16,246) (48,723)
Gain (loss) on
investment............. -- -- -- -- (1,200)
Interest and other
income................. (2) (3) 5 2,197 5,681
------ ------- -------- -------- -------
Income (loss) before
provision for income
taxes.................. 19 239 (100) (14,049) (44,242)
Provision for income
taxes.................. -- (12) -- (15) (23)
------ ------- -------- -------- -------
Net income (loss)(2).... $ 19 227 (100) (14,064) (44,265)
====== ======= ======== ======== =======
Net income (loss) per
share(2)............... $ -- 0.04 (0.02) (1.68) (3.85)
====== ======= ======== ======== =======
Shares used in computing
net income (loss) per
share.................. 6,047 6,327 5,927 8,350 11,498
====== ======= ======== ======== =======
OTHER DATA:
Net cash (used in)
provided by operating
activities............. $ 69 789 4,922 (461) (21,651)
Net cash used in
investing activities... (81) (1,028) (11,375) (44,742) (53,992)
Net cash provided by
financing activities... 12 314 27,315 170,294 2,351
Capital
expenditures(3)........ 81 1,028 11,143 43,361 53,992
OTHER OPERATING DATA:
Approximate number of
subscribers at end of
period................ 3 11 73 308 580
====== ======= ======== ======== =======
EBITDA(4):
Domestic............... 51 399 1,096 (5,815) (5,091)
International.......... -- -- -- (486) (15,206)
------ ------- -------- -------- -------
Total.................. $ 51 399 1,096 (6,301) (20,297)
====== ======= ======== ======== =======
EBITDA before
restructuring and
related charges:
Domestic............... 51 399 1,096 (5,815) (5,091)
International.......... -- -- -- (486) (15,206)
------ ------- -------- -------- -------
Total.................. $ 51 399 1,096 (6,301) (20,297)
====== ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
-----------------
1996 1997
-----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ 84,161 120,131
Costs and expenses:
Cost of revenues....... 61,480 87,218
Product development.... 4,460 4,924
Sales and marketing.... 36,986 38,732
General and
administrative........ 17,404 16,544
Restructuring and
related charges....... -- 1,879
-------- -------
Total costs and
expenses.............. 120,330 149,297
Income (loss) from
operations............. (36,169) (29,166)
Gain (loss) on
investment............. (1,200) 1,274
Interest and other
income................. 4,605 2,688
-------- -------
Income (loss) before
provision for income
taxes.................. (32,764) (25,204)
Provision for income
taxes.................. (11) (13)
-------- -------
Net income (loss)(2).... (32,775) (25,217)
======== =======
Net income (loss) per
share(2)............... (2.86) (2.16)
======== =======
Shares used in computing
net income (loss) per
share.................. 11,454 11,698
======== =======
OTHER DATA:
Net cash (used in)
provided by operating
activities............. (16,966) (1,616)
Net cash used in
investing activities... (45,438) (6,248)
Net cash provided by
financing activities... 2,338 1,412
Capital
expenditures(3)........ 45,438 13,990
OTHER OPERATING DATA:
Approximate number of
subscribers at end of
period................ 562 542
======== =======
EBITDA(4):
Domestic............... (5,644) 9,179
International.......... (11,453) (11,576)
-------- -------
Total.................. (17,097) (2,397)
======== =======
EBITDA before
restructuring and
related charges:
Domestic............... (5,644) 9,179
International.......... (11,453) (9,697)
------- -------
Total.................. (17,097) (518)
======== =======
</TABLE>
(continued)
22
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
(IN THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments............ $66,733
Working capital.............................................. 42,227
Property and equipment, net.................................. 77,908
Total assets................................................. 152,891
Short term lease obligations................................. 2,342
Long term capital lease obligations.......................... 4,013
Common stock and additional paid-in capital.................. 206,817
Accumulated deficit.......................................... (87,259)
Stockholders' equity......................................... 119,729
</TABLE>
- - --------
(1) Results for the year ended December 31, 1995 include two months of results
of Professional Internet Consulting, Inc. ("PICnet") which was acquired by
NETCOM in August 1995. Pro forma data giving effect to the transaction as
of the beginning of the period has not been presented as such results are
not material.
(2) Net income (loss) per share for the period from August 2, 1992 (inception)
to December 31, 1992 has not been presented, as such information is not
meaningful.
(3) Capital expenditures include assets acquired under capital leases.
(4) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
is not intended to represent cash flow from operations and should not be
considered as an alternative to net income (loss) as an indicator of
NETCOM's operating performance or to cash flows as a measure of liquidity.
NETCOM believes EBITDA is a measure used by analysts, investors and other
interested parties in the on-line and Internet services industries.
Accordingly, this information has been disclosed herein to permit a more
complete analysis of NETCOM's operating performance.
23
<PAGE>
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL DATA
FOR ICG AND NETCOM
The following unaudited pro forma combined selected financial data for ICG
and NETCOM give effect to the Merger as though it occurred on October 1, 1993
for statement of operations and other data purposes and September 30, 1997 for
balance sheet data purposes, using the pooling-of-interests method of
accounting. The unaudited pro forma combined selected financial data is not
necessarily indicative of the results that actually would have occurred if the
Merger had been completed on the dates indicated or which may be expected in
the future. Such unaudited pro forma combined selected financial data should be
read in conjunction with the audited historical consolidated financial
statements and notes thereto of ICG and NETCOM incorporated by reference herein
and in conjunction with the Unaudited Pro Forma Combined Condensed Financial
Statements of ICG and NETCOM included elsewhere herein.
NETCOM's fiscal year ends December 31. The historical consolidated financial
statements of NETCOM have been recast and reclassified to conform with ICG's
historical financial statement presentation.
Estimated direct costs of the Merger and other costs of consolidation have
not been determined and are not included in the following financial data. Such
amounts are not expected to be significant to the combined operations of the
companies.
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS
ENDED ENDED
YEARS ENDED SEPTEMBER 30, DECEMBER SEPTEMBER
---------------------------- 31, 1996 30, 1997
<S> <C> <C> <C> -------- ---------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS
DATA:
Revenue:
Telecom services (1)... $ 22,961 70,264 191,514 71,166 243,318
Network services....... 36,019 58,778 60,116 15,981 50,059
Satellite services
(2).................... 8,121 11,360 18,819 6,188 22,306
Other.................. 118 -- -- -- --
-------- -------- -------- ------- --------
Total revenue......... 67,219 140,402 270,449 93,335 315,683
Operating loss ......... (15,129) (61,124) (125,745) (39,605) (161,942)
Interest expense........ (8,511) (23,975) (85,714) (24,454) (82,626)
Minority interests,
including preferred
security dividends...... 435 (1,123) (25,306) (4,988) (24,981)
Net loss before
cumulative effect of
change in accounting.... $(23,787) (82,359) (217,511) (61,313) (249,615)
======== ======== ======== ======= ========
Loss per share before
cumulative effect of
change in accounting
........................ $ (0.93) (2.44) (5.86) (1.46) (5.92)
======== ======== ======== ======= ========
Weighted average number
of shares of ICG Common
Stock outstanding
(3)..................... 25,476 33,738 37,089 41,974 42,200
======== ======== ======== ======= ========
<CAPTION>
OTHER DATA:
<S> <C> <C> <C> <C> <C>
EBITDA (4).............. $ (6,248) (33,263) (60,475) (20,426) (97,183)
Net cash used by
operating activities.... (5,512) (43,376) (61,349) (13,324) (72,860)
Net cash used by
investing activities.... (57,238) (108,900) (189,786) (90,893) (310,788)
Net cash provided (used)
by financing
activities.............. 55,529 448,836 483,007 (157) 284,599
Capital expenditures
(5)..................... 60,466 124,921 233,494 86,792 218,144
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
<S> <C>
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments available
for sale................................................... $ 454,924
Working capital ........................................... 419,062
Net property, plant and equipment.......................... 643,160
Total assets............................................... 1,284,541
Current portion of long-term debt and capital lease
obligations................................................ 10,201
Long-term debt and capital lease obligations, net of
current portion ........................................... 933,584
Redeemable preferred securities of subsidiaries ($406.1
million liquidation value)................................. 393,618
Common stock and additional paid-in capital................ 515,328
Accumulated deficit........................................ (680,297)
Stockholders' deficit...................................... (164,798)
</TABLE>
(continued)
24
<PAGE>
(1) During fiscal 1996, ICG changed its method of accounting for long-term
telecom services contracts to recognize revenue as services are provided.
Other than the cumulative effect of adopting this new method of accounting,
the effect of this change in accounting for the periods presented was not
significant. See ICG's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997-- "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Accounting Changes"
incorporated by reference herein.
(2) Revenue from Satellite Services is generated through ICG's satellite (voice
and data) operations and, after January 1995, also includes revenue from
maritime communications operations. In March 1996, ICG completed the sale
of four teleports used in its Satellite Services operations. The unaudited
pro forma combined selected financial data presents ICG's operations as
though the sale of these assets was completed on October 1, 1993.
(3) For each of the periods presented, weighted average number of shares
outstanding includes the estimated number of shares of ICG Common Stock to
be issued as a result of the Merger (using the closing price of ICG Common
Stock on December 15, 1997), as though it occurred on October 1, 1993.
Weighted average number of shares outstanding for fiscal years 1994 and
1995 represents Holdings-Canada common shares outstanding. Weighted average
number of shares outstanding for fiscal 1996, the three months ended
December 31, 1996 and the nine months ended September 30, 1997 represents
Holdings-Canada common shares for the period from October 1, 1995 through
August 2, 1996 and ICG Common Stock and Holdings-Canada Class A common
shares (not owned by ICG) outstanding for the periods subsequent to August
5, 1996.
(4) EBITDA consists of revenue less operating costs and selling, general and
administrative expenses. Excluded from operating costs is the amortization
of subscriber acquisition costs for NETCOM of $0.2 million, $1.4 million,
$9.4 million, $4.4 million and $7.0 million for fiscal 1994, 1995 and 1996,
the three months ended December 31, 1996 and the nine months ended
September 30, 1997, respectively. EBITDA is provided because it is a
measure commonly used in the telecommunications industry. EBITDA is
presented to enhance the understanding of the Company's operating results
and is not intended to represent cash flows or results of operations in
accordance with GAAP for the periods indicated. EBITDA is not a measurement
under GAAP and is not necessarily comparable with similarly titled measures
of other companies. Net cash flows from operating, investing and financing
activities as determined using GAAP are also presented in Other Data.
(5) Capital expenditures include assets acquired under capital leases and
through the issuance of debt or warrants.
25
<PAGE>
RISK FACTORS
Holders of NETCOM Common Stock and holders of ICG Common Stock should
consider carefully all of the information contained in this Joint Proxy
Statement-Prospectus, including the following factors:
INTEGRATION OF THE TWO COMPANIES
NETCOM and ICG have entered into the Merger Agreement with the expectation
that the Merger will result in certain benefits. Achieving the benefits of the
Merger will depend in part upon the integration of the businesses of NETCOM
and ICG in an efficient manner, and there can be no assurance that this will
occur. The transition to a combined company will require substantial attention
from management. Neither company's management has experience in integrating
operations on the scale represented by the Merger. The diversion of management
attention and any difficulties encountered in the transition process could
have an adverse effect on the revenue and operating results of the combined
company. In addition, the process of combining the two organizations could
cause the interruption of, or a disruption in, the activities of either or
both of the companies' businesses, which could have a material adverse effect
on their combined operations. In addition, aggressive competitors may
undertake formal initiatives to attract customers and to recruit employees.
There can be no assurance that the combined company will realize any of the
anticipated benefits of the Merger.
SUBSTANTIAL DILUTION OF OWNERSHIP INTEREST OF CURRENT ICG STOCKHOLDERS
Following the Merger, as of November 30, 1997, the current stockholders of
ICG would own from approximately 74% to 77% of the outstanding shares of ICG
Common Stock, and approximately 79% to 81% of the outstanding shares of ICG
Common Stock on a fully diluted basis, depending on the Exchange Ratio. This
represents substantial dilution of the ownership interest in ICG of the
current ICG stockholders.
THE EFFECT OF ICG STOCK PRICE FLUCTUATIONS ON THE CONSIDERATION TO BE RECEIVED
BY THE HOLDERS OF NETCOM COMMON STOCK IN THE MERGER
The price of the ICG Common Stock at the Effective Time may vary
significantly from the price as of the date of execution of the Merger
Agreement or the date hereof or the date on which stockholders vote on the
Merger or the ICG Share Proposal. These variances may be due to changes in the
business, operations and prospects of NETCOM or ICG, market assessments of the
likelihood that the Merger will be consummated and the timing thereof, the
effect of any conditions or restrictions imposed on or proposed with respect
to the combined companies by regulatory agencies in connection with or
following consummation of the Merger, general market and economic conditions,
and other factors. For example, between January 1, 1997 and December 15, 1997,
the sales price of the ICG Common Stock has ranged from a high of $28.63 to a
low of $8.63. The Exchange Ratio will be adjusted based on certain downward
changes in the stock price of the ICG Common Stock if the price of ICG Common
Stock is less than $22.125 immediately prior to the Effective Time. In such
event, ICG will be required to issue a greater number of shares of ICG Common
Stock in the Merger, resulting in greater dilution to existing holders of ICG
Common Stock. Thus, the dollar value of the ICG Common Stock to be received by
the holders of NETCOM Common Stock will not be determined until the Effective
Time, and may be substantially more or less than the value of the ICG Common
Stock as of the date of execution of the Merger Agreement, the date hereof or
the date on which stockholders vote on the Merger or the ICG Share Proposal.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE VOLATILITY OF STOCK PRICE
After the Merger and assuming the conversion of the 11,779,611 shares of
NETCOM Common Stock outstanding on the NETCOM Record Date to shares of ICG
Common Stock, approximately 9,930,692 of the shares of ICG Common Stock issued
to NETCOM stockholders will be freely tradeable and an additional 232,756
shares of ICG Common Stock will be tradeable under Rule 145 under the
Securities Act. As a result,
26
<PAGE>
substantial sales of ICG Common Stock could occur after the Merger. Sales of a
substantial number of such shares of ICG Common Stock could adversely affect
or cause substantial fluctuations in the market price of ICG Common Stock and
impair ICG's ability to raise additional capital through the sale of its
equity securities.
The market price for the ICG Common Stock is subject to significant
fluctuations in response to a number of factors, including variations in ICG's
quarterly operating results, changes in estimates of ICG's results of
operations, perceptions about market conditions in the telecommunications
industry and the effect of general economic conditions, many of which are
unrelated to ICG's operating performance. In addition, the stock market
generally has experienced significant price and volume fluctuations. These
market fluctuations could have a material adverse effect on the market price
or liquidity of the ICG Common Stock.
As of November 30, 1997, there were 33,512,820 shares of ICG Common Stock
outstanding, all of which are transferable without restriction or further
registration under the Securities Act, except for any shares of ICG Common
Stock held by affiliates of ICG, which will be subject to the resale
limitations of Rule 144 promulgated under the Securities Act ("Rule 144"). In
addition, ICG has reserved and registered under the Securities Act the
following 8,445,110 shares of ICG Common Stock for future issuance: (i)
1,973,664 shares of ICG Common Stock issuable pursuant to Holdings-Canada
warrants; (ii) 3,373 shares of ICG Common Stock issuable upon conversion of
the remaining interest on ICG's 7% Convertible Subordinated Notes; (iii)
4,743,766 shares of ICG Common Stock issuable pursuant to outstanding options,
with exercise prices ranging from $2.92 to $27.06 per share; (iv) 424,511
shares of ICG Common Stock reserved for issuance under ICG's 401(k) Plan; (v)
933,190 shares of ICG Common Stock reserved for issuance pursuant to ICG's
1996 Employee Stock Purchase Plan, (vi) 342,906 shares of ICG Common Stock
reserved for issuance under the 1996 Stock Option Plan; and (vii) 23,700
shares of ICG Common Stock which may be issued upon the exchange of an equal
number of shares of Class A Common Shares of Holdings-Canada. In addition, ICG
Funding, a recently formed subsidiary of the Company, may sell ICG Common
Stock to fund certain dividend obligations. Further, up to 4,786,680 shares of
ICG Common Stock have been reserved for issuance to holders of Preferred
Securities of ICG Funding upon exchange of the Preferred Securities from time
to time. See "Summary--Parties to the Merger; ICG." Further, upon the
completion of the Merger, approximately 10.2 million shares of ICG Common
Stock, subject to adjustment and subject to the exercise of options for NETCOM
Common Stock prior to the Effective Time and assuming an Exchange Ratio of
0.8628, will be issued to the holders of NETCOM Common Stock in exchange for
their shares. As of November 30, 1997, NETCOM had outstanding employee and
director stock options which, if outstanding upon consummation of the Merger,
and assuming an Exchange Ratio of 0.8628, will convert to options to purchase
1,586,683 shares of ICG Common Stock.
The prices of ICG Common Stock and NETCOM Common Stock have been, and are
expected to continue to be, highly volatile. Factors such as legislation or
regulation, variation in revenue, earnings and cash flow, the difference
between actual results and the results expected by investors and analysts and
announcements of new service offerings, marketing plans or price reduction by
ICG or NETCOM or their respective competitors, technological innovations,
mergers or strategic alliances, may cause the price of ICG and/or NETCOM
Common Stock to fluctuate substantially. In addition, the stock markets
recently have experienced significant price and volume fluctuations that have
affected growth companies such as telecommunications and Internet access
services concerns. The fluctuations in the market prices of the stocks of many
companies have not been directly related to the operating performance of those
companies. Such market fluctuations may materially adversely affect the price
of ICG and/or NETCOM Common Stock. See "Summary--Comparative Per Share
Prices."
HISTORICAL AND ANTICIPATED FUTURE OPERATING LOSSES, NET LOSSES AND NEGATIVE
CASH FLOWS
ICG. ICG has incurred and expects to continue to incur significant operating
and net losses. For the 12 months ended September 30, 1997, ICG had revenue of
approximately $252.5 million, an operating loss of approximately $161.2
million, negative EBITDA of approximately $112.6 million, cash used by
operating activities of approximately $80.0 million, interest expense of
approximately $106.8 million and a net loss of approximately $274.2 million.
In conjunction with the increase in its service offerings, ICG will need to
spend
27
<PAGE>
significant amounts on sales, marketing, customer service, engineering and
corporate personnel prior to the generation of appreciable revenue. ICG
expects to continue to generate significant negative cash flows from operating
activities while it emphasizes development, construction and expansion of its
Telecom Services business and until ICG establishes a sufficient revenue
generating customer base. As ICG's customer base grows, ICG anticipates that
operating margins and cash flows will improve as incremental revenue will
exceed incremental operating expenses. This is dependent upon the successful
implementation of ICG's local dial tone, local toll, data communications and
long distance service strategies, continued development of ICG's network
infrastructure, increased traffic on ICG's facilities, any or all of which may
not occur, and upon actions of competitors and regulatory authorities. ICG had
an accumulated deficit and stockholders' deficit of approximately $593.0
million and $284.5 million, respectively, at September 30, 1997. There can be
no assurance that ICG will achieve or sustain profitability or positive cash
flows in the future or at any time have sufficient resources to meet its
obligations. ICG will be adversely affected if it does not make substantial
progress toward achieving profitability.
NETCOM. NETCOM has incurred and expects to continue to incur significant
operating and net losses. NETCOM experienced net losses of approximately $25.2
million in the first nine months of 1997, and had an accumulated deficit of
$87.3 million as of September 30, 1997. The consolidated net loss incurred
during the nine months ended September 30, 1997 included a loss of $15.3
million related to international operations. These losses are also reflected
in NETCOM's operating margins, which were 24% for the nine months ended
September 30, 1997.
NETCOM's current focus is on targeting the business customer (individuals
and groups), which NETCOM believes will result in increased revenues per
subscriber, although at reduced subscriber growth rates. NETCOM anticipates
increases in its expenses related to product development, marketing, sales,
general and administrative, network, and customer support. There can be no
assurance that NETCOM will achieve future revenue growth or sustained
profitability or positive cash flow from operations.
NETCOM has adopted strategies designed to attract the business customer,
which may result in an increase in costs as a percentage of revenues. The
introduction of new technologies may also increase the costs and complexities
of providing acceptable customer services. In addition, an increase in peak
time usage or an overall increase in usage by subscribers could adversely
affect NETCOM's ability to consistently meet the demands for its services,
requiring NETCOM to hire additional personnel and increase expenses related to
network infrastructure capacity. There can be no assurance that NETCOM's
operating margins will not be materially adversely affected in the future by
these factors or strategies.
NETCOM's operating results have fluctuated in the past and may fluctuate
significantly in the future as a result of a variety of factors, some of which
are outside of NETCOM's control, including capital expenditures and other
costs relating to the expansion of operations, the timing of new product
announcements by NETCOM or its competitors, changes in pricing strategies by
NETCOM and its competitors, market acceptance of new and enhanced versions of
NETCOM's software products and services and the rates of new subscriber
acquisition and retention.
RISKS RELATED TO LOCAL SERVICES AND SWITCHED SERVICES STRATEGIES OF ICG
ICG is a recent entrant in the competitive local telecommunications services
industry. The local telecommunications services market has only recently
opened to competition due to the passage of the Telecommunications Act, state
and federal regulatory rulings designed to implement the Telecommunications
Act, and negotiations with ILECs under the terms of the Telecommunications Act
and state rulings. ICG is initiating the provision of long distance and data
communications services. ICG believes that offering a full-service portfolio
of local, long distance and data products is the best method for gaining
market share among business customers and reducing customer churn. However,
ICG has only recently begun to offer long distance services and has not yet
generated any significant revenue from data services, despite its offering of
these services
28
<PAGE>
since the first quarter of 1997. ICG is making significant operating and
capital investments and will have to address numerous operating complexities
associated primarily with providing local services. ICG will be required to
develop new provisioning and technical support systems and will need to
develop new marketing initiatives and hire and train a new sales force
responsible for selling its services. ICG will also need to supplement the
necessary billing and collection systems for local services and integrate
these systems with those of its long distance and other services, including
data services. There can be no assurance that ICG can design and install, and
coordinate with ILECs regarding, necessary provisioning, billing and customer
management systems in a timely manner to permit ICG to provision local
exchange, local toll, long distance or data communications services as
planned.
ICG expects to face significant competition from ILECs, whose core business
is providing local dial tone service. The ILECs, which currently are the
dominant providers of services in their markets, are expected to mount a
significant competitive response to new entrants in their market, such as ICG.
ICG expects to face significant competitive product and pricing pressures from
the ILECs in these markets, as well as from other CLECs.
ICG began generating switched services revenue in the fourth quarter of
fiscal 1994, and substantially all of ICG's current switched revenue is from
wholesale customers. ICG is experiencing negative operating margins from the
provision of wholesale switched services because it relies on ILEC networks to
terminate and originate customers' switched traffic. ICG expects overall
operating margins from switched services to improve as local dial tone, local
toll, long distance and data communications services become a relatively
larger portion of its business mix and ICG deemphasizes its wholesale switched
services.
CERTAIN FINANCIAL AND OPERATING RESTRICTIONS OF ICG
The terms governing certain of Holdings' senior indebtedness and preferred
stock impose significant operating and financial restrictions on ICG. Such
restrictions affect, and in certain cases significantly limit or prohibit,
among other things, the ability of ICG and its subsidiaries (including NETCOM,
following the Merger) to incur additional indebtedness, create liens on its
assets, pay dividends, sell assets, engage in mergers or acquisitions or make
investments. Failure to comply with such covenants would result in a default
thereunder, in which case the lenders would be able to accelerate the maturity
of the applicable indebtedness. Moreover, the instruments governing ICG's
material indebtedness contain cross-default provisions which provide that a
default under other indebtedness will be considered a default under the
indebtedness in question. In the event that a cross-default were triggered,
the maturity of substantially all of ICG's approximately $940.9 million of
indebtedness at September 30, 1997 would be accelerated and become immediately
due and payable. As a result, ICG would not be able to satisfy all of its debt
obligations, which would have a substantial material adverse effect on the
price of ICG Common Stock and ICG's ability to continue as a going concern.
There can be no assurance that ICG will be able to comply with such covenants
in the future or that such compliance would not cause it to forego
opportunities that might otherwise be beneficial.
SUBSTANTIAL INDEBTEDNESS OF ICG
As of September 30, 1997, ICG had, on a consolidated basis, aggregate
accreted indebtedness, including capitalized lease obligations, of
approximately $940.9 million. With respect to indebtedness currently
outstanding, ICG has interest payment obligations of approximately $113.3
million in 2001, $158.0 million in 2002 and $168.1 million in 2003. In
addition, with respect to the Preferred Securities and Holdings' preferred
stock currently outstanding, ICG has cash dividend obligations of
approximately $8.9 million in each of 1998, 1999 and 2000, $21.5 million in
2001, $57.0 million in 2002 and $70.9 million in 2003. Accordingly, ICG may
have to refinance a substantial amount of indebtedness and obtain substantial
additional funds prior to March 2001, when Holdings is required to commence
cash interest payments under its senior indebtedness. ICG's ability to obtain
additional sources of cash will depend on, among other things, its financial
condition at the time, the restrictions in the instruments governing its
indebtedness and other factors, including market conditions, beyond the
control of ICG. Additional sources of cash may include public and private
equity and debt financings by
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ICG, Holdings and their subsidiaries, sales of non-strategic assets,
capitalized leases and other financing arrangements. There can be no assurance
that ICG will be able to refinance such indebtedness, including such
capitalized leases, or obtain such additional funds, and if ICG is unable to
effect such refinancings or obtain additional funds, ICG's ability to make
principal and interest payments on its indebtedness, its ability to continue
as a going concern and the price of ICG Common Stock will be substantially
materially adversely affected.
RISKS RELATED TO RAPID EXPANSION OF BUSINESS; INTEGRATION OF ACQUIRED
BUSINESSES
ICG. The continued rapid expansion and development of ICG's business will
depend on, among other things, ICG's ability to successfully implement its
sales and marketing strategy, evaluate markets, lease fiber, design and build
fiber backbone routes, secure financing, install facilities, acquire rights of
way and building access, obtain any required government authorizations,
implement interconnection to, and collocation with, facilities owned by ILECs
and obtain appropriately priced unbundled network elements from the ILECs, 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 ICG and require
integration with ICG's existing networks and service offerings. See "--Risks
Related to Local Services and Switched Services Strategies of ICG."
ICG has experienced rapid growth. ICG intends to continue to grow through
further expansion of its existing operations, through acquisitions including
the CBG Acquisition and the NETCOM Merger, and through the establishment of
new operations. ICG constantly evaluates acquisition opportunities. ICG's
ability to manage its anticipated future growth will depend on its ability to
evaluate new markets and investment vehicles, monitor operations, control
costs, maintain effective quality controls, and significantly expand ICG's
internal management, technical and accounting systems. ICG's rapid growth has
placed, and its planned future growth will continue to place, a significant
strain on ICG's financial, management and operational resources, including the
identification of acquisition targets and the negotiation of acquisition
agreements. In addition, acquisitions and the establishment of new operations
will entail considerable expenses in advance of anticipated revenues and may
cause fluctuations in ICG's operating results.
In addition, ICG's acquired and new businesses will need to be integrated
with its existing operations. For acquired businesses, including CBG and
NETCOM, this may entail, among other things, integration of switching,
transmission, technical, sales, marketing, billing, accounting, quality
control, management, personnel, payroll, regulatory compliance and other
systems and operating hardware and software, some or all of which may be
incompatible. The failure to effectively integrate acquired businesses could
have a material adverse effect on ICG's business, growth, financial condition
and results of operations and the price of ICG Common Stock.
NETCOM. NETCOM has in the past and may in the future experience a strain on
its management, operations and financial resources as a result of NETCOM's
growth. NETCOM's ability to effectively manage growth will require it to
continue to implement and improve its operational, financial and management
information systems and to train, motivate and manage its employees, as well
as to expand its existing local access numbers. These demands will require the
addition of new management personnel and the development of additional
expertise by existing management. In particular, the demands on NETCOM's
telecommunications infrastructure and customer support resources have grown
rapidly with NETCOM's changing subscriber base, and NETCOM has from time to
time experienced difficulties meeting the demand for its connectivity
services. Capacity constraints have occurred, and may in the future occur,
both at the level of particular local access numbers and in connection with
system-wide services that are provided from NETCOM's facilities in San Jose,
California and Dallas, Texas. NETCOM has experienced difficulties in providing
an adequate level of customer service and support, and has been taking steps
to improve its telecommunications infrastructure and customer support
resources. A failure to enhance customer support resources adequately, or to
expand and enhance its telecommunications infrastructure adequately, may
materially adversely affect NETCOM's business, operating results and financial
condition. There can be no assurance that NETCOM's customer support or other
resources will be sufficient to manage any future growth in NETCOM's business
or that NETCOM will be able to
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implement in whole or in part its expansion program, and any failure to do so
could have a material adverse effect on the NETCOM's business, operating
results and financial condition.
Although NETCOM continues to invest significant resources in its
telecommunications infrastructure and customer support resources, NETCOM
continues to experience attrition of its subscribers from time to time as a
result of a number of factors, including difficulties associated with
management of growth. There can be no assurance that NETCOM will be able to
improve its ability to retain subscribers or to attract sufficient new
subscribers to offset periodic losses of existing subscribers.
COMPETITION
ICG. ICG operates in an increasingly competitive environment dominated by
ILECs such as the Regional Bell Operating Companies ("RBOCs") and GTE
Corporation ("GTE"). ICG's current competitors include RBOCs, GTE, other
independent ILECs, other CLECs, network systems integration service providers,
microwave and satellite service providers, teleport operators, wireless
telecommunications providers and private networks of large end users.
Potential competitors include cable television companies, utilities, ILECs
outside their current local service areas and the local access operations of
long distance carriers. Consolidation of telecommunications companies,
including mergers between certain of the RBOCs, 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,
particularly in the local telephone market. Since the enactment of the
Telecommunications Act, several telecommunications companies have indicated
their intention to aggressively expand their ability to address many segments
of the telecommunications industry, including segments in which ICG
participates and expects to participate. For example, AT&T Corp. ("AT&T"), MCI
Communications Corp. ("MCI"), Time Warner Communications, Inc., Texas
Utilities Company and other large companies are entering the local markets as
competitors of ICG. This may result in more participants than can ultimately
be successful in a given market.
As a recent entrant in the telecom services industry, ICG, like other CLECs,
has not achieved a significant market share. The ILECs 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 incumbent
operator over potential competitors. The Telecommunications Act, other recent
state legislative actions, and current federal and state regulatory
initiatives provide increased business opportunities for ICG and others by
removing or substantially reducing barriers to local exchange competition.
However, these new competitive opportunities are accompanied by potential new
competitive opportunities for the ILECs, as the Telecommunications Act
provides the conditions for the removal of previous restrictions on the
provision of long distance services by the RBOCs. It is also expected that
increased local competition will result in increased pricing flexibility for,
and relaxation of regulatory oversight of, the ILECs. If the ILECs are
permitted to engage in increased volume and discount pricing practices or
charge CLECs increased fees for interconnection to their networks, or if the
ILECs seek to delay implementation of interconnection to their networks, ICG's
results of operations and financial condition could be adversely affected. In
addition, ICG has experienced declining access unit prices and increasing
price competition for access services which to date have been more than offset
by increasing network usage. ICG expects to continue to experience declining
prices for the foreseeable future. There can be no assurance that ICG will be
able to achieve or maintain adequate market share or revenue, or compete
effectively in any of its markets. Any of the foregoing factors could have a
material adverse effect on ICG and the price of ICG Common Stock.
In addition, the long distance and data transmission businesses are
extremely competitive and prices have declined substantially in recent years
and are expected to continue to decline.
NETCOM. The market for Internet services is increasingly competitive and
there are few barriers to entry. NETCOM believes that its ability to compete
successfully depends upon a number of factors, including market presence; the
capacity, reliability and security of its network infrastructure; ease of
access to and
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navigation of the Internet; the pricing policies of its competitors and
suppliers; the timing of new products and services introductions by NETCOM and
its competitors; NETCOM's ability to support existing and emerging industry
standards; and industry and general economic trends.
NETCOM's current and prospective competitors include many large companies
that have substantially greater market presence and financial, technical,
marketing and other resources than NETCOM. NETCOM competes or expects to
compete directly or indirectly with other national and regional commercial
Internet services providers, with established on-line services companies which
offer Internet connectivity, with national long distance carriers, with
regional telephone companies, with cable operators and with other local and
regional ISPs.
Increased competition in general could result in significant reductions in
the average selling price of NETCOM's services. In addition, NETCOM expects to
see increased pressure to obtain and retain additional subscribers that could
result in increased sales and marketing expenses and related subscriber
acquisition costs, which could materially adversely affect NETCOM's
profitability. There can be no assurance that NETCOM will be able to offset
the effects of any such competition or resulting price reductions through an
increase in the number of its subscribers, higher revenue from enhanced
services, cost reductions or otherwise. Increased competition could result in
erosion of NETCOM's market share and adversely affect NETCOM's operating
results. There can be no assurance that NETCOM or the combined company will
have financial resources, technical resources, technical expertise or
marketing and support capabilities to continue to compete successfully.
REGULATION
ICG. ICG operates in an industry that is undergoing substantial regulatory
change as a result of the passage of the Telecommunications Act. ICG's Telecom
Services activities are regulated by the Federal Communications Commission
("FCC"), state regulatory agencies and municipalities. ICG's Satellite Service
activities are regulated by the FCC and international regulatory bodies.
The FCC regulates ICG's provision of interstate common carrier services,
including long distance and data services, and ICG's provision of
international services. ICG currently files and maintains tariffs with the
FCC. In addition, the FCC and state regulatory bodies are charged with
implementing the Telecommunications Act, which has a substantial impact on the
development of ICG's local exchange business. The Telecommunications Act is
also subject to actions of the federal courts, while state regulatory actions
are subject to review and actions of both state and federal courts. State
regulatory agencies regulate ICG's provision of local dial tone and other
intrastate common carrier services. In general, ICG is required to obtain
certification from the relevant state public utilities commissions prior to
the initiation of intrastate service and is also required to file tariffs
listing the rates, terms and conditions of intrastate services provided.
Several states also impose operating restrictions on the CLEC industry,
covering the ability to raise and lower prices and restrictions on marketing
and sales activities. In addition, local authorities control ICG's access to
municipal rights of way. Any failure to maintain proper federal and state
tariffing or state certification, or noncompliance with federal, state or
local laws or regulations, could have a material adverse effect on ICG.
The Telecommunications Act generally requires ILECs to provide
interconnection, nondiscriminatory access to ILEC networks, unbundling of ILEC
networks and access to ILEC operational support systems and network
portability. The Telecommunications Act imposes a variety of new duties on the
ILECs in order to promote network competition in the markets for local
exchange and access services, including the duty to negotiate in good faith
with competitors requesting interconnection to the ILEC networks. However,
negotiations with each ILEC have sometimes involved considerable delays and
the resulting negotiated agreements may not necessarily be obtained on terms
and conditions that are desirable to ICG. In such instances, ICG has
petitioned the proper state regulatory agency to arbitrate disputed issues. In
addition, following state review either party in the negotiations can appeal
to the federal courts. There can be no assurance that ICG will be able to
negotiate acceptable new interconnection agreements with ILECs or that, if
state regulatory authorities impose terms and conditions on the parties in
arbitration, such terms will be acceptable to ICG.
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On August 8, 1996, the FCC adopted rules and policies implementing the
interconnection provisions of the Telecommunications Act, which rules, in
general, are favorable to new competitive entrants. The FCC's rules were
challenged in the federal courts of appeals by GTE, the RBOCs, other large
independent ILECs and state regulatory commissions. On July 18, 1997, the U.S.
Court of Appeals for the Eighth Circuit (the "Eighth Circuit Court") issued a
ruling that vacated certain of the FCC's rules and upheld the FCC's rules on
other issues.
In the July 18, 1997 decision, the Eighth Circuit Court ruled that state
commissions, not the FCC, have jurisdiction over the pricing of
interconnection, unbundled network elements and resale services. The Eighth
Circuit Court also ruled that the FCC's interpretation of Section 252(i) of
the Telecommunications Act, the so- called "pick and choose" provision, was
incorrect. The Eighth Circuit Court held that the Telecommunications Act
allows CLECs to adopt whole interconnection agreements negotiated by other
competitors but not to "pick and choose" pieces of existing agreements.
Because the Eighth Circuit Court held that CLECs cannot "pick and choose"
pieces of other interconnectors' negotiated interconnection agreements, ICG
may be subject to the risk that other CLECs negotiate more favorable prices,
terms or conditions with the ILECS. ICG's only recourse under such
circumstances may be to adopt other interconnectors' agreements with an ILEC
in whole, though these agreements may include terms and conditions ICG finds
unacceptable. The Eighth Circuit Court upheld certain of the FCC's rules
regarding unbundled network elements. Moreover, the Eighth Circuit Court's
decision does not alter most of the basic statutory requirements of the
Telecommunications Act, including the statutory requirements that the ILECs
conduct negotiations and enter into interconnection agreements with
competitive carriers.
Separate petitions for rehearing of the July 18 decision were filed with the
Eighth Circuit Court by a group of interexchange carriers ("IXC's"), two
groups of ILECs and a group of CLECs. On October 14, 1997, the Eighth Circuit
Court granted the ILEC petitions for rehearing, and denied the CLEC and IXC
petitions. The Court's decision on rehearing vacated an additional FCC rule
that addressed the ability of new entrants to purchase ILEC network elements
at cost-based rates on a bundled rather than an unbundled basis. Management
believes ICG could benefit from a reversal in whole, or in part, of the Eighth
Circuit Court's decision.
The FCC and other parties have sought review by the U.S. Supreme Court of
the Eighth Circuit Court's decisions. Separate petitions for certiorari have
been filed with the U.S. Supreme Court by the FCC, a group of CLECs, and a
group of IXCs.
Although ICG believes that the Telecommunications Act and other state and
federal regulatory initiatives that favor increased competition are
advantageous to ICG, there can be no assurance that changes in current or
future state or federal regulations, including changes that may result from
further court review of the FCC's interconnection rules, or increased
competitive opportunities resulting from such changes, will not have a
material adverse effect on ICG and on the price of ICG Common Stock.
ICG must obtain and maintain certain FCC authorizations for its satellite
and wireless services. ICG currently provides maritime communication services
pursuant to an experimental license and a grant of Special Temporary Authority
("STA"). ICG's experimental license has been renewed by the FCC on several
occasions. In January 1997, ICG submitted an application for the modification
and renewal of the experimental license, which was due to expire on February
1, 1997. Under the FCC's procedures, the experimental license has remained
valid pending FCC action on the renewal and modification. On January 30, 1997,
ICG was granted the STA for which ICG filed for a six-month extension on July
25, 1997. ICG has received a verbal grant of the extension. Although ICG
expects that the FCC will issue a permanent license, there can be no assurance
ICG will be granted a permanent license, that the experimental license
currently being used to provide maritime services will be renewed for a
further term or that any license granted by the FCC will not require
substantial payments by ICG.
The FCC and relevant state public utilities commissions have the authority
to regulate interstate and intrastate telephone rates, respectively, ownership
of transmission facilities and the terms and conditions under
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which certain of ICG's services are provided. Federal and state regulations
and regulatory trends have had, and in the future are likely to have, both
positive and negative effects on ICG and its ability to compete. The recent
trend in both federal and state regulation of telecommunications service
providers has been in the direction of reduced regulation. In general, neither
the FCC nor the relevant state public utilities commission currently regulate
ICG's long distance rates or profit levels, although either or both may do so
in the future. There can be no assurance that changes in current or future
federal or state regulations or future judicial changes would not have a
material adverse effect on ICG.
NETCOM. NETCOM is not currently subject to direct regulation by the FCC or
any other agency other than regulations applicable to businesses generally.
Changes in the regulatory environment relating to the Internet connectivity
industry, including regulatory changes which directly or indirectly affect
telecommunication costs or increase the likelihood or scope of competition
from regional telephone companies or others, could have an adverse effect on
NETCOM's business. For example, NETCOM is aware that certain third parties
have petitioned the FCC to require certain Internet access providers to pay
"access charges." NETCOM cannot predict the impact, if any, that future
regulation or regulatory changes may have on its business.
SIGNIFICANT CAPITAL REQUIREMENTS OF ICG
ICG's current plans for expansion of existing networks, the development of
new networks, the further development of ICG's products and services and the
continued funding of operating losses may require additional cash from outside
sources. ICG's arrangements with utilities require it to make significant cash
payments and the development of ICG's networks requires significant capital
expenditures for transmission equipment, switching and network build-out from
the utilities' fiber backbone to end user locations. ICG must also purchase a
substantial amount of equipment and other assets from vendors. ICG anticipates
that the expansion of existing networks, construction of new networks and
further development of ICG's products and services will require capital
expenditures of approximately $410.0 million in 1998 and continued significant
capital expenditures thereafter. Further, ICG has significant personnel
expenses related to increasing its marketing efforts and offering new long
distance and planned data transmission services in anticipation of revenue
growth. ICG also plans to make strategic acquisitions from time to time. ICG
anticipates that its substantial cash requirements will continue into the
foreseeable future. Due to the number of opportunities arising from changes in
the telecommunications regulatory environment and the cash required to take
advantage of these opportunities, ICG believes that cash on hand and amounts
expected to be available through vendor financing arrangements will provide
sufficient funds necessary for ICG to expand its telecom services business as
currently planned and to fund its operating deficits into the third quarter of
1998. Additional sources of cash may include public and private equity and
debt financings of ICG, Holdings or their subsidiaries, sales of non-strategic
assets, capitalized leases and other financing arrangements. There can be no
assurance that additional financing will be available to ICG or, if available,
that it can be obtained on terms acceptable to ICG. Failure to obtain such
financing could result in the delay or abandonment of some or all of ICG's
acquisition, development and expansion plans and expenditures, which could
have a material adverse effect on its business prospects and the price of ICG
Common Stock.
DEPENDENCE ON KEY CUSTOMERS OF ICG
ICG's five largest customers accounted for approximately 28%, 30% and 28% of
ICG's consolidated revenue in fiscal 1996, the three months ended December 31,
1996 and the nine months ended September 30, 1997, respectively. 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 ICG and the price of ICG Common Stock. While ICG actively
markets its products and services, there can be no assurance that ICG will be
able to attract new customers or retain its existing customers.
RISKS OF ENTRY INTO LONG DISTANCE BUSINESS BY ICG
In order to offer its end user customers a complete package of
telecommunications services, ICG recently began offering long distance
services. Although ICG has extensive experience in the telecommunications
business, including an executive team with sales, marketing and long distance
management expertise, ICG has
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limited experience providing long distance services. The long distance
business is extremely competitive and prices have declined substantially in
recent years and are expected to continue to decline. ICG does not expect long
distance services to generate a material portion of its revenues over the near
term.
ICG relies on other carriers to provide transmission and termination
services for a majority of its long distance traffic and will therefore be
dependent on such carriers. ICG has entered into agreements with long distance
carriers to provide it with long distance transmission services. Such
agreements typically provide for the resale of long distance services on a per
minute basis (some with minimum volume commitments). Where ICG anticipates
higher volumes of traffic, it may lease point-to-point circuits on a monthly
or longer term fixed cost basis. The negotiation of these agreements involves
estimates of future supply and demand for long distance telecommunications
transmission capacity. Should ICG fail to meet its minimum volume commitments,
if any, pursuant to these agreements, it may be obligated to pay
underutilization charges. Likewise, ICG may underestimate its need for long
distance facilities and therefore be required to obtain the necessary
transmission capacity through more expensive means. There can be no assurance
that ICG will acquire long distance capacity on favorable terms or that ICG
can accurately predict long distance prices and volumes so that it can
generate positive gross margins. The success of ICG's entry into the long
distance business will be dependent upon, among other things, ICG's ability to
select new equipment and software and integrate these into its networks, hire
and train qualified personnel, enhance its billing, back-office and
information systems to accommodate long distance services and the acceptance
of potential customers of ICG's long distance service offerings. If ICG's long
distance transmission business fails to generate positive gross margins or if
ICG fails in any of the foregoing respects, such failure may have a material
adverse effect on ICG's business and the price of ICG Common Stock. In
addition, a majority of ICG's Telecom Services revenue is derived from long
distance carrier customers. ICG is subject to the risk that its entry into the
long distance business will adversely affect its relationship with its long
distance carrier customers.
RISKS OF ENTRY INTO DATA TRANSMISSION BUSINESS BY ICG
To complement its telecommunications services offerings ICG began offering
frame relay services in California, Colorado and Ohio during the first quarter
of 1997. These services are targeted at ICG's existing customers and other
businesses with substantial data communications requirements. To date, ICG has
not generated any revenue from these services, despite having offered these
services since the first quarter of 1997. Based on this market experience, ICG
is reevaluating its previous product and customer strategies, and expects to
generate low or negative gross margins and substantial start-up expenses as it
develops and rolls out its data services. ICG does not expect data
transmission services to generate a material portion of its revenue over the
near term.
Although ICG has extensive experience in the telecommunications business,
ICG has no direct experience providing data transmission services.
Additionally, the data transmission business is extremely competitive and
prices have declined substantially in recent years and are expected to
continue to decline. In providing these services, ICG will be dependent upon
vendors for assistance in the planning and deployment of its initial data
product offerings as well as ongoing training and support. The success of
ICG's entry into the data transmission business will be dependent upon, among
other things, ICG's ability to select new equipment and software and integrate
these into its networks, hire and train qualified personnel, enhance its
billing, back-office and information systems to accommodate data transmission
services and customer acceptance of ICG's data services. No assurance can be
given that ICG will be successful with respect to these matters. If ICG is not
successful with respect to these matters, there may be a material adverse
effect on ICG's business and the price of ICG Common Stock.
DEPENDENCE ON BILLING, CUSTOMER SERVICE AND INFORMATION SYSTEMS
Sophisticated information and processing systems are vital to each of ICG's
and NETCOM'S growth and their respective abilities to monitor costs, bill
customers, provision customer orders and achieve operating
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efficiencies. Billing and information systems for ICG's historical lines of
business have been produced largely in-house with partial reliance on third
party vendors. These systems have generally met ICG's needs due in part to
ICG's low volume of bills and orders. As ICG commences providing local, long
distance and data transmission services, the need for sophisticated billing
and information systems is increasing significantly. ICG's current local
billing platform plans rely on products and services provided by third party
vendors. Additionally, ICG is developing automated systems and customer
service centers to provision orders. Information systems are vital to the
success of these centers, and the information systems for these centers are
largely being developed by third party vendors.
San Francisco Consulting Group ("SFCG") has been engaged by ICG to recommend
a long-term customer care and billing solution, to provide support in
development of short to long-term information systems planning and to
facilitate and improve the provisioning process. The services provided by SFCG
focus primarily on further development of ICG's abilities to ensure that back-
office processes and functions operate at maximum effectiveness.
NETCOM's billing and information systems are primarily products and services
provided by third party vendors. These systems have generally met NETCOM's
historical needs, primarily due to a relatively low volume of complex customer
accounts from a billing perspective. Information systems are vital as NETCOM
expects its customer base to continue to increase the variety of products and
services with varying prices. Additionally, NETCOM expects the amount of
customers with more complex billing requests in general to increase. NETCOM is
currently evaluating a billing platform based upon an information system
purchased from a third party vendor with internal enhancements to meet
NETCOM's unique needs. The failure of (i) either company's vendors to deliver
proposed products and services in a timely and effective manner, (ii) either
company to adequately identify all of its information and processing needs or
(iii) either company to upgrade systems as necessary, could have a material
adverse impact on the ability of ICG and NETCOM to reach their objectives, and
on their respective financial condition and results of operations.
While NETCOM and ICG each believes that their respective software
applications are year 2000 compliant, there can be no assurance until the year
2000 occurs that all systems will then function adequately. Further, if the
software applications of local exchange carriers, long distance carriers or
others on whose services ICG depends are not year 2000 compliant, it could
have a material adverse effect on ICG's financial condition and results of
operations and the value of ICG Common Stock.
RISKS RELATED TO JOINT VENTURES AND STRATEGIC ALLIANCES
ICG has formed a strategic alliance with CSW for the purpose of providing
services, through ChoiceCom, in Austin, Corpus Christi, Dallas, Houston and
San Antonio, Texas. Under the terms of this arrangement, CSW holds a 100%
interest in ChoiceCom and ICG has an option to purchase a 50% interest. Under
the terms of certain of its indebtedness, ICG is currently prohibited from
making any investment in ChoiceCom (other than a $15.0 million debt investment
that ICG has committed to make, of which approximately $6.4 million was
advanced as of September 30, 1997) and from purchasing less than a majority
interest in any venture. Unless the terms of certain of ICG's indebtedness are
revised (which could entail substantial costs), ICG may not be able to exploit
opportunities for joint ventures, which could have an adverse effect on ICG
and the price of ICG Common Stock. ICG has also formed strategic alliances
with utility companies to lease fiber optic facilities. ICG expects to
continue to enter into strategic alliances, joint ventures and other similar
arrangements in the future.
NETCOM has formed strategic alliances with various resellers and software
and network equipment providers. In December 1997, pursuant to the Merger
Agreement, NETCOM disposed of its interest in Internetcom do Brasil, S.A., a
joint venture NETCOM had in Brazil with Grupo Itamarati. NETCOM expects to
continue to enter into strategic alliances in the future.
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The other parties to such existing arrangements, and to arrangements in
which ICG or NETCOM may subsequently participate, may at any time have
economic, business or legal interests or goals that are inconsistent with
those of the strategic alliance, joint venture or similar arrangement or those
of ICG and NETCOM. In addition, a joint venture partner may be unable to meet
its economic or other obligations to the venture, which, depending upon the
nature of such obligations, could adversely affect the combined company and
the price of ICG Common Stock.
RAPID TECHNOLOGICAL CHANGE
ICG. The telecommunications industry is subject to rapid and significant
changes in technology. The effect of technological changes, including changes
relating to emerging wireline and wireless transmission technologies, on the
business of ICG cannot be predicted.
NETCOM. NETCOM's success is highly dependent upon its ability to develop new
services and software that meet changing customer requirements. The market for
NETCOM's services is characterized by rapidly changing technology, evolving
industry standards, emerging competition and frequent new software and service
introductions. There can be no assurance that NETCOM can successfully identify
new service opportunities and develop and bring new services and software to
market in a timely manner, or that services, software or technologies
developed by others will not render NETCOM's services, software or
technologies noncompetitive or obsolete. NETCOM is also at risk to fundamental
changes in the way Internet access services are delivered. Required
technological advances by NETCOM as the industry evolves could include
compression, full-motion video, and integration of video, voice, data and
graphics. NETCOM's pursuit of these technological advances may require
substantial time and expense, and there can be no assurance that NETCOM will
succeed in adapting its Internet service business to alternate access devices
and conduits.
DEPENDENCE ON RIGHTS OF WAY AND OTHER THIRD PARTY AGREEMENTS BY ICG
ICG must obtain easements, rights of way, franchises and licenses from
various private parties, including actual and potential competitors, and local
governments in order to construct and maintain fiber optic networks. There can
be no assurance that ICG will obtain rights of way and franchise agreements to
expand its networks or that these agreements will be on terms acceptable to
ICG, or that current or potential competitors will not obtain similar rights
of way and franchise agreements. Because certain of these agreements are
short-term or are terminable at will, there can be no assurance that ICG will
continue to have access to existing rights of way and franchises after the
expiration of such agreements. An important element of ICG's strategy is to
enter into long-term agreements with utilities to take advantage of their
existing facilities and to license or lease their excess fiber capacity. ICG
has entered into contracts and is negotiating agreements with other utilities.
However, other CLECs are seeking to enter into similar arrangements and have
bid and are expected to continue to bid against ICG 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 ICG if such fiber is
needed for the utility's core business. There can be no assurance that ICG
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 were terminated and ICG were forced to remove or
abandon a significant portion of its network, such termination could have a
material adverse effect on ICG and on the price of ICG Common Stock.
KEY PERSONNEL
The efforts of a small number of key management and operating personnel will
largely determine ICG's and NETCOM's success. The success of ICG and NETCOM
also depends in part upon their ability to hire and retain highly skilled and
qualified operating, marketing, financial and technical personnel. The
competition for qualified personnel in the telecommunications and Internet
access services industries is intense and, accordingly, there can be no
assurance that ICG and NETCOM will be able to hire or retain necessary
personnel. The loss of certain key personnel could adversely affect ICG and
NETCOM and the price of ICG Common Stock.
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DEPENDENCE ON WORLDCOM AND OTHER SUPPLIERS BY NETCOM
NETCOM relies on other companies, particularly WorldCom, to provide data
communications capacity via leased telecommunications lines. A majority of the
leased telecommunications lines used by NETCOM are currently provided by
WorldCom. If WorldCom is unable or unwilling to provide or expand its current
levels of service to NETCOM in the future, NETCOM's operations would be
materially adversely affected. WorldCom is also a competitor to NETCOM and
ICG. Although leased telecommunications lines are available from several
alternative suppliers, including AT&T, MCI and Sprint Corporation, there can
be no assurance that NETCOM could obtain substitute services from other
providers at reasonable or comparable prices or in a timely fashion. NETCOM is
also subject to risks relating to potential disruptions in WorldCom's
services, and no assurances can be given that such interruptions will not
occur in the future.
NETCOM is also dependent on certain third party suppliers of hardware
components. Although NETCOM attempts to maintain a minimum of two vendors for
each required product, certain components used by NETCOM in providing its
networking services are currently acquired from only one source, including
high performance routers manufactured by Cisco Systems, Inc., modems
manufactured by U.S. Robotics, Inc., switches manufactured by Cascade and
servers from Sun Microsystems, Inc. NETCOM has also from time to time
experienced delays in the receipt of certain hardware components. A failure by
a supplier to deliver quality products on a timely basis, or the inability to
develop alternative sources if and as required, could result in delays that
could materially adversely affect NETCOM's business, operating results and
financial condition.
DEPENDENCE ON NETWORK INFRASTRUCTURE; RISK OF SYSTEM FAILURE; SECURITY RISKS
BY NETCOM
The future success of NETCOM's business will depend upon the capacity,
reliability and security of its network infrastructure. NETCOM has in the past
experienced network problems and network slowdowns due to limited server
capacity in NETCOM's San Jose and Dallas data centers. NETCOM is continually
implementing systems and processes in order to address these problems and
improve NETCOM's service generally. NETCOM must continue to expand and adapt
its network infrastructure as the amount of information NETCOM wishes to
transfer increases and to meet changing customer requirements. The expansion
and adaptation of NETCOM's network infrastructure will require substantial
financial, operational and management resources. There can be no assurance
that NETCOM will be able to expand or adapt its network infrastructure to meet
additional demand or its changing customer requirements on a timely basis, at
a commercially reasonable cost, or at all, or that NETCOM will be able to
deploy successfully the contemplated network expansion. Any failure of NETCOM
to expand its network infrastructure on a timely basis or to adapt it to
changing customer requirements or evolving industry standards could have a
material adverse effect on NETCOM's business, operating results and financial
condition.
NETCOM's operations are dependent on its ability to protect its computer
equipment against damage from fire, earthquakes, power loss,
telecommunications failures and similar events. A significant portion of
NETCOM's computer equipment is located at its facilities in San Jose,
California and Dallas, Texas and is subject to significant risk to NETCOM's
operations from a natural disaster or other unanticipated event at one of
these two sites. Any damage or failure that causes interruptions in NETCOM's
operations could have a material adverse effect on NETCOM's business.
Despite the implementation of security measures, NETCOM's infrastructure is
also vulnerable to computer viruses or similar disruptive problems caused by
its customers or other Internet users. Computer viruses or problems caused by
third parties could lead to interruptions, delays or cessation in service to
NETCOM's customers. Furthermore, inappropriate use of the Internet by third
parties could also potentially jeopardize the security of confidential
information stored in the computer systems of NETCOM's customers, which may
deter certain persons from subscribing to NETCOM's services.
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DEPENDENCE ON DISTRIBUTION AND MARKETING RELATIONSHIPS BY NETCOM
NETCOM believes that its success in penetrating markets for its Internet
connectivity services depends in large part on its ability to maintain and
develop additional relationships with leading companies that market computer
products and to cultivate alternative relationships if distribution channels
change. NETCOM has entered into original equipment manufacturer ("OEM")
agreements, value-added reseller ("VAR") agreements, and other agreements with
a number of such companies. Many of these agreements are nonexclusive, and
many of the companies with which NETCOM has agreements also have similar
agreements with NETCOM's competitors or potential competitors. The termination
or renegotiation of certain of these relationships could have a material
adverse effect on NETCOM. In addition, there can be no assurance that NETCOM's
distributors and OEM and VAR partners, many of which have significantly
greater financial and marketing resources than NETCOM, will not develop and
market products in competition with NETCOM in the future, discontinue their
relationships with NETCOM or form additional competing arrangements with
NETCOM's competitors.
NEW AND UNCERTAIN MARKET FOR NETCOM'S SERVICES AND PRODUCTS
The market for Internet connectivity services and related software products
is relatively new and, because current and future competitors are likely to
introduce competing services and products, it is difficult to predict the rate
at which the market will grow or at which new or increased competition will
result in market saturation. If demand for Internet services fails to grow,
grows more slowly than anticipated, or becomes saturated with competitors,
NETCOM's business, operating results and financial condition will be
materially adversely affected. Although NETCOM intends to support emerging
standards in the market for Internet connectivity, there can be no assurance
that industry standards will emerge or, if they become established, that
NETCOM will be able to conform to these new standards in a timely fashion and
maintain a competitive position in the market.
LIMITED INTELLECTUAL PROPERTY PROTECTION BY NETCOM
NETCOM relies on a combination of copyright and trademark laws, trade
secrets, software security measures, license agreements and nondisclosure
agreements to protect its proprietary technology and software products. NETCOM
currently has no domestic or foreign patents or patent applications pending.
Despite NETCOM's precautions, it may be possible for unauthorized third
parties to lawfully or unlawfully copy aspects of, or otherwise obtain and
use, NETCOM's software products and technology. In addition, NETCOM cannot be
certain that others will not develop substantially equivalent or superseding
proprietary technology, or that equivalent products will not be marketed in
competition with NETCOM's products, thereby substantially reducing the value
of NETCOM's proprietary rights.
From time to time NETCOM has received notices claiming that it is infringing
the proprietary rights of third parties, and there can be no assurance that
NETCOM will not become the subject of infringement claims or legal proceedings
by third parties with respect to current or future products. Any such claims
could be time-consuming, result in costly litigation, cause product shipment
delays or lead NETCOM to enter into royalty or licensing agreements rather
than disputing the merits of such claims. Moreover, an adverse outcome in such
proceedings could subject NETCOM to significant liabilities to third parties,
require expenditure of significant resources to develop noninfringing
technology, require disputed rights to be licensed from others or require
NETCOM to cease the marketing or use of certain products, any of which could
have a material adverse effect on NETCOM's business, operating results and
financial condition.
NO DIVIDENDS
ICG does not expect to generate net income in the near future and,
therefore, does not anticipate paying cash dividends. The payment of any
future dividends on ICG Common Stock is effectively prohibited by the
indentures for certain of Holdings' senior indebtedness.
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POTENTIAL LIABILITY FOR CONTENT OF NETCOM
The Communications Decency Act, which was passed as part of the
Telecommunications Act, as enacted imposed criminal penalties on anyone who
distributes obscene, lascivious or indecent communications on the Internet. In
June 1997, the United States Supreme Court ruled that the portion of the Act
prohibiting dissemination of patently offensive or indecent communications is
unconstitutional. In addition, the applicability to the Internet of existing
laws governing issues such as property ownership, libel and privacy is
uncertain. For example, in 1996 NETCOM settled a lawsuit alleging copyright
infringement against NETCOM relating to electronic messages posted by an
unrelated individual to a bulletin board service which is a subscriber. New
legislation or regulation with respect to on-line content could have a
material adverse effect on NETCOM's business, results of operations and
financial condition.
ANTI-TAKEOVER PROVISIONS
Certain provisions of ICG's Certificate of Incorporation and the corporate
charters and debt instruments of its subsidiaries may have the effect of
deterring transactions involving a change in control of ICG, including
transactions in which stockholders might receive a premium for their shares.
ICG's Certificate of Incorporation provides that directors serve staggered
three-year terms and authorizes the issuance of up to 1,000,000 shares of
preferred stock with such designations, rights and preferences as may be
determined from time to time by ICG's Board of Directors. In addition, the
corporate charter(s) of Holdings and Holdings-Canada authorize the issuance of
up to 1,000,000 and 30,000,000 shares of preferred stock, respectively, with
such designations, rights and preferences as may be determined by the Board of
Directors of Holdings and Holdings-Canada, respectively. The staggered board
provision increases the likelihood that, in the event of a takeover of ICG,
incumbent directors would retain their positions, and, consequently, may have
the effect of discouraging, delaying or preventing a change in control or
management of ICG. 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 ICG Common
Stock. 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 ICG. In addition, ICG is and will continue to be, subject
to the anti-takeover provisions of the Delaware General Corporation Law (the
"DGCL"), which could have the effect of delaying or preventing a change of
control of ICG. Furthermore, upon a change of control, the holders of
substantially all of ICG's outstanding indebtedness are entitled, at their
option, to be repaid in cash and the holders of the Holdings preferred stock
may, at their option, require Holdings to redeem their shares for cash. Such
provisions may have the effect of delaying or preventing changes in control or
management of ICG. All of these factors could materially adversely affect the
price of ICG Common Stock.
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THE NETCOM SPECIAL MEETING
PURPOSE OF THE NETCOM SPECIAL MEETING
At the NETCOM Special Meeting, holders of NETCOM Common Stock will consider
and vote upon a proposal to approve and adopt the Merger Agreement and such
other matters as may properly be brought before the NETCOM Special Meeting.
THE BOARD OF DIRECTORS OF NETCOM HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
RECORD DATE; VOTING RIGHTS; PROXIES
The NETCOM Board of Directors has fixed the close of business on December
15, 1997 as the NETCOM Record Date for determining holders of NETCOM Common
Stock entitled to notice of and to vote at the NETCOM Special Meeting.
As of the NETCOM Record Date, there were 11,779,611 shares of NETCOM Common
Stock issued and outstanding, each of which entitles the holder thereof to one
vote. All shares of NETCOM Common Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. IF NO INSTRUCTIONS
ARE INDICATED, SUCH SHARES OF NETCOM COMMON STOCK WILL BE VOTED FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT AND FOR APPROVAL OF THE ADJOURNMENT OF
THE NETCOM SPECIAL MEETING.
Votes cast by proxy or in person at the NETCOM Special Meeting will be
tabulated by the election inspectors appointed for the meeting who will
determine whether or not a quorum is present. Where, as to any matter
submitted to the stockholders for a vote, proxies are marked as abstentions
(or stockholders appear in person but abstain from voting), such abstentions
will be treated as shares that are present and entitled to vote for purposes
of determining the presence of a quorum but as unvoted for purposes of
determining the approval of any matter submitted to the stockholders for a
vote. If a broker indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares
will not be considered as present and entitled to vote with respect to that
matter. A stockholder who has given a proxy may revoke it any time prior to
its exercise by giving written notice thereof to the Secretary of NETCOM, by
signing and returning a later dated proxy, or by voting in person at the
NETCOM special meeting; however, mere attendance at the NETCOM special meeting
will not in and of itself have the effect of revoking the proxy.
SOLICITATION OF PROXIES
NETCOM will bear its own cost of solicitation of proxies. In addition to the
use of the mails, proxies may be solicited by the directors and officers of
NETCOM by personal interview, telephone, telegram or E-mail. Such directors
and officers will not receive additional compensation for such solicitation
but may be reimbursed for out-of-pocket expenses incurred in connection
therewith. Arrangements may also be made with brokerage firms and other
custodians, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of shares of NETCOM Common Stock held of record by such
persons, in which case NETCOM will reimburse such brokerage firms, custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by
them in connection therewith. In addition, NETCOM has engaged the services of
Beacon Hill Partners, Inc. to assist in the solicitation of proxies at a cost
of $5,000 plus reasonable expenses. The cost of such solicitation will be
borne by NETCOM.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of NETCOM Common Stock entitled
to vote as of the NETCOM Record Date is necessary to constitute a quorum at
the NETCOM Special Meeting. Under applicable Delaware Law, abstentions and
"broker non-votes" (that is, proxies from brokers or nominees indicating that
such persons have not received instructions from the beneficial owner or other
person entitled to vote shares as to a matter with respect to which the
brokers or nominees do not have discretionary power to vote) will be treated
as present for purposes of determining the presence of a quorum at the NETCOM
Special Meeting.
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REQUIRED VOTE
The approval of the Merger requires the affirmative vote of the holders of a
majority of the outstanding shares of NETCOM Common Stock. A proposal to
adjourn the NETCOM Special Meeting to solicit additional proxies requires the
affirmative vote of the holders of a majority of NETCOM Common Stock present
in person or by proxy at the NETCOM Special Meeting. As of the NETCOM Record
Date, there were 11,779,611 shares of NETCOM Common Stock outstanding and
entitled to vote held by approximately 300 stockholders of record. As of the
NETCOM Record Date, directors and officers of NETCOM and their affiliates as a
group beneficially owned approximately 270,000 shares of NETCOM Common Stock,
or approximately 2.3% of those shares of NETCOM Common Stock outstanding as of
such date.
Under applicable Delaware law, abstentions will be present and entitled to
vote, and will, therefore, have the effect of a negative vote on the approval
and adoption of the Merger Agreement. Since the affirmative vote of a majority
of the outstanding shares of NETCOM Common Stock is required to approve and
adopt the Merger Agreement, a broker non-vote will have the effect of a vote
against the approval and adoption of the Merger Agreement.
THE MATTERS TO BE CONSIDERED AT THE NETCOM SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF NETCOM. ACCORDINGLY, STOCKHOLDERS ARE URGED
TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS JOINT PROXY
STATEMENT-PROSPECTUS, AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ENCLOSED PROXY IN THE ENCLOSED POSTAGE PAID ENVELOPE.
THE ICG SPECIAL MEETING
PURPOSES OF THE ICG SPECIAL MEETING
At the ICG Special Meeting, holders of ICG Common Stock will consider and
vote upon the ICG Share Proposal and will transact such other business as may
properly come before the ICG Special Meeting. Due to the number of shares of
ICG Common Stock to be issued in the Merger, Nasdaq requires ICG to obtain
stockholder approval of the issuance of such shares.
THE BOARD OF DIRECTORS OF ICG HAS APPROVED BY UNANIMOUS VOTE THE MERGER
AGREEMENT AND THE ISSUANCE OF ICG COMMON STOCK IN CONNECTION WITH THE MERGER
AND UNANIMOUSLY RECOMMENDS A VOTE FOR THE ICG SHARE PROPOSAL.
RECORD DATE; VOTING RIGHTS; PROXIES
The ICG Board of Directors has fixed the close of business on December 15,
1997 as the ICG Record Date for determining holders of ICG Common Stock
entitled to notice of and to vote at the ICG Special Meeting.
As of the ICG Record Date, there were 33,587,755 shares of ICG Common Stock
outstanding. Each share of ICG Common Stock is entitled to one vote on each
matter to be voted upon at the ICG Special Meeting. All shares of ICG Common
Stock represented by properly executed proxies will, unless such proxies have
been previously revoked, be voted in accordance with the instructions
indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH SHARES OF
ICG COMMON STOCK WILL BE VOTED IN FAVOR OF THE ICG SHARE PROPOSAL.
It is ICG's current intention to vote all proxies that contain instructions
to vote in favor of the ICG Share Proposal and those proxies that contain no
voting instructions to adjourn the ICG Special Meeting in order to solicit
additional votes, should such additional solicitation be necessary. A
stockholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice thereof to the Secretary of ICG, by signing
and returning a later dated proxy, or by voting in person at the ICG Special
Meeting; however, mere attendance at the ICG Special Meeting will not in and
of itself have the effect of revoking the proxy.
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Votes cast by proxy or in person at the ICG Special Meeting will be tabulated
by the election inspectors appointed for the meeting, who will determine
whether or not a quorum is present. Where, as to any matter submitted to the
stockholders for a vote, proxies are marked as abstentions (or stockholders
appear in person but abstain from voting), such abstentions will be treated as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum but as unvoted for purposes of determining the approval of
any matter submitted to the stockholders for a vote. If a broker indicates on
the proxy that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.
SOLICITATION OF PROXIES
ICG will bear its own cost of solicitation of proxies. In addition to the use
of the mails, proxies may be solicited by the directors and officers of ICG by
personal interview, telephone, telegram or E-mail. Such directors and officers
will not receive additional compensation for such solicitation but may be
reimbursed for out-of-pocket expenses incurred in connection therewith.
Arrangements may also be made with brokerage firms and other custodians,
nominees and fiduciaries to forward solicitation materials to the beneficial
owners of shares of ICG Common Stock held of record by such persons, in which
case ICG will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in
connection therewith.
QUORUM
The presence in person or by properly executed proxy of holders of one-third
of the outstanding shares of ICG Common Stock entitled to vote as of the ICG
Record Date is necessary to constitute a quorum at the ICG Special Meeting.
Under applicable Delaware law, abstentions and "broker non-votes" (that is,
proxies from brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote shares
as to a matter with respect to which the brokers or nominees do not have
discretionary power to vote) will be treated as present for purposes of
determining the presence of a quorum at the ICG Special Meeting.
REQUIRED VOTE
The approval of the ICG Share Proposal requires the affirmative vote of a
majority of votes cast by the holders of the outstanding shares of ICG Common
Stock at the ICG Special Meeting. Under applicable Delaware law, abstentions
will be present and entitled to vote, and will, therefore, have the effect of a
negative vote on the ICG Share Proposal. A broker non-vote will not be
considered a vote cast and therefore will have no effect on the ICG Share
Proposal.
As of the ICG Record Date, the directors and executive officers of ICG as a
group beneficially owned 2,516,470 shares of the ICG Common Stock, representing
in the aggregate approximately 7% of outstanding ICG Common Stock at that date.
THE MATTERS TO BE CONSIDERED AT THE ICG SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE STOCKHOLDERS OF ICG. ACCORDINGLY, STOCKHOLDERS ARE URGED TO
READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT,
AND TO COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE
ENCLOSED POSTAGE PAID ENVELOPE.
THE MERGER
GENERAL
The Merger Agreement provides that the Merger will be consummated if the
approvals of the NETCOM and ICG stockholders required therefor are obtained and
all other conditions to the Merger are satisfied or
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waived. Upon consummation of the Merger, Acquisition Sub will be merged with
and into NETCOM, and NETCOM will become a wholly-owned subsidiary of ICG. Upon
consummation of the Merger, each outstanding share of NETCOM Common Stock
(other than shares owned by NETCOM as treasury stock or by its subsidiaries,
all of which will be canceled) will be automatically converted (subject to
provisions with respect to fractional shares) into the right to receive that
number of shares of ICG Common Stock equal to the Exchange Ratio. The Exchange
Ratio will equal 0.8628 shares of ICG Common Stock if the ICG Closing Stock
Price is greater than or equal to $22.125; provided however, if the ICG
Closing Stock Price is greater than or equal to $19.00 but less than $22.125,
the Exchange Ratio shall equal a fraction (rounded to the nearest ten-
thousandth) determined by dividing $19.0625 by the ICG Closing Stock Price;
provided further, that if the ICG Closing Stock Price is less than $19.00, the
Exchange Ratio shall equal 1.0078.
Based upon the capitalization of NETCOM and ICG (as adjusted for the
issuance of 10,163,448 shares of ICG Common Stock and assuming no adjustment
of the Exchange Ratio) as of the ICG Record Date, the stockholders of NETCOM
will own approximately 23% of the outstanding ICG Common Stock following
consummation of the Merger. Such percentage could change depending on the
number of shares of ICG Common Stock and NETCOM Common Stock issued upon
exercise of outstanding NETCOM and ICG stock options or otherwise issued prior
to the Effective Time.
EFFECTIVE TIME
The Effective Time of the Merger will occur upon the filing of a Certificate
of Merger with the Secretary of State of the State of Delaware (the
"Certificate of Merger"). The filing of the Certificate of Merger will occur
on the date of closing of the transactions contemplated in the Merger
Agreement (the "Closing Date"). The Merger Agreement may be terminated by
either party if the Merger has not been consummated on or before March 1, 1998
and under certain other conditions. See "THE MERGER AGREEMENT--Conditions to
Consummation of the Merger," "--Termination; Remedies; Fees and Expenses."
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion, at the Exchange Ratio, of NETCOM Common Stock into the right
to receive ICG Common Stock will occur automatically at the Effective Time.
At the Effective Time, the Surviving Corporation will instruct the Exchange
Agent to mail to each holder of record of NETCOM Common Stock as soon as
practicable a transmittal letter and instructions for use in effecting the
surrender of certificates which represented shares of NETCOM Common Stock.
Upon receipt of such certificates, the Exchange Agent will deliver full shares
of ICG Common Stock to such stockholder and cash in lieu of fractional shares
pursuant to the terms of the Merger Agreement and in accordance with the
transmittal letter, together with any dividends or other distributions to
which such stockholder is entitled, without interest.
If any issuance of shares of ICG Common Stock in exchange for shares of
NETCOM Common Stock is to be made to a person other than the holder of NETCOM
Common Stock in whose name the certificate is registered at the Effective
Time, it will be a condition of such exchange that the certificate so
surrendered be properly endorsed or otherwise in proper form for transfer and
that the holder of NETCOM Common Stock requesting such issuance either pay any
transfer or other tax required or establish to the satisfaction of the
Surviving Corporation that such tax has been paid or is not payable.
After the Effective Time, there will be no further transfers of NETCOM
Common Stock on the stock transfer books of NETCOM. If a certificate
representing NETCOM Common Stock is presented for transfer, it will be
canceled and a certificate representing the appropriate number of full shares
of ICG Common Stock and cash in lieu of any fractional share and any dividends
and distributions will be issued in exchange therefor, without interest.
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After the Effective Time and until surrendered, shares of NETCOM Common
Stock will be deemed for all corporate purposes, other than the payment of
dividends and distributions, to evidence ownership of the number of full
shares of ICG Common Stock into which such shares of NETCOM Common Stock were
converted at the Effective Time. No dividends or other distributions, if any,
payable to holders of ICG Common Stock will be paid to the holders of any
certificates for shares of NETCOM Common Stock until such certificates are
surrendered. Upon surrender of such certificates, all such declared dividends
and distributions payable after the Effective Time will be paid to the holder
of record of the full shares of NETCOM Common Stock represented by the
certificate issued in exchange therefor, without interest.
HOLDERS OF NETCOM COMMON STOCK SHOULD NOT FORWARD STOCK CERTIFICATES TO THE
EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL LETTERS. HOLDERS OF NETCOM
COMMON STOCK SHOULD NOT RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
TREATMENT OF STOCK OPTIONS
At the Effective Time, the obligations under the NETCOM Stock Option Plan
will be assumed by ICG. At the Effective Time, options to purchase shares of
NETCOM Common Stock issued pursuant to the NETCOM Stock Option Plan that are
outstanding will be converted, without any action on the part of the holders
thereof, into options to acquire, upon payment of the adjusted exercise price
(which will equal the exercise price per share for the options immediately
prior to the Merger, divided by the Exchange Ratio), the number of shares of
ICG Common Stock the option holder would have received pursuant to the Merger
if he or she had exercised all of his or her options immediately prior
thereto. Under the terms of the NETCOM Stock Option Plan, an additional amount
equal to 50% of the shares subject to the options held by each NETCOM officer
will vest upon the Merger (or as to the remaining unvested portion, if less
than 50% remains unvested at such time), and each stock option held by current
non-officer directors will vest 100% upon the Merger. Except as noted above,
each NETCOM stock option will otherwise continue on terms and conditions that
are consistent with those that were applicable at the Effective Time.
BACKGROUND OF THE MERGER
From time to time, ICG has evaluated strategic alliances, including business
combinations with other companies that could complement and strengthen ICG's
product offerings and revenues. Similarly, from time to time, NETCOM has
considered various opportunities for expanding its base of products and
distribution. ICG and NETCOM believe that the product lines of the two
companies are complementary, and that the Merger will strengthen the
resources, product offerings and distribution channels for each company.
In the spring of 1997, management of ICG decided that, in order to enhance
its ability to compete in its markets, it should attempt to add an Internet
access product to its product lines within the coming year. While ICG's
product line initially consisted principally of local telecommunications
services, it has more recently begun offering long distance and data
communication services. This expansion of its service offerings was consistent
with ICG's plan to provide a wide range of local, long distance and other
services to business end users and wholesale customers, particularly to
customers based near the extensive networks which ICG has developed. ICG
believed that customers were increasingly demanding a broad, full service
approach to their telecommunications needs. In addition, ICG recognized that
its extensive networks could be of great value in the provision of Internet
services. Further, in early 1997, ICG invested in a frame relay product which
it is making available to corporate customers. ICG determined that its frame
relay product could also be effectively used to connect, Internet service
providers ("ISPs") with their customer base. Thus, ICG determined that, to
enhance its sales and marketing abilities, to further its philosophy of being
a full service telecommunications provider and to maximize the investments it
has made in its network and its frame relay product, it would be desirable for
ICG to have an Internet access product to supplement its existing product
offerings.
At its regularly scheduled meeting on May 28-29, 1997, the Board of
Directors of NETCOM discussed strategic considerations and appointed a
Strategic Partner Committee consisting of directors Lee Cox, Stephen
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Getsy and David W. Garrison, Chief Executive Officer and Chairman of the
Board. The purpose of the Committee was to consider a possible strategic
operating relationship with a corporate partner, including the possibility of
a minority equity investment by such a partner. On June 1, 1997, NETCOM
retained BT Alex. Brown as its financial advisor in connection with seeking
such a potential partner. During the period from early June through early
October 1997, representatives of BT Alex. Brown contacted and held discussions
with a number of companies regarding a potential partnership, including ICG.
Representatives of BT Alex. Brown first contacted Sheldon O. Ohringer,
President of ICG Telecom Group, Inc., on July 21, 1997. After additional
discussions, ICG determined that it wanted to obtain detailed information from
NETCOM. On July 28, 1997, a Confidentiality Agreement was entered into between
ICG and NETCOM. On August 1, 1997, Mr. Ohringer called representatives of BT
Alex. Brown and requested that a meeting be arranged between management of
NETCOM and management of ICG.
On August 18-19, 1997, the Board of Directors of NETCOM met at a regularly
scheduled meeting. All of the members of the Board of Directors participated
in this meeting. A representative of BT Alex. Brown also participated in this
meeting and reported on discussions that had been held with possible corporate
partners, including ICG.
On August 20, 1997, senior executives of ICG and NETCOM, as well as
representatives of BT Alex. Brown, met at NETCOM's corporate headquarters in
San Jose, California. Participants from ICG were Messrs. J. Shelby Bryan,
President and Chief Executive Officer, Ohringer, and James D. Grenfell,
Executive Vice President and Chief Financial Officer, and from NETCOM were Mr.
Garrison, Mike Kallet, Senior Vice President of Products and Services, Scott
Wills, Senior Vice President of Planning and Development, and Craig Clemens,
Vice President of Operations. During this meeting, the executives made
presentations which provided an overview of their respective companies. During
the months of August and September, 1997, members of NETCOM management also
held discussions with other companies to discuss minority investment and
strategic partnership alternatives.
From August 20, 1997 through September 30, 1997, ICG and NETCOM continued to
review various aspects of each other's businesses in meetings and telephone
conversations. On September 19, 1997, Seth Levine, Director of Corporate
Development, and Robert Flood, Senior Vice President of Engineering and Chief
Technical Officer of ICG, traveled to San Jose and met with NETCOM executives,
including Mr. Garrison, Dan Yost, President and Chief Operating Officer, Mr.
Kallet, Mr. Wills and Mr. Clemens. Representatives of BT Alex. Brown also
attended the meeting. During this meeting, ICG reviewed detailed information
regarding NETCOM's network, cost structure, marketing initiatives, sales
channels and products. During this same time frame, members of ICG's finance
department reviewed additional information provided by NETCOM and discussed
this information with NETCOM personnel. On September 22, 1997, Mr. Ohringer
met with Mr. Yost at the Dallas/Fort Worth Airport to discuss various aspects
of the operations of the two companies.
A regularly scheduled meeting of the Board of Directors of ICG was held on
September 30, 1997. All of the members of the Board were in attendance at this
meeting. Mr. Grenfell, Audrey A. Rohan, a member of Reid & Priest, LLP, and H.
Don Teague, Executive Vice President, Secretary and General Counsel of ICG,
also attended this meeting. At this meeting Mr. Bryan informed the ICG Board
that ICG had begun preliminary discussions with NETCOM regarding a possible
acquisition of NETCOM. Mr. Bryan provided background information about NETCOM
to the Board. Mr. Bryan indicated that, at that time, the discussions were
preliminary in nature and extremely confidential.
On October 1, 1997, Messrs. Bryan, Ohringer and Teague met with Mr. Garrison
and two representatives from BT Alex. Brown at the Denver International
Airport to discuss the possibility of a strategic combination. During the
meeting, both parties reviewed various aspects of their businesses and
discussed potential synergies. Both parties also agreed to arrange the
exchange of additional due diligence information prior to a telephone meeting
scheduled for October 6, 1997.
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On October 3, 1997, Mr. Bryan and Mr. Garrison spoke over the telephone to
discuss the potential synergies of a strategic combination.
On October 6, 1997, Messrs. Ohringer, Grenfell, Levine, Garrison, Wills and
representatives of BT Alex. Brown held a telephone meeting to discuss ICG's
business and financial results as well as further details regarding NETCOM's
financial results and projections.
On October 7, 1997 the ICG Board of Directors held a telephonic special
meeting to consider whether to continue discussions regarding the possible
acquisition of NETCOM by ICG. All of the members of the Board participated in
this meeting. Messrs. Grenfell, Ohringer, Teague and Levine and Ms. Rohan also
participated in this meeting. Mr. Bryan updated the ICG Board on the status of
the discussions with NETCOM. The ICG Board then adopted resolutions
authorizing Mr. Bryan to negotiate an agreement with NETCOM to acquire the
outstanding shares of NETCOM. Thereafter, Mr. Bryan and Mr. Garrison spoke by
telephone and began discussing the specific terms of a potential merger.
On October 8, 1997, at a telephonic special meeting of the Strategic Partner
Committee of the NETCOM Board of Directors, Mr. Garrison reported on his
conversations with ICG, as well as the possibility of a merger with ICG.
Immediately thereafter, a special meeting of NETCOM's Board of Directors was
held, during which the Board reviewed ICG's business and reviewed Mr.
Garrison's discussion with Mr. Bryan regarding the possibility and terms of a
potential merger. Financial and legal advisors participated in this meeting.
The NETCOM Board of Directors authorized Mr. Garrison to enter into
negotiations regarding the terms of a merger.
On October 8, 1997 the ICG Board of Directors also held a telephonic special
meeting to consider and discuss the NETCOM matter. All of the members of the
ICG Board participated in this meeting. Mr. Teague, Mr. Grenfell and Ms. Rohan
also participated in this meeting. Mr. Bryan informed the ICG Board that the
discussions with NETCOM had continued to progress. The ICG Board then adopted
resolutions authorizing Mr. Bryan to make an offer for, and to reach an
agreement with, NETCOM to acquire the outstanding shares of NETCOM for
consideration payable in shares of ICG common stock.
Following the October 8, 1997 NETCOM Board of Directors meeting and the ICG
Board of Directors meeting, a meeting was held among Messrs. Bryan, Grenfell,
Ohringer and Teague of ICG, Mr. Garrison of NETCOM, and representatives of BT
Alex. Brown. During this meeting, the parties discussed in detail specific
terms for a merger and reached a preliminary oral understanding regarding
certain terms. The parties then agreed to begin negotiating the terms and
conditions of a definitive agreement.
On October 9, 1997, representatives from the managements of both companies
met to conduct further due diligence related to sales, marketing and product
development, as well as legal and financial due diligence. Representatives of
ICG and NETCOM, together with their respective legal and financial advisors,
also continued to conduct substantial due diligence and to negotiate the terms
of the definitive agreement. At the end of the day, Mr. Garrison advised the
NETCOM Board of Directors as to the status of the negotiations with ICG.
On October 10, 1997, the Board of Directors of NETCOM held a special
telephonic meeting to review the status of, and to discuss further, the
proposed terms. Representatives of BT Alex. Brown and Pillsbury Madison &
Sutro LLP joined the Board's conference call. During this meeting, the NETCOM
Board reviewed the status of the negotiations and due diligence, and discussed
alternatives to pursuing the merger transaction with ICG.
On October 10, 1997 the ICG Board of Directors held a telephonic special
meeting regarding the proposed transaction. All of the members of the Board
(except Mr. McLelland) participated in this meeting. Mr. Grenfell, Mr. Teague
and Ms. Rohan also participated in this meeting. During this meeting, the ICG
Board reviewed and discussed detailed information about NETCOM and the
proposed terms and conditions of the definitive agreement. After further
discussion, the ICG Board unanimously indicated support for continuing to
pursue a combination with NETCOM.
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After further negotiations and due diligence by representatives of the two
companies on October 11, 1997, the Board of Directors of NETCOM held a special
telephonic meeting to discuss further issues relating to the proposed merger
of the companies, including employee issues.
On October 12, 1997 the ICG Board of Directors held a telephonic special
meeting to discuss the proposed merger. All of the members of the Board
participated in this meeting. Mr. Grenfell, Mr. Teague, Ms. Rohan and
representatives from Gleacher NatWest also participated in this meeting. Mr.
Bryan and the other members of the Board discussed in detail the information
regarding NETCOM which had been provided to the ICG Board over the past few
days, including information that had become available in connection with the
due diligence process. The representatives of Gleacher NatWest gave a detailed
presentation of the terms of the merger and the proposed combined operations
of the two companies. They indicated that the Exchange Ratio offered by ICG to
the NETCOM stockholders was fair from a financial point of view to ICG and its
stockholders, and presented to and discussed with the Board their signed
fairness opinion. See "THE MERGER--Opinion of ICG's Financial Advisor." The
ICG Board then reviewed in detail the terms of the proposed Merger Agreement.
After further discussions, the ICG Board voted unanimously to approve the
Merger Agreement.
On October 12, 1997, the Board of Directors of NETCOM held a special meeting
to consider the proposed Merger Agreement and the transactions contemplated
thereby. All of the members of the Board participated in person or by phone.
Members of NETCOM's senior management, together with NETCOM's legal and
financial advisors, reviewed with the Board, among other things, the
background of the proposed transaction, the potential benefits and risks of
the transaction, including the strategic and financial rationale, analysis of
the transaction and the terms of the Merger Agreement. At the conclusion of
the presentation, BT Alex. Brown delivered its oral opinion (confirmed in
writing as of the same day) that as of October 12, 1997, the Exchange Ratio
was fair, from a financial point of view, to the stockholders of NETCOM. See
"THE MERGER--Opinion of NETCOM's Financial Advisor." After further
discussions, the NETCOM Board of Directors unanimously approved the Merger
Agreement and the transactions contemplated thereby.
The companies executed the Merger Agreement late on Sunday, October 12,
1997, and the agreement to merge was publicly announced early Monday morning,
October 13, 1997 by the issuance of a joint press release.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF NETCOM; REASONS FOR THE MERGER
The NETCOM Board of Directors believes that the terms of the Merger are fair
to, and in the best interests of, NETCOM and the NETCOM stockholders and has
unanimously approved the Merger Agreement and the transactions contemplated
thereby. The NETCOM Board of Directors unanimously recommends that the NETCOM
stockholders approve and adopt the Merger Agreement.
At its October 12, 1997 meeting, the NETCOM Board of Directors unanimously
determined that the Merger, upon the terms and conditions set forth in the
Merger Agreement, is fair to, and in the best interests of, the holders of
NETCOM stock. Accordingly, the NETCOM Board of Directors has unanimously
adopted the Merger Agreement and unanimously recommends that NETCOM
stockholders vote for approval and adoption of the Merger Agreement and the
transactions contemplated thereby, including the Merger, at the NETCOM Special
Meeting. See "THE MERGER--Background of the Merger" and "--Certain Legal
Matters."
The NETCOM Board of Directors believes that a merger with ICG will benefit
NETCOM because:
(i) ICG has certain telecommunications infrastructure, including local
circuits and intrastate frame relay network capacity, necessary to the
operation of NETCOM. NETCOM currently leases intrastate network capacity
from third parties such as WorldCom, and pays RBOCS for local access
services. Together, these telecommunications costs currently represent
approximately 50% of NETCOM's cost of operating its network in North
America for 1997. Because of the foregoing and because of ICG's local
presence in key NETCOM markets, the NETCOM Board of Directors believes that
following the Merger, the combined companies could ultimately reduce
NETCOM's expenses related to telecommunications costs;
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(ii) Based on its analysis of current market trends, NETCOM's Board of
Directors believes that purchasers of telecommunications, data and Internet
services will increasingly purchase such services from large, single-source
suppliers with the ability to supply such customers with a full range of
telecommunications, data and Internet services. Recognition of this trend
is reflected in the number of recent mergers between telecommunications
carriers and ISPs. NETCOM's Board of Directors believes that, following the
Merger, the combined companies will be able to offer such a full range of
telecommunications, data and Internet services. NETCOM currently
concentrates on providing services to small and medium sized businesses and
professional individuals, while ICG provides services to business
customers. Thus, the two companies' customer bases overlap in the area of
small and medium sized businesses;
(iii) NETCOM would have access to expanded sales and distribution
channels through ICG's direct sales force offering NETCOM's Internet
services, and marketing synergies could benefit the combined companies; and
(iv) The geographic service areas of ICG and NETCOM overlap to a
significant extent such that synergies of lowered cost, increased
distribution and a full service product line may be easier to achieve as
compared to a possible strategic relationship between NETCOM and another
telecommunications provider without such significant overlap.
In reaching its determination, the NETCOM Board consulted with management,
as well as its legal counsel and financial advisors, and considered a number
of factors, including the following material factors, both positive and
negative:
(i) the NETCOM Board's knowledge of the business, operations, properties,
assets, financial condition and operating results of NETCOM;
(ii) the reports and opinions of NETCOM's management, its legal counsel
and its independent auditors, including the result of their due diligence
investigations concerning the business, operations and financial condition
of ICG;
(iii) the opinion of BT Alex. Brown that the Exchange Ratio pursuant to
the Merger Agreement was fair, from a financial point of view, to the
holders of NETCOM Common Stock as of the date of such opinion (see "THE
MERGER--Opinion of NETCOM's Financial Advisor");
(iv) the effect on stockholder value of NETCOM continuing as an
independent entity compared to the effect of a combination with ICG, in
light of the financial condition and prospects of NETCOM and the current
economic and industry environment, including, but not limited to, (A) other
possible strategic alternatives for NETCOM which the NETCOM Board of
Directors had examined, including continuing to execute its business plan
on a stand-alone basis, and (B) the potential for increased value in the
combined ICG/NETCOM enterprise;
(v) recent and current market prices of the ICG Common Stock;
(vi) the terms and conditions of the Merger Agreement and the related
documents, which were the product of extensive arms-length negotiations,
including the condition that the ICG stockholders approve the issuance of
shares to the NETCOM stockholders pursuant to the Merger;
(vii) the premium over the recent trading prices of the NETCOM Common
Stock represented by the Exchange Ratio of approximately 50% over the
NETCOM Common Stock closing sales price on October 10, 1997, the trading
day prior to the meeting of the NETCOM Board of Directors at which the
Merger Agreement was approved, approximately 70% over the price one week
before October 10, 1997, and approximately 75% over the price four weeks
before October 10, 1997;
(viii) the compatibility of the respective business philosophies of ICG
and NETCOM;
(ix) the opportunity for NETCOM stockholders to participate, as holders
of ICG Common Stock, in a larger, more diversified company, and to do so by
means of a transaction which is designed to be tax-free to NETCOM's
stockholders;
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(x) the effect of the Merger on the interest of NETCOM's customers,
employees and suppliers, which the NETCOM Board of Directors determined is
likely to be beneficial given that ICG has indicated that after the Merger,
NETCOM would continue to pursue its current business strategy as a separate
business entity and that NETCOM should derive significant benefits from the
financial strength, marketing resources and telecommunications
infrastructure capacity of ICG;
(xi) the risks that NETCOM will not achieve the synergies and cost
savings anticipated to be achieved in the Merger, including a reduction in
NETCOM's line charges and related telecommunication services (which NETCOM
estimates to be approximately 50% of the cost of operating its network in
North America for 1997), incremental sales from ICG's direct sales force
offering NETCOM's Internet services to the customers of ICG and possible
reductions in expenses resulting from the combined purchasing power of the
two companies;
(xii) the risk that the operations of the two companies would not be
successfully integrated;
(xiii) the risk that key technical and management personnel might be lost
prior to or after consummation of the Merger and the potential to mitigate
this risk by negotiating the conversion of NETCOM options into ICG options;
(xiv) NETCOM's future prospects for executing its business strategy and
the likelihood that such prospects would be enhanced as a result of the
Merger in light of the enhanced competition from major telecommunications
companies in the Internet services industry;
(xv) the adverse effects on NETCOM's business, operations and financial
condition should it not be possible to consummate the Merger following
public announcement that the Merger Agreement had been entered into; and
(xvi) other risks associated with ICG and NETCOM's businesses, including
those described above under "--RISK FACTORS."
The foregoing discussion of the information and factors considered by the
NETCOM Board of Directors is not intended to be exhaustive but is believed to
include all material factors considered by the NETCOM Board of Directors. In
view of the variety of factors considered in connection with its evaluation of
the Merger, the NETCOM Board of Directors did not find it practicable to and
did not quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of
the NETCOM Board of Directors may have given different weights to different
factors. In the course of its deliberations, the NETCOM Board of Directors did
not establish a range of value for NETCOM; however, based on the factors
outlined above, the NETCOM Board of Directors determined that the Merger is
advisable, fair and in the best interests of NETCOM and its stockholders.
THE NETCOM BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
NETCOM COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of NETCOM with
respect to the Merger, holders of NETCOM Common Stock should be aware that
certain members of NETCOM's management, some of whom are members of the NETCOM
Board of Directors, and the members of the NETCOM Board of Directors have
certain interests in the Merger, in addition to those of NETCOM's stockholders
generally. The Board of Directors of NETCOM was aware of these interests when
it considered and approved the Merger and the Merger Agreement.
Pursuant to the terms of the Merger Agreement, ICG has agreed to take all
action necessary to cause David W. Garrison, Chief Executive Officer and
Chairman of the Board of NETCOM, to become a member of the ICG Board of
Directors, subject to the consummation of the Merger.
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Pursuant to the Merger Agreement, following consummation of the Merger, ICG
will cause NETCOM to honor in accordance with their terms, all employment,
severance and similar agreements to which NETCOM is a party and all provisions
for vested benefits or other vested amounts earned or accrued for a period of
at least one year after the Effective Time under NETCOM's benefit plans. In
addition, following the Effective Time, ICG has agreed to issue stock options
to Mr. Garrison and other executive officers of NETCOM. See "THE MERGER
AGREEMENT--Effect on Employee Benefit Plans" and "--Treatment of Stock
Options."
ICG will indemnify and hold harmless directors, officers, and agents of
NETCOM as provided in NETCOM's Certificate of Incorporation, By-laws or
indemnification agreements, in effect on the date of the Merger Agreement with
respect to matters covered thereby occurring through the Effective Time.
Pursuant to the Merger Agreement, ICG will maintain in effect for a period of
one year after the Effective Time the policy of officers' and directors'
liability insurance maintained by NETCOM on the date of the Merger Agreement,
with coverage in amount and scope at least as favorable as NETCOM's existing
directors' and officers' liability insurance coverage; provided that such
policy will not be required to be maintained if equivalent coverage is
provided to such persons under another policy of officers' and directors'
liability insurance maintained by ICG and provided that ICG will not be
obligated to pay annual premiums in excess of 200% of the amount per annum
paid by NETCOM in its last full fiscal year. The amount per annum of premiums
paid by NETCOM in its last full fiscal year totalled $426,500.
Following the Effective Time, as an inducement to Mr. Garrison to remain an
officer of NETCOM following the Merger, the Stock Option Committee of ICG will
grant Mr. Garrison an option to purchase 100,000 shares of ICG Common Stock
pursuant to the ICG 1996 Stock Option Plan (the "Plan"). Such option will vest
25% annually over four years from the date of grant. As an inducement to
certain NETCOM officers to remain with the Surviving Corporation following the
Effective Time, the Stock Option Committee of ICG will grant options under the
Plan to purchase an aggregate of up to 150,000 shares of ICG Common Stock to
such officers (other than Mr. Garrison), in specific amounts to be determined.
Such options will be granted under the Plan and will vest over four years.
Following the Effective Time, each current non-officer director of NETCOM
may, at his option for a period of six months following the Effective Time,
serve as an independent contractor, with the honorary title of "Advisory
Director" of the Surviving Corporation, without cash remuneration. Such
Advisory Directors will be available for consultation with the directors of
the Surviving Corporation. Electing to serve in this capacity would allow a
non-officer director of NETCOM an additional six months in which to exercise
his options under the NETCOM Stock Option Plan.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF ICG; REASONS FOR THE MERGER
The ICG Board of Directors believes that the Merger is fair to, and in the
best interests of, ICG and its stockholders. The ICG Board of Directors has
approved the terms of the Merger by a unanimous vote and unanimously
recommends that ICG's stockholders vote FOR approval of the ICG Share
Proposal. In approving the ICG Share Proposal, the ICG Board considered a
variety of relevant financial, business, legal and market factors and did not
assign any relative or specific weight to the factors considered.
ICG has identified strategic and financial benefits that the proposed Merger
would provide to each company and to the stockholders, employees and customers
of each company. ICG believes that the Merger represents a unique opportunity
to create a stronger company with a broader product base, significant industry
experience in both the Internet and voice communications markets and an
enhanced ability to create value for both the ICG and NETCOM stockholders.
Among the most significant benefits are the following:
Enhanced Competitive Position. The combined company will be able to offer a
bundled voice/data/Internet product to its customers, which will significantly
strengthen ICG's position in an increasingly competitive marketplace. The
addition of Internet related services to ICG's product portfolio will enable
ICG to offer a full range of products and services to its customers, including
local and long distance telephony, enhanced
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features (such as voice mail and caller ID) and a complete set of data
services ranging from dial up and dedicated Internet access to web hosting,
applications hosting and high speed frame relay data connectivity. ICG expects
that the ability to provide such integrated communications solutions will
assist ICG to attract new customers and to retain existing customers.
Expanded Revenue Opportunity. The Merger will give ICG the opportunity to
cost effectively expand the revenue potential from both ICG's and NETCOM's
existing customer bases by offering voice products to NETCOM customers and
Internet/data products to ICG customers. It is expected that the combined
company will derive significant additional revenues from such cross selling.
ICG currently estimates that, in the 24 months following the Merger, the
combined company could achieve an additional $35 million in revenue
incremental to the plans of each company.
Cost Savings. ICG has identified several areas of potential cost savings
arising from the combined company's ability to (i) provision local circuits
for NETCOM in ICG's existing service territories, (ii) reduce NETCOM's access
costs outside ICG's service territories by leveraging ICG's existing
relationships, (iii) consolidate NETCOM's POPs, taking advantage of both ICG's
regional frame relay networks and collocation space, (iv) reduce NETCOM's
backbone expenditures by utilizing ICG's frame relay network and (v) reduce
incremental sales and marketing costs by jointly marketing both voice and
Internet products. Subject to the qualifications expressed below, ICG
currently estimates that the combined company could achieve total cost savings
of approximately $13 million in the 24 months following the Merger.
In addition to benefits set forth above, the ICG Board of Directors
considered the following:
(i) Certain Nonfinancial Information. The ICG Board considered the
possible addition of Mr. Garrison to ICG's Board of Directors and the
possible addition of other valuable members of NETCOM's management team. It
also considered the existence of the Termination Fee to be paid to NETCOM
if the Merger was not completed in certain circumstances. See "THE MERGER
AGREEMENT--Termination."
(ii) Opinion of Gleacher NatWest. The ICG Board considered the opinion of
Gleacher NatWest which was delivered to the ICG Board on October 12, 1997,
to the effect that as of such date, the Exchange Ratio was fair, from a
financial point of view, to ICG stockholders.
The analyses employed in order to develop estimates of specific amounts of
revenues and cost savings to be achieved as a result of the Merger were based
upon various assumptions which involve judgments with respect to, among other
things, future national and regional economic and competitive conditions,
future business decisions, future market conditions and other uncertainties,
all of which are difficult to predict and many of which are beyond the control
of ICG and NETCOM. Accordingly, while ICG believes that such assumptions are
reasonable for purposes of the development of estimates of enhanced revenues
and cost savings, there can be no assurance that such assumptions will
approximate actual experience or that all such revenues or cost savings will
be realized.
OPINION OF NETCOM'S FINANCIAL ADVISOR
NETCOM retained BT Alex. Brown on June 1, 1997 to act as NETCOM's financial
advisor in connection with the Merger, including rendering its opinion to the
Board of Directors of NETCOM as to the fairness, from a financial point of
view, of the Exchange Ratio to NETCOM's stockholders.
At the October 12, 1997 meeting of the NETCOM Board of Directors,
representatives of BT Alex. Brown made a presentation with respect to the
Merger and rendered to the Board its oral opinion, subsequently confirmed in
writing as of the same date, that, as of such date, and subject to the
assumptions made, matters considered and limitations set forth in such opinion
and summarized below, the Exchange Ratio was fair, from a financial point of
view, to NETCOM's stockholders. No limitations were imposed by the Board upon
BT Alex. Brown with respect to the investigations made or procedures followed
by it in rendering its opinion.
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THE FULL TEXT OF BT ALEX. BROWN'S WRITTEN OPINION DATED OCTOBER 12, 1997
(THE "BT ALEX. BROWN OPINION"), WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN,
IS ATTACHED HERETO AS ANNEX B AND IS INCORPORATED HEREIN BY REFERENCE. NETCOM
STOCKHOLDERS ARE URGED TO READ THE BT ALEX. BROWN OPINION IN ITS ENTIRETY. THE
BT ALEX. BROWN OPINION IS DIRECTED TO THE BOARD, ADDRESSES ONLY THE FAIRNESS
OF THE EXCHANGE RATIO TO NETCOM'S STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW,
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY NETCOM STOCKHOLDER AS TO HOW
SUCH STOCKHOLDER SHOULD VOTE AT THE NETCOM SPECIAL MEETING. THE BT ALEX. BROWN
OPINION WAS RENDERED TO THE NETCOM BOARD FOR ITS CONSIDERATION IN DETERMINING
WHETHER TO APPROVE THE MERGER AGREEMENT. THE DISCUSSION OF THE BT ALEX. BROWN
OPINION IN THIS JOINT PROXY STATEMENT-PROSPECTUS IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THE BT ALEX. BROWN OPINION.
In connection with the BT Alex. Brown Opinion, BT Alex. Brown reviewed
certain publicly available financial information and other information
concerning NETCOM and ICG and certain internal analyses and other information
furnished to it by NETCOM. BT Alex. Brown also held discussions with the
members of the senior managements of NETCOM and ICG regarding the businesses
and prospects of their respective companies and the joint prospects of the
combined company. In addition, BT Alex. Brown (i) reviewed the reported prices
and trading activity for the common stock of both NETCOM and ICG; (ii)
compared certain financial and stock market information for NETCOM and ICG
with similar information for certain other companies whose securities are
publicly traded; (iii) reviewed the financial terms of certain recent business
combinations which it deemed comparable in whole or in part; (iv) reviewed the
terms of the Merger Agreement and certain related documents; and (v) performed
such other studies and analyses and considered such other factors as it deemed
appropriate.
In conducting its review and arriving at its opinion, BT Alex. Brown assumed
and relied upon, without independent verification, the accuracy, completeness
and fairness of the information furnished to or otherwise reviewed by or
discussed with it for purposes of rendering its opinion. With respect to the
information relating to the prospects of NETCOM and ICG, BT Alex. Brown
assumed that such information reflected the best currently available judgments
and estimates of the respective managements of NETCOM and ICG as to the likely
future financial performances of NETCOM and ICG. BT Alex. Brown assumed, with
the consent of NETCOM, that the Merger will qualify for pooling-of-interests
accounting treatment and as a tax-free transaction for federal income tax
purposes. BT Alex. Brown did not make and it was not provided with, an
independent evaluation or appraisal of the assets of NETCOM and ICG, nor has
BT Alex. Brown been furnished with any such evaluations or appraisals. In
rendering its opinion, BT Alex. Brown has not been asked to consider, and did
not address, the relative merits of the Merger as compared to any alternative
business transactions with third parties that might exist for NETCOM or the
effect of any such other transaction in which NETCOM might engage. BT Alex.
Brown did not express any opinion as to the value of ICG Common Stock when
issued pursuant to the Merger or the prices at which ICG Common Stock will
trade subsequent to such issuance. The BT Alex. Brown Opinion is based on
market, economic and other conditions as they existed and could be evaluated
as of the date of the BT Alex. Brown Opinion.
The following is a summary of the analyses performed and factors considered
by BT Alex. Brown in connection with rendering the BT Alex. Brown Opinion.
Historical Financial Position. In rendering its opinion, BT Alex. Brown
reviewed and analyzed the historical and current financial condition of NETCOM
which included (i) an assessment of each of NETCOM's and ICG's recent
financial statements; (ii) an analysis of each of NETCOM's and ICG's revenue,
growth and operating performance trends; and (iii) an assessment of each of
NETCOM's and ICG's margin changes and leverage.
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Historical Stock Price Performance. BT Alex. Brown reviewed and analyzed the
daily closing per share market prices and trading volume for NETCOM Common
Stock and ICG Common Stock for the one-year and six-month periods ended
October 10, 1997. Although BT Alex. Brown reviewed the trading volume of
NETCOM Common Stock and ICG Common Stock, it primarily focused on the relative
stock price movements of the two companies. BT Alex. Brown also reviewed the
daily closing per share market prices of the NETCOM Common Stock and ICG
Common Stock and compared the movement of such daily closing prices with the
movement of the Nasdaq composite average over the one-year and six-month
periods ended October 10, 1997. BT Alex. Brown noted that, on a relative
basis, each of NETCOM and ICG outperformed the Nasdaq composite average over
the six-month period listed above and underperformed the Nasdaq composite
average over the one-year period listed above. BT Alex. Brown also reviewed
the daily closing per share market prices of NETCOM Common Stock and compared
the movement of such closing prices with the movement of two ISP's composite
averages, one consisting of companies targeting the consumer online market
(consisting of America Online, EarthLink Network, MindSpring Enterprises and
OzEmail (collectively, the "Online/Consumer ISPs")) and the other consisting
of companies targeting the business user market (consisting of Concentric
Network and PSINet (collectively, the "Business ISPs")) over the six-month and
one-year periods listed above. On a relative basis the NETCOM Common Stock
price underperformed the composite average of the Online/Consumer ISPs and
outperformed the composite average of the Business ISPs for such periods. BT
Alex. Brown also reviewed the daily closing per share market prices of ICG
Common Stock and compared the movement of such closing prices with the
movement of a CLEC composite average (consisting of American Communications
Services, Brooks Fiber Properties, McLeodUSA, GST Telecommunications,
Intermedia Communications, Inc. Teleport Communications Group and WorldCom
Incorporated (the "CLEC Companies")) over the six-month and one-year periods
listed above. On a relative basis the ICG Common Stock price underperformed
the composite average of the CLEC Companies for such periods. This information
was presented to give the NETCOM Board background information regarding the
respective stock prices of NETCOM and ICG over the periods indicated.
Contribution Analysis. BT Alex. Brown analyzed the relative contributions of
NETCOM and ICG, as compared to NETCOM's relative ownership of approximately
22.6% of the outstanding common stock (calculated on a treasury stock basis)
of the combined company, to the pro forma income statement of the combined
company, based on management's projections for NETCOM and on publicly
available analyst forecasts for 1997 and 1998 ICG results. This analysis
showed that on a pro forma combined basis (excluding (x) the effect of any
synergies that may be realized as a result of the Merger, and (y) non-
recurring expenses relating to the Merger), NETCOM would account for
approximately (i) 37.5% of the combined company's pro forma 1997 revenue,
58.0% of the combined company's pro forma 1997 gross margin, 16.9% of the
combined company's pro forma 1997 operating loss and 10.2% of the combined
company's pro forma 1997 net loss; and (ii) 36.8% of the combined company's
pro forma 1998 revenue, 35.8% of the combined company's pro forma 1998 gross
margin, 9.7% of the combined company's pro forma 1998 operating loss and 3.1%
of the combined company's pro forma 1998 net loss.
Analysis of Certain Other Publicly Traded Companies--NETCOM. This analysis
examines a company's valuation in the public market as compared to the
valuation in the public market of other selected publicly traded companies. BT
Alex. Brown compared certain financial information (based on the commonly used
valuation measurements described below) relating to NETCOM to certain
corresponding information from the Online/Consumer ISPs and the Business ISPs.
Such financial information included, among other things, (i) common equity
market valuation; (ii) common equity market value as adjusted for debt and
cash ("Enterprise Value"); and (iii) ratios of Enterprise Value to revenues
and earnings before interest income and expense, income taxes, depreciation
and amortization ("EBITDA"), each as estimated for calendar years 1997 and
1998. The financial information used in connection with the multiples provided
below with respect to NETCOM, the Online/Consumer ISPs and the Business ISPs
was based on publicly available information as of October 10, 1997 and
estimated revenues and EBITDA. BT Alex. Brown noted that the multiple of
Enterprise Value to calendar year 1997 revenues was 0.7x for NETCOM, compared
to a range of 2.1x to 4.1x, with a mean of 3.2x, for the Online/Consumer ISPs,
and 2.5x to 3.5x, with a mean of 3.0x, for the Business ISPs, and that the
multiple of Enterprise Value to calendar year 1998 revenues was 0.6x for
NETCOM, compared to a range of 2.1x to 2.9x,
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with a mean of 2.5x, for the Online/Consumer ISPs, and 1.5x to 1.7x, with a
mean of 1.6x, for the Business ISPs. BT Alex. Brown further noted that the
multiple of Enterprise Value to calendar year 1997 EBITDA was not measurable
for NETCOM or the Business ISPs; and the multiple of Enterprise Value to
calendar year 1998 EBITDA was 7.1x for NETCOM, compared to a range of 5.3x to
24.1x, with a mean of 13.3x, for the Online/Consumer ISPs, and 5.5x for the
Business ISPs.
Analysis of Certain Other Publicly Traded Companies--ICG. This analysis
examines a company's valuation in the public market as compared to the
valuation in the public market of other selected publicly traded companies. BT
Alex. Brown compared certain financial information (based on the commonly used
valuation measurements described below) relating to ICG to certain
corresponding information from the CLEC Companies. Such financial information
included, among other things, (i) common equity market valuation; (ii)
Enterprise Value; and (iii) ratios of Enterprise Value to revenues, as
estimated for calendar years 1997 and 1998, and property, plant and equipment
("PP&E"). The financial information used in connection with the multiples
provided below with respect to ICG and the CLEC Companies was based on
publicly available information as of October 10, 1997 and various research
analyst estimates. BT Alex. Brown noted that the multiple of Enterprise Value
to calendar year 1997 revenues was 6.3x for ICG, compared to a range of 5.2x
to 20.2x, with a mean of 9.4x, for the CLEC Companies, and that the multiple
of Enterprise Value to calendar year 1998 revenues was 4.3x for ICG, compared
to a range of 3.4x to 11.2x, with a mean of 5.4x, for the CLEC Companies. BT
Alex. Brown further noted that the multiple of Enterprise Value to PP&E was
3.3x for ICG, compared to a range of 3.1x to 12.4x, with a mean of 6.2x, for
the CLEC Companies.
Historical Exchange Ratio Analysis. BT Alex. Brown reviewed and analyzed the
historical ratio of the daily per share market closing prices of NETCOM Common
Stock divided by the corresponding prices of the ICG Common Stock over the
one-year, six-month, three-month, four-week and one-week periods prior to
October 10, 1997 (the last business day prior to announcement of the
transaction). Such average exchange ratios for the aforementioned time periods
were 0.7799, 0.7719, 0.6463, 0.5809 and 0.5173, respectively.
Analysis of Selected Precedent Transactions. BT Alex. Brown reviewed the
financial terms, to the extent publicly available, of five proposed, pending
or completed mergers and acquisitions since October 1995 in the ISP industry
(the "Selected Transactions"). BT Alex. Brown calculated various financial
multiples and the premiums over market value based on certain publicly
available information and estimated revenues and EBITDA for each of the
Selected Transactions and compared them to corresponding financial multiples
and the premiums over market for the Merger, based on the Exchange Ratio of
0.8628. The five ISP industry transactions reviewed, in reverse chronological
order of public announcement, were: CompuServe Corporation/WorldCom,
Incorporated (September 8, 1997), DIGEX, Incorporated/Intermedia
Communications, Inc. (June 5, 1997), BBN Corporation/GTE Corporation (May 6,
1997), UUNet Technologies, Inc./MFS Communications Co., Inc. (April 30, 1996)
and Unipalm Group plc/UUNet Technologies, Inc. (October 10, 1995). BT Alex.
Brown noted that (i) the multiple of the equity purchase price, as adjusted
for debt and cash (the "Adjusted Purchase Price"), to trailing 12-month
revenues was 1.5x for the Merger versus a range of 1.3x to 16.8x, with a mean
of 6.2x and a median of 3.9x, for the Selected Transactions; (ii) the multiple
of the Adjusted Purchase Price to calendar year 1997 revenues was 1.3x for the
Merger versus a range of 1.3x to 5.8x, with a mean of 2.9x and a median of
2.2x, for the Selected Transactions; (iii) the multiple of the Adjusted
Purchase Price to calendar year 1998 revenues was 1.1x for the Merger versus a
range of 1.1x to 3.9x, with a mean of 1.8x and a median of 1.2x, for the
Selected Transactions; (iv) the multiple of the Adjusted Purchase Price to
trailing 12-month EBITDA was not measurable for the Merger or the Selected
Transactions; (v) the multiple of the Adjusted Purchase Price to calendar year
1997 EBITDA was not measurable for the Merger versus a range of 13.1x to
29.5x, with a mean and a median of 21.3x, for the Selected Transactions; and
(vi) the multiple of the Adjusted Purchase Price to calendar year 1998 EBITDA
was 13.7x for the Merger versus a range of 7.9x to 17.5x, with a mean of 11.5x
and a median of 9.2x, for the Selected Transactions. BT Alex. Brown also noted
that the Selected Transactions were effected at a range of the premium to the
target's per share market price four weeks prior to announcement and to the
target's per share market price one day prior to announcement of -9.6% to
125.9%, with a mean of 46.2% and a median of 31.6%, and -1.4% to 28.2%, with a
mean of 15.6% and a median of 19.5%, respectively,
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versus transaction premiums of 75.1% and 49.7%, respectively, for the Merger
(based on the per share market price four weeks prior to and one day prior to
the October 13, 1997 announcement of the proposed NETCOM and ICG transaction).
All multiples for the Selected Transactions were based on public information
available at the time of announcement of such transaction, without taking into
account differing market and other conditions during the two-year period
during which the Selected Transactions occurred.
Pro Forma Combined Earnings Analysis. BT Alex. Brown analyzed certain pro
forma effects of the Merger. Based on such analysis, BT Alex. Brown computed
the resulting dilution/accretion to the combined company's revenues per share,
EBITDA per share and earnings per share ("EPS") estimates for the fiscal year
ending December 31, 1998, pursuant to the Merger before and after taking into
account any potential cost savings and other synergies that NETCOM and ICG
could achieve if the Merger were consummated and before nonrecurring costs
relating to the Merger. BT Alex. Brown noted that before taking into account
any potential cost savings and other synergies and before certain nonrecurring
costs relating to the Merger, the Merger would be approximately 19.3%
accretive to the combined company's revenues per share, 75.2% accretive to the
combined company's EBITDA per share and approximately 22.2% accretive to the
combined company's EPS for the fiscal year ending December 31, 1998. BT Alex.
Brown also noted that after taking into account potential cost savings and
other synergies of approximately $10.0 million for the fiscal year ending
December 31, 1998, and before nonrecurring costs relating to the Merger, the
Merger would be approximately 21.1% accretive to the combined company's
revenues per share, 99.7% accretive to the combined company's EBITDA per share
and approximately 25.2% accretive to the combined company's EPS for the fiscal
year ending December 31, 1998. There can be no assurance that the combined
company will be able to realize savings and synergies in the amounts
identified, or at all, following the Merger.
Discounted Cash Flow Analysis. BT Alex. Brown performed discounted cash flow
analyses for NETCOM. The discounted cash flow approach values a business based
on the current value of the future cash flow that the business will generate.
To establish a current value under this approach, future cash flow must be
estimated and an appropriate discount rate determined. BT Alex. Brown used
estimates of projected financial performance for NETCOM for the years 1998
through 2002 prepared by NETCOM's management. BT Alex. Brown aggregated the
present value of the cash flows for NETCOM through 2002 with the present value
of a range of terminal values. BT Alex. Brown discounted these cash flows at
discount rates ranging from 20.0% to 30.0%. The terminal value was computed
based on projected EBITDA in calendar year 2002 and a range of trailing EBITDA
multiples of 5.0x and 7.0x. This analysis indicated a range of values of
$17.56 to $31.24 per share.
Relevant Market and Economic Factors. In rendering its opinion, BT Alex.
Brown considered, among other factors, the condition of the U.S. stock
markets, particularly in the ISP and CLEC sectors, and the current level of
economic activity.
No company used in the analysis of certain other publicly traded companies
nor any transaction used in the analysis of selected precedent transactions
summarized above is identical to NETCOM, ICG or the Merger. Accordingly, such
analyses must take into account differences in the financial and operating
characteristics of the Online/Consumer ISPs, the Business ISPs and the CLEC
Companies and the companies in the Selected Transactions and other factors
that would affect the public trading value and acquisition value of the
Online/Consumer ISPs, the Business ISPs and the CLEC Companies and the
companies in the Selected Transactions, respectively.
While the foregoing summary describes all analyses and factors that BT Alex.
Brown deemed material in its presentation to the NETCOM Board of Directors, it
is not a comprehensive description of all analyses and factors considered by
BT Alex. Brown. The preparation of a fairness opinion is a complex process
involving various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. BT Alex. Brown believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
of the factors considered by it, without considering all analyses and factors,
would create an incomplete view of the evaluation process underlying the BT
Alex. Brown Opinion. In performing its
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analyses, BT Alex. Brown considered general economic, market and financial
conditions and other matters, many of which are beyond the control of NETCOM
and ICG. The analyses performed by BT Alex. Brown are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
Additionally, analyses relating to the value of a business do not purport to
be appraisals or to reflect the prices at which the business actually may be
sold. Furthermore, no opinion is being expressed as to the prices at which
shares of ICG Common Stock may trade at any future time.
Pursuant to a letter agreement dated June 1, 1997 between NETCOM and BT
Alex. Brown, the fees to date payable to BT Alex. Brown for rendering the BT
Alex. Brown Opinion have been $425,000, which amount will be credited against
an aggregate fee based on the aggregate consideration paid to NETCOM's
stockholders in the Merger, payable upon consummation of the Merger. Based on
the closing price of ICG Common Stock on December 15, 1997, such aggregate fee
is expected to equal approximately $2.7 million. In addition, NETCOM has
agreed to reimburse BT Alex. Brown for its reasonable out-of-pocket expenses
incurred in connection with rendering financial advisory services, including
fees and disbursements of its legal counsel. NETCOM has agreed to indemnify BT
Alex. Brown and its directors, officers, agents, employees and controlling
persons, for certain costs, expenses, losses, claims, damages and liabilities
related to or arising out of its rendering of services under its engagement as
financial advisor. The terms of the fee arrangement with BT Alex. Brown, which
NETCOM and BT Alex. Brown believe are customary in transactions of this
nature, were negotiated at arm's length between NETCOM and BT Alex. Brown, and
the Board of Directors of NETCOM was aware of such arrangements.
The Board of Directors of NETCOM retained BT Alex. Brown to act as its
advisor based upon BT Alex. Brown having acted as the lead underwriter of two
public offerings of NETCOM Common Stock and based upon BT Alex. Brown's
qualifications, reputation, experience and expertise. BT Alex. Brown is an
internationally recognized investment banking firm and, as a customary part of
its investment banking business, is engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for corporate and other
purposes. In the ordinary course of business, BT Alex. Brown may actively
trade the equity securities of NETCOM and ICG for its own account and for the
account of its customers and accordingly may at any time hold a long or short
position in such securities. BT Alex. Brown maintains a market in the Common
Stock of NETCOM and regularly publishes research reports regarding the
Internet and communications industries and the businesses and securities of
NETCOM and other publicly traded companies in the Internet and communications
industries.
OPINION OF ICG'S FINANCIAL ADVISOR
ICG retained Gleacher NatWest to act as ICG's financial advisor in
connection with the Merger and related matters based upon its qualifications,
expertise and reputation, as well as Gleacher NatWest's prior investment
banking relationship and familiarity with ICG. At the meeting of the ICG Board
of Directors on October 12, 1997, Gleacher NatWest delivered a written opinion
to the ICG Board of Directors to the effect that, as of such date, the
Exchange Ratio offered by ICG to NETCOM's stockholders is fair from a
financial point of view to ICG and its stockholders.
THE FULL TEXT OF GLEACHER NATWEST'S OPINION, WHICH SETS FORTH, AMONG OTHER
THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED, AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX C TO THIS JOINT
PROXY STATEMENT-PROSPECTUS. ICG STOCKHOLDERS ARE URGED TO READ THE GLEACHER
NATWEST OPINION CAREFULLY AND IN ITS ENTIRETY. THE SUMMARY OF THE OPINION OF
GLEACHER NATWEST SET FORTH IN THIS JOINT PROXY STATEMENT- PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
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GLEACHER NATWEST'S OPINION IS ADDRESSED TO THE ICG BOARD OF DIRECTORS AND
DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF ICG CAPITAL STOCK AS TO
HOW SUCH STOCKHOLDER SHOULD VOTE AT THE ICG ANNUAL MEETING.
In connection with rendering its opinion, Gleacher NatWest, among other
things: (i) analyzed the historical publicly filed financial statements of
NETCOM and ICG; (ii) discussed the past and current operations, the financial
condition and the prospects of NETCOM with the management of ICG, and reviewed
with the management of ICG its due diligence of NETCOM; (iii) discussed with
the management of ICG certain forecasts involving NETCOM and ICG, and certain
estimates of financial synergies anticipated from the business combination
resulting from the Merger as prepared by ICG; (iv) reviewed the historical
market prices and reported trading volumes of ICG Common Stock and NETCOM
Common Stock; (v) compared the financial performance of NETCOM with, and
reviewed the prices and reported trading activity of the common shares of, a
publicly traded company whose operating characteristics and industry focus
resemble those of NETCOM; (vi) reviewed the financial terms of selected
precedent acquisitions of companies whose operating characteristics and/or
industry focus resemble those of NETCOM; (vii) performed a discounted cash
flow analysis of NETCOM based upon public estimates and the financial
information provided to it as referred to above; and (viii) reviewed such
other information and performed such other analyses as it deemed appropriate.
In rendering its opinion, Gleacher NatWest assumed and relied upon, without
assuming responsibility for independent verification, the accuracy and
completeness of the information reviewed by it. With respect to the financial
forecasts provided to it, Gleacher NatWest assumed that they have been
reasonably prepared and reflect the best currently available estimates and
judgments of the senior management of ICG and NETCOM as to the future
financial performance of ICG and NETCOM. Gleacher NatWest also assumed based
upon the information which has been provided to it and without assuming
responsibility for independent verification thereof that no material
undisclosed or contingent liability exists with respect to ICG or NETCOM.
Gleacher NatWest's opinion is based necessarily on the economic, market, and
other conditions as in effect on, and the information made available to it as
of, the date of its opinion.
The following is a summary of the material analyses presented by Gleacher
NatWest to the ICG Board of Directors on October 12, 1997 in connection with
rendering its opinion.
Transaction Summary. Gleacher NatWest reviewed the principal terms of the
proposed transaction, noting that the Exchange Ratio shall be determined as
follows: (i) if the ICG Closing Stock Price (as defined in the Merger
Agreement) is greater than or equal to $22.125, the Exchange Ratio shall equal
0.8628, (ii) if the ICG Closing Stock Price is greater than or equal to $19.00
but less than $22.125, the Exchange Ratio shall equal a fraction determined by
dividing $19.0625 by the ICG Closing Stock Price, and (iii) if the ICG Closing
Stock Price is less than $19.00, the Exchange Ratio shall equal 1.0078.
Gleacher NatWest explained that based upon ICG's Closing Stock Price of $26.25
on October 10, 1997, each NETCOM stockholder would receive $22.65 in value,
representing a 50% premium to the NETCOM closing stock price of $15.125 on
October 10, 1997.
Comparable Company Analysis. Gleacher NatWest reviewed the relative
performance and value of NETCOM by comparing certain market trading statistics
for NETCOM with PSINet, Inc. ("PSINet"), the only remaining publicly-traded
Internet service provider whose operating characteristics and industry focus
resemble those of NETCOM. Market information used in ratios provided below is
as of October 10, 1997, except in the case of NETCOM, which is valued at a
price based on ICG's closing stock price on October 10, 1997 multiplied by the
applicable exchange ratio of 0.8628 shares. This analysis showed that the
ratio of aggregate market value to revenues from the most recent quarter
multiplied by four (the "LQA revenues") was 1.3x for NETCOM compared to 3.0x
for PSINet. The analysis also showed that the ratio of aggregate market value
to revenues estimates for NETCOM for 1997 and 1998 was 1.2x and 1.0x,
respectively. This compares to 2.5x and 1.4x, respectively for 1997 and 1998
estimated revenues for PSINet. In each case 1997 and 1998 revenues were based
upon estimates of various equity research analysts.
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Comparable Transaction Analysis. Gleacher NatWest reviewed the premiums and
multiples paid for certain selected precedent acquisitions of companies whose
operating and/or industry focus resemble those of NETCOM. Premiums paid to the
target's stock price one month prior to announcement, and multiples of LQA
revenues, one year forward revenues and two year forward revenues implied by
the consideration to be received by stockholders of NETCOM in the Merger were
compared with premiums paid and multiples paid in other comparable merger
transactions announced in 1996 and 1997. The comparison included a total of
five transactions. The transactions examined were (target/acquiror): BBN/GTE;
CERFNet/Teleport Communications Group; CompuServe/WorldCom; Digex/InterMedia
Communications; and UUNET Technologies/MFS Communications. The median of the
premiums paid to target price one month prior was 57% (in a range of 11% to
126%) for the comparable transactions, compared to 79% for the Merger, based
on an ICG share price of $26.25. In terms of the LQA multiple of revenues, the
median for the comparables was 2.8x (in a range of 1.2x to 11.4x), compared to
1.3x for the Merger. In terms of the one-year forward revenues multiple, the
median for the comparables was 1.5x (in a range of 1.2x to 8.3x), compared to
1.2x for the Merger. In terms of the two-year forward revenues multiple, the
median for the comparables was 1.0x (in a range of 0.8x to 4.7x), compared to
1.0x for the Merger.
No company or transaction used in the comparable company and comparable
transaction analyses is identical to NETCOM or the Merger. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of NETCOM and other factors that could affect the public
trading value of the companies to which they are being compared. Mathematical
analysis (such as determining the average or median) is not in itself a
meaningful method of using comparable transaction data or comparable company
data.
Discounted Cash Flow Analysis. Gleacher NatWest performed a discounted cash
flow analysis to calculate the present value per share of NETCOM using
financial forecasts for NETCOM through 2000 that were based on NETCOM
management's internal strategic plan. Gleacher NatWest then applied a
significant discount (40%) to NETCOM's strategic plan, to adjust the forecasts
closer to what research analysts project for the Company. Gleacher NatWest
used a discount rate of 20.0% and EBITDA terminal value multiples ranging from
8.0x to 10.0x to apply to forecasted EBITDA for the year 2000. This analysis
showed a range of present values from $25 to $30 per share for NETCOM assuming
no synergies. The analysis showed a range of present values from $30 to $36
per share for NETCOM assuming operating cost synergies resulting from sales
and marketing cost savings, network cost savings, and reciprocal compensation
benefits (based on ICG management estimates). This analysis did not purport to
be indicative of actual values or expected values of the shares of NETCOM
Common Stock before or after the Merger.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to a partial analysis or summary description. Gleacher
NatWest believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion and the
presentation to the ICG Board of Directors. Gleacher NatWest has not indicated
that any of the analyses which it performed had a greater significance from
any other. In addition, Gleacher NatWest may have deemed various assumptions
more or less probable than other assumptions, so that the ranges of valuations
resulting from any particular analysis described above should not be taken to
be Gleacher NatWest's view of the actual value of NETCOM.
In performing its analyses, Gleacher NatWest made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of ICG or NETCOM. The
analyses performed by Gleacher NatWest are not necessarily indicative of
actual values, which may be significantly more or less favorable than
suggested by such analyses. Such analyses were prepared solely as a part of
Gleacher NatWest's analysis of the fairness of the Exchange Ratio to ICG and
its stockholders and were provided to the ICG Board of Directors in connection
with the delivery of Gleacher NatWest's opinion. The analyses do not purport
to be appraisals or necessarily reflect the prices at which businesses or
securities might actually be sold, which are inherently subject to
uncertainty. In addition, as described above, Gleacher NatWest's opinion and
presentation to the ICG Board of Directors was one of many
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factors taken into consideration by the ICG Board of Directors in making its
determination to approve the Merger. Consequently, the Gleacher NatWest
analyses described above should not be viewed as determinative of the ICG
Board of Directors' or ICG management's opinion with respect to the value of
NETCOM.
Gleacher NatWest is an internationally recognized investment banking and
advisory firm that regularly engages in the valuation of businesses and their
securities in connection with mergers and acquisitions.
In the past, Gleacher NatWest and its affiliates have provided financial
advisory services to ICG. Pursuant to an engagement letter dated October 10,
1997, ICG agreed to pay Gleacher NatWest a cash fee of $375,000, payable upon
completion of the Merger, for all advisory services rendered in completing the
fairness opinion. In addition, ICG has agreed, among other things, to
reimburse Gleacher NatWest for all reasonable out-of-pocket expenses incurred
in connection with the services provided by Gleacher NatWest, and to indemnify
and hold harmless Gleacher NatWest and certain related parties from and
against certain liabilities and expenses, including certain liabilities under
the federal securities laws, in connection with its engagement.
FEDERAL INCOME TAX CONSEQUENCES
It is a condition to NETCOM'S obligation to consummate the Merger that it
receive an opinion (the "Tax Opinion") from its legal counsel, Pillsbury
Madison & Sutro LLP, dated the date of the Effective Time and to the effect
that, based upon the assumptions and understandings and subject to the
limitations contained in the Tax Opinion, the Merger will constitute a
reorganization within the meaning of section 368(a)(1) of the Code. Pillsbury
Madison & Sutro LLP has advised NETCOM that it currently expects to be able to
deliver the Tax Opinion.
The Tax Opinion will rely on certain assumptions and on representations of
officers of ICG and NETCOM, and if any such assumption or representation
relied upon in the Tax Opinion does not conform to the facts surrounding the
Merger, the validity of the conclusions reached in the Tax Opinion could be
adversely affected. The Tax Opinion neither binds the Internal Revenue Service
(the "IRS") nor precludes the IRS from adopting a contrary position. An
opinion of counsel sets forth such counsel's legal judgment and has no binding
effect or official status of any kind, and no assurance can be given that
contrary positions would not be successfully asserted by the IRS or adopted by
a court if the issues were litigated.
If the Merger constitutes a reorganization under the Code, then (and the Tax
Opinion will also conclude, again based upon the assumptions and
representations and subject to the limitations contained therein, that) for
United States federal income tax purposes:
(i) no gain or loss will be recognized by ICG, NETCOM or Acquisition Sub
as a result of the formation of Acquisition Sub or the Merger;
(ii) no gain or loss will be recognized by holders of NETCOM Common Stock
who exchange their NETCOM Common Stock for ICG Common Stock pursuant to the
Merger, except to the extent of cash received in lieu of fractional shares;
(iii) the aggregate tax basis of ICG Common Stock received as a result of
the Merger will be the same as the stockholder's aggregate tax basis in the
NETCOM Common Stock surrendered in the exchange (reduced by any basis
allocable to fractional shares for which cash is received);
(iv) the holding period of ICG Common Stock received in exchange for
NETCOM Common Stock in the Merger will include the holding period of such
NETCOM Common Stock, provided the shares of NETCOM Common Stock are capital
assets in the hands of the holder thereof at the Effective Time;
(v) a holder of NETCOM Common Stock receiving cash in the Merger in lieu
of a fractional interest in ICG Common Stock will be treated as if such
holder actually received such fractional share interest which was
subsequently redeemed by ICG, resulting in the cash such holder receives in
lieu of such fractional share interest being treated as having been
received as full payment in exchange for stock redeemed as provided in
section 302(a) of the Code;
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(vi) no gain or loss will be recognized by a holder of an unexercised
option to acquire NETCOM Common Stock (a "NETCOM Option") solely as a
result of the conversion of the NETCOM Options into options to purchase
shares of ICG Common Stock provided that, as to any NETCOM Option that is
not an incentive stock option within the meaning of section 422(b) of the
Code (an "ISO"), such NETCOM Option (x) was issued in connection with the
performance of services and (y) did not when issued and does not at the
Effective Time have a readily ascertainable fair market value (within the
meaning of Income Tax Regulations section 1.83-7(b)); and
(vii) to the extent any such unexercised NETCOM Option is an ISO prior to
the Merger, such NETCOM Option will remain an ISO after its conversion into
an option to purchase shares of ICG Common Stock.
THE FOREGOING IS NOT INTENDED TO BE A COMPREHENSIVE DISCUSSION OF ALL
POSSIBLE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER.
FURTHERMORE, THE JOINT PROXY STATEMENT-PROSPECTUS DOES NOT PROVIDE INFORMATION
REGARDING THE TAX CONSEQUENCES OF THE MERGER UNDER THE TAX LAWS OF ANY STATE
OR OF ANY LOCAL OR FOREIGN JURISDICTION. NETCOM AND ICG STOCKHOLDERS ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO SPECIFIC TAX CONSEQUENCES OF
THE MERGER.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes under GAAP. Under this method of accounting,
as of the Effective Time, the assets and liabilities of NETCOM would be
combined with those of ICG at their recorded book values and the stockholders'
equity accounts of ICG and NETCOM would also be combined. Consummation of the
Merger is conditioned on, among other things, receipt by ICG and NETCOM of
letters from ICG's and NETCOM's independent accountants confirming
management's assessment that the Merger will qualify for pooling of interests
accounting treatment under GAAP. See "UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS OF ICG AND NETCOM."
CERTAIN LEGAL MATTERS
Except as set forth below, no federal or state regulatory requirements or
approvals (other than those that arose in connection with the registration of
ICG Common Stock to be issued in the Merger and the effectiveness of this
Joint Proxy Statement-Prospectus and certain notice filings after the
Effective Time) must be complied with or obtained in connection with the
Merger.
Pursuant to the requirements of the HSR Act, NETCOM and ICG filed
Notification and Report Forms for review under the HSR Act with the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Department of
Justice (the "Antitrust Division"). The waiting period under the HSR Act has
terminated.
The FTC and the Antitrust Division frequently scrutinize the legality of
transactions such as the Merger under the antitrust laws. At any time before
or after the Effective Time, the FTC or the Antitrust Division could take such
action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the Merger or seeking the
divestiture of substantial assets of ICG, NETCOM or their respective
subsidiaries. State Attorneys General and private parties may also bring legal
actions under the federal or state antitrust laws under certain circumstances.
Based upon an examination of information available to NETCOM and ICG relating
to the businesses in which ICG, NETCOM and their respective subsidiaries are
engaged, NETCOM and ICG believe that the consummation of the Merger will not
violate the antitrust laws. Nevertheless, there can be no assurance that a
challenge to the proposed Merger on antitrust grounds will not be made or, if
such a challenge is made, that NETCOM and ICG will prevail. Consummation of
the Merger is conditioned upon, among other things, the absence of any
preliminary or permanent injunction or other order issued by any federal or
state court in the United States which prevents the consummation of the
Merger.
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FEDERAL SECURITIES LAW CONSEQUENCES
All ICG Common Stock issued in connection with the Merger will be freely
transferable, except that any ICG Common Stock received by persons who are
deemed to be "affiliates" (as such term is defined under the Securities Act)
of NETCOM or ICG prior to the Merger may be sold by them only in transactions
permitted by the resale provisions of Rule 145 under the Securities Act with
respect to affiliates of NETCOM, or Rule 144 under the Securities Act with
respect to persons who are or become affiliates of ICG, or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of NETCOM or ICG generally include individuals or entities that control, are
controlled by, or are under common control with, such party and may include
certain officers and directors of such party as well as principal stockholders
of such party.
Affiliates may not sell their shares of ICG Common Stock acquired in
connection with the Merger, except pursuant to an effective registration under
the Securities Act covering such shares or in compliance with Rule 145 (or
Rule 144 under the Securities Act in the case of persons who become affiliates
of ICG) or another applicable exemption from the registration requirements of
the Securities Act. In general, under Rule 145, for one year following the
Effective Time an affiliate (together with certain related persons) would be
entitled to sell shares of ICG Common Stock acquired in connection with the
Merger only through unsolicited "broker transactions" or in transactions
directly with a "market maker," as such terms are defined in Rule 144.
Additionally, the number of shares to be sold by an affiliate (together with
certain related persons and certain persons acting in concert) within any
three-month period for purposes of Rule 145 may not exceed the greater of 1%
of the outstanding shares of ICG Common Stock or the average weekly trading
volume of such stock during the four calendar weeks preceding such sale. Rule
145 would only remain available, however, to affiliates if ICG remained
current with its informational filings with the Commission under the Exchange
Act. One year after the Effective Time, an affiliate would be able to sell
such ICG Common Stock without such manner of sale or volume limitations
provided that ICG was current with its Exchange Act informational filings and
such affiliate was not then an affiliate of ICG. Two years after the Effective
Time, an affiliate would be able to sell such shares of ICG Common Stock
without any restrictions so long as such affiliate had not been an affiliate
of ICG for at least three months prior thereto.
LISTING
It is a condition to the Merger that the shares of ICG Common Stock to be
issued in connection with the Merger be authorized for listing on Nasdaq,
subject to official notice of issuance.
APPRAISAL RIGHTS
UNDER THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE, THE HOLDERS OF
NETCOM COMMON STOCK ARE NOT ENTITLED TO ANY APPRAISAL RIGHTS WITH RESPECT TO
THE MERGER AND THE HOLDERS OF ICG COMMON STOCK ARE NOT ENTITLED TO ANY
APPRAISAL RIGHTS WITH RESPECT TO THE ICG SHARE PROPOSAL.
THE MERGER AGREEMENT
The following description of the Merger Agreement is necessarily a summary
thereof and is therefore qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached to this Joint Proxy Statement-
Prospectus as Annex A-1 and Annex A-2 and incorporated herein by reference.
Stockholders of NETCOM and ICG are urged to read the Merger Agreement in its
entirety.
THE MERGER
The Merger Agreement provides that, subject to the approval of the Merger by
the stockholders of NETCOM, the approval of the ICG Share Proposal by the
stockholders of ICG and the satisfaction or waiver of the other conditions to
the Merger, a newly formed Delaware subsidiary of ICG ("Acquisition Sub"),
will be
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merged with and into NETCOM in accordance with Delaware law, whereupon the
separate existence of Acquisition Sub will cease and NETCOM will be the
Surviving Corporation of the Merger. Acquisition Sub was formed solely to
complete the Merger. At the Effective Time, the conversion of NETCOM Common
Stock and the conversion of shares of the common stock of Acquisition Sub
pursuant thereto will be effected as described below. The Certificate of
Incorporation and By-laws of Acquisition Sub will become the Certificate of
Incorporation and By-laws of the Surviving Corporation and may thereafter be
amended and/or restated as provided therein and by Delaware law.
EFFECTIVE TIME
Following the adoption of the Merger Agreement and the ICG Share Proposal
and subject to the satisfaction or waiver of certain terms and conditions,
including conditions to closing, contained in the Merger Agreement, the Merger
will become effective upon the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware. The filing of the Certificate of
Merger will be made on the closing date of the Merger (the "Closing Date").
TERMS OF THE MERGER
At the Effective Time:
(i) each share of capital stock of NETCOM issued and outstanding
immediately prior to the Effective Time and owned directly or indirectly by
NETCOM, if any, will be canceled and retired, and no ICG Common Stock or
other consideration will be delivered in exchange therefor;
(ii) each share of the capital stock of Acquisition Sub issued and
outstanding immediately prior to the Effective Time and owned directly or
indirectly by Acquisition Sub, if any, will be canceled and retired, and no
common stock of the Surviving Corporation or other consideration will be
delivered in exchange therefor;
(iii) each remaining outstanding share of NETCOM Common Stock will be
converted into and represent the right to receive that number of shares of
ICG Common Stock equal to the Exchange Ratio, plus cash in lieu of any
fractional share. The Exchange Ratio shall be determined as follows: (a) if
the ICG Closing Stock Price of a share of ICG Common Stock is greater than
or equal to $22.125, the Exchange Ratio shall equal 0.8628, (b) if the ICG
Closing Stock Price of a share of ICG Common Stock is greater than or equal
to $19.00 but less than $22.125, the Exchange Ratio shall equal a fraction
(rounded to the nearest ten-thousandth) determined by dividing $19.0625 by
the ICG Closing Stock Price of a share of ICG Common Stock, and (c) if the
ICG Closing Stock Price is less than $19.00, the Exchange Ratio shall equal
1.0078; and
(iv) all the remaining outstanding shares of common stock of Acquisition
Sub will be converted into and represent a total of ten shares of fully
paid and nonassessable shares of common stock, par value $.01 per share, of
the Surviving Corporation.
As of the Effective Time, present holders of NETCOM Common Stock will cease
to have any rights as holders of such shares, but will have the rights of
holders of ICG Common Stock. At the Effective Time, the stock transfer books
of NETCOM will be closed and there will be no further transfers of NETCOM
Common Stock. See "MERGER--Conversion of Shares; Procedures for Exchange of
Certificates."
At the Effective Time, each outstanding stock option, warrant or other right
to acquire shares of NETCOM Common Stock ("NETCOM Options"), whether or not
exercisable, as of the Effective Time will be converted into and become rights
with respect to ICG Common Stock, and ICG shall assume each NETCOM Option, in
accordance with the terms and conditions of the stock option, warrant or other
agreement by which it is evidenced, except that from and after the Effective
Time, (i) each NETCOM Option assumed by ICG may be exercised solely for shares
of ICG Common Stock, (ii) the number of shares of ICG Common Stock subject to
such NETCOM Option will be equal to the number of shares of NETCOM Common
Stock subject to such NETCOM Option immediately prior to the Effective Time
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multiplied by the Exchange Ratio, and (iii) the per share exercise price under
each such NETCOM Option will be adjusted by dividing the per share exercise
price under each such NETCOM Option by the Exchange Ratio and rounding up to
the nearest cent. Notwithstanding the provisions of clause (ii) of the
preceding sentence, fractional shares of ICG Common Stock will not be issued
upon exercise of NETCOM Options.
FRACTIONAL SHARES
Fractional shares of ICG Common Stock will not be issued in connection with
the Merger. No such fractional interest will entitle the owner thereof to any
rights as a security holder of ICG. In lieu of any such fractional share, each
holder of NETCOM Common Stock who would otherwise have been entitled to a
fraction of a share of ICG Common Stock upon surrender of certificates for
exchange will be paid cash (without interest), rounded to the nearest cent,
determined by multiplying the fractional share interest in ICG Common Stock to
which such holder would otherwise be entitled (after taking into account all
shares of NETCOM Common Stock held of record by such holder immediately prior
to the Effective Time) by the market value of one share of ICG Common Stock at
the Effective Time. The market value of one share of ICG Common Stock at the
Effective Time will be the ICG Closing Stock Price. As soon as practicable
after the determination of the amount of cash, if any, to be paid to holders
of shares of NETCOM Common Stock in lieu of any fractional shares of ICG
Common Stock, the Surviving Corporation will promptly deposit with the bank or
trust company selected by the Surviving Corporation and reasonably acceptable
to NETCOM to act as the exchange agent (the "Exchange Agent") cash in the
required amounts and the Exchange Agent will mail such amounts without
interest to such holders; provided however, that no such amount will be paid
to any holder with respect to any certificate prior to the surrender by such
holder of such certificate.
SURRENDER AND PAYMENT
The Merger Agreement provides that as of the Effective Time, the Surviving
Corporation will appoint the Exchange Agent for the Merger. Prior to the
Closing Date, ICG, on behalf of the Surviving Corporation, will deposit with
the Exchange Agent certificates evidencing the shares of ICG Common Stock to
be issued in the Merger ("ICG Certificates"). Upon surrender of a NETCOM Stock
Certificate to the Exchange Agent or to such other agents as may be appointed
by the Surviving Corporation, together with such letter of transmittal, duly
executed, and such other documents as may be required by the Exchange Agent or
such other agent, the holder of such NETCOM Stock Certificate will be entitled
to receive an exchange therefor ICG Certificates representing the number of
whole shares of ICG Common Stock that such holder has the right to receive
pursuant to the Merger Agreement (together with any dividend or distribution
with respect thereto made after the Effective Time and any cash to be paid in
lieu of fractional shares of ICG Common Stock) and the NETCOM Stock
Certificates so surrendered will be canceled.
No dividends or other distributions that are declared or made after the
Effective Time with respect to shares of ICG Common Stock with a record date
after the Effective Time will be paid to the holder of any unsurrendered
NETCOM Stock Certificate with respect to the shares of ICG Common Stock
issuable upon surrender thereof until the holder of such NETCOM Stock
Certificate surrenders such NETCOM Stock Certificate pursuant to the terms of
the Merger Agreement. Following such surrender, the Surviving Corporation will
pay or cause to be paid, without interest, to the record holder of ICG
Certificates issued in exchange therefor, (a) at the time of such surrender,
the amount of cash in lieu of fractional shares of ICG Common Stock to which
such holder is entitled and the amount, if any, of dividends or other
distributions by ICG with a record date after the Effective Time theretofore
paid with respect to such whole shares of ICG Common Stock and (b) at the
appropriate payment date, the amount of dividends or other distributions (if
any) by ICG with a record date after the Effective Time but prior to surrender
of such NETCOM Stock Certificate and a payment date subsequent to such
surrender payable with respect to such whole shares of ICG Common Stock.
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In the event of a transfer of ownership of NETCOM Common Stock that is not
registered in the transfer records of NETCOM, ICG Certificates representing
the proper number of shares of ICG Common Stock may be issued to a person
other than the person in whose name the surrendered NETCOM Stock Certificate
is registered if the NETCOM Stock Certificate representing such NETCOM Common
Stock is presented to the Exchange Agent accompanied by all documents required
to evidence and effect such transfer and by evidence reasonably satisfactory
to ICG that any applicable stock transfer tax has been paid. ICG will not
directly or indirectly pay or reimburse any person for any transfer taxes of
the type referred to in the preceding sentence. If any ICG Certificates are to
be delivered to a person other than the person in whose name the NETCOM Stock
Certificates surrendered in exchange therefor are registered, it will be a
condition to the delivery of such ICG Certificates that the NETCOM Stock
Certificates so surrendered are properly endorsed or accompanied by
appropriate stock powers and otherwise in proper form for transfer, that such
transfer otherwise is proper and that the person requesting such transfer pay
to the Exchange Agent any transfer or other taxes payable by reason of the
foregoing or establishes to the satisfaction of the Exchange Agent that such
taxes have been paid or are not required to be paid.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO
HOLDERS OF RECORD OF NETCOM COMMON STOCK AS SOON AS PRACTICABLE FOLLOWING THE
EFFECTIVE TIME AS TO THE METHOD OF EXCHANGING CERTIFICATES FORMERLY
REPRESENTING SHARES OF NETCOM COMMON STOCK FOR CERTIFICATES REPRESENTING
SHARES OF ICG COMMON STOCK. SEE "THE MERGER--CONVERSION OF SHARES; PROCEDURES
FOR EXCHANGE OF CERTIFICATES." STOCKHOLDERS OF NETCOM SHOULD NOT SEND
CERTIFICATES REPRESENTING THEIR SHARES TO NETCOM OR TO THE EXCHANGE AGENT
PRIOR TO RECEIPT OF THE TRANSMITTAL LETTER.
CONDITIONS TO CONSUMMATION OF THE MERGER
The obligations of ICG and NETCOM to consummate the Merger are subject to
the satisfaction of certain conditions, including: (i) the approval of the
Merger Agreement and the transactions contemplated thereby by the requisite
vote of the holders of the outstanding NETCOM Stock, (ii) the approval of the
ICG Share Proposal by the requisite vote of the holders of ICG Common Stock;
(iii) the authorization for listing on Nasdaq upon official notice of issuance
of the ICG Common Stock issuable to NETCOM stockholders pursuant to the Merger
Agreement; (iv) expiration or termination of the waiting period applicable to
the consummation of the Merger under the HSR Act; (v) effectiveness of the
Registration Statement on Form S-4 that includes this Joint Proxy Statement-
Prospectus in accordance with the provisions of the Securities Act and
approvals under any necessary state securities law and no stop orders with
respect thereto shall have been issued by the SEC and remain in effect; and
(vi) the absence of any preliminary or permanent injunction or other order by
any federal or state court in the United States which prevents the
consummation of the Merger (each party agreeing to use its reasonable best
efforts to have any such injunction lifted).
The obligation of NETCOM to consummate the Merger is also subject to the
satisfaction of the following further conditions (unless waived by NETCOM):
(i) ICG having performed or complied in all material respects with all
material agreements and covenants required by the Merger Agreement to be
performed or complied with by it prior to the Effective Time, and NETCOM shall
have received a certificate of ICG to such effect signed by the Chief
Executive Officer of ICG; (ii) the representations and warranties of ICG
contained in the Merger Agreement shall be true in all material respects, as
of the Effective Time, except (a) for changes contemplated by the Merger
Agreement, (b) for those representations and warranties which address matters
only as of a particular date (which shall remain true and correct as of such
date), and (c) in all such cases, for such breaches or inaccuracies of such
representations and warranties as do not have a material adverse effect on
ICG, and NETCOM shall have received a certificate of ICG to such effect signed
by the Chief Executive Officer of ICG; (iii) NETCOM shall have received a
written opinion of Pillsbury Madison & Sutro LLP, counsel to NETCOM, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368 of the Internal Revenue Code of 1986, as amended (the "Code");
(iv) David W. Garrison shall have been elected to the Board
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of Directors of ICG effective as of the Effective Time; and (v) the opinion of
BT Alex. Brown shall not have been withdrawn.
The obligations of ICG and Acquisition Sub to consummate the Merger are also
subject to the satisfaction of the following further conditions (unless waived
by ICG): (i) NETCOM shall have performed or complied in all material respects
with all material agreements and covenants required by the Merger Agreement to
be performed or complied with by it on or prior to the Effective Time, and ICG
shall have received a certificate of NETCOM to such effect signed by the Chief
Executive Officer of NETCOM; (ii) the representations and warranties of NETCOM
contained in the Merger Agreement shall be true in all material respects as of
the Effective Time, except (a) for changes contemplated by the Merger
Agreement, (b) for those representations and warranties which address matters
only as of a particular date (which shall remain true and correct as of such
date), and (c) in all such cases, for such breaches or inaccuracies of such
representations and warranties as do not have a material adverse effect on
NETCOM, and ICG shall have received a certificate of NETCOM to such effect
signed by the Chief Executive Officer of NETCOM; (iii) the opinion of Gleacher
Natwest shall not have been withdrawn; and (iv) prior to the Effective Time,
NETCOM shall have disposed of all of its interest in Internetcom do Brasil,
S.A., or, alternatively, shall have acquired, and hold as of the Effective
Time, more than 51 percent of the equity interests of such company.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of ICG
and NETCOM relating to, among other things, the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions): (i) the due organization, power and standing of, and similar
corporate matters with respect to, each of NETCOM and ICG; (ii) the
capitalization of each of NETCOM and ICG; (iii) performance and enforceability
of the Merger Agreement by each such party and of the transactions
contemplated thereby; (iv) the absence of any conflict with each of NETCOM's
and ICG's Certificate of Incorporation, By-Laws and material agreements and
instruments and compliance with applicable laws; (v) reports and other
documents filed with the Securities and Exchange Commission (the "Commission")
and other regulatory authorities and the accuracy of the information contained
therein; (vi) the absence of certain changes or events having material adverse
effect on the financial condition, business or results of operations of NETCOM
and ICG; (vii) the absence of any default under NETCOM's and ICG's employee
benefit plans and compliance with ERISA; and (viii) compliance with applicable
laws.
CONDUCT OF BUSINESS PENDING THE MERGER
Prior to the Effective Time, except as contemplated, permitted or required
by the Merger Agreement, NETCOM will, and will cause its subsidiaries to,
carry on their respective businesses in the ordinary course in accordance with
past practice, and will, and will cause its subsidiaries to, use its
reasonable best efforts to preserve intact its present business organization
and to preserve relationships with customers, suppliers and others having
business dealings with them.
Except as contemplated, permitted or required by the Merger Agreement,
NETCOM will not, and will not permit any of its subsidiaries to, among other
things: (i) amend or propose to amend its Certificate of Incorporation or By-
laws; (ii) split, combine or reclassify its outstanding capital stock; (iii)
declare, set aside or pay any dividend, distribution or other payment to any
stockholder, director or officer; (iv) directly or indirectly redeem, purchase
or otherwise acquire or agree to redeem, purchase or otherwise acquire any
shares of NETCOM capital stock except for the repurchase at cost upon
termination of employment pursuant to existing contractual rights of
repurchase; or (v) agree to do any of the foregoing.
Except with the written consent of ICG, which consent will not be
unreasonably withheld, NETCOM will not, and will not permit any of its
subsidiaries to: (i) encumber, issue, deliver or sell or agree to issue,
deliver or sell any shares of capital stock of, or other equity interests
(including any option, warrant or other similar right to acquire any equity
interest) in NETCOM or any of its subsidiaries, except for shares issued under
NETCOM's
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Employee Stock Purchase Plan and except for options to purchase an aggregate
of up to 150,000 shares of NETCOM Common Stock, exercisable for fair market
value on the date of grant, issued consistent with past practices to employees
either hired before or after October 12, 1997 and officers hired after October
12, 1997; (ii) acquire, lease or dispose of any assets other than in the
ordinary course of business consistent with past practice; (iii) create,
assume or incur any indebtedness except in the ordinary course of business
consistent with past practice; (iv) encumber any of its assets other than in
connection with equipment leases incurred in the ordinary course of business
consistent with past practice; (v) enter into any other material transaction
other than in each case in the ordinary course of business consistent with
past practice; (vi) make any payment with respect to any indebtedness of
NETCOM or its subsidiaries except such payments that are scheduled to come due
prior to the Effective Time; (vii) acquire by merging or consolidating with,
or by acquiring assets of, or by purchase a substantial ownership interest in,
or by any other method, any business or any other person; or (viii) agree to
do any of the foregoing.
Except with the written consent of ICG, which consent will not be
unreasonably withheld, and except as required to comply with applicable law,
or existing NETCOM employee benefit plans, NETCOM will not, and will not
permit any of its subsidiaries to: (i) adopt, terminate or amend any bonus,
profit sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other NETCOM employee benefit
plan, agreement, trust, fund or other arrangement for the benefit or welfare
of any director, officer or current or former employee; (ii) increase in any
manner the compensation or benefits of any director, officer or employee
(except normal increases in the ordinary course of business consistent with
past practice); (iii) except as permitted under clause (i) of the previous
paragraph, grant any award or option under any bonus, incentive, performance
or other compensation plan or arrangement or NETCOM employee benefit plan;
(iv) take any action to fund or in any other way secure the payment of
compensation or benefits (including any option, warrant or other similar right
to acquire any equity interest) under any employee plan, agreement, contract
or arrangement or NETCOM employee benefit plan (except in the ordinary course
of business consistent with past practice); or (v) agree to do any of the
foregoing.
NETCOM will not take or agree to take, and will cause its subsidiaries not
to take or agree to take, any action that would: (i) make any representation
or warranty of NETCOM set forth in the Merger Agreement untrue or incorrect so
as to cause the condition that the representations and warranties of NETCOM
contained in the Merger Agreement will be true and correct in all material
respects as of the Effective Time not to be fulfilled as of the Effective
Time; or (ii) result in any breach of the Merger Agreement or of the other
conditions to consummation of the Merger described in the first two paragraphs
of the section entitled, "Conditions to Consummation of the Merger" contained
herein, not to be satisfied as of the Effective Time.
NETCOM will not, and will not permit any of its subsidiaries to enter into
any transaction with any officer, stockholder, director, consultant or
employee of NETCOM or any subsidiary thereof or any person or entity that is
an "affiliate" or "associate" of any of the foregoing, as those terms are
defined in Rule 12b-2 under the Exchange Act, whether or not such transaction
would be in the ordinary course of business.
NETCOM will take no action that reasonably could be expected to adversely
affect the qualification of the Merger for pooling-of-interests accounting
treatment under GAAP.
The Board of Directors of NETCOM will recommend to the stockholders of
NETCOM the approval of the Merger, unless the Board of Directors reasonably
determines in good faith, after consultation with outside counsel, that such
action would be inconsistent with its fiduciary duties to stockholders as
required by law and, if such determination is made, will give written notice
to ICG of such determination within two business days of the making of such
determination. Upon the issuance of such written notice to ICG, and upon the
written election of ICG, NETCOM will negotiate in good faith with ICG for a
period of two business days regarding such adjustments in the terms of the
Merger as would enable the Board of Directors of NETCOM consistent with its
fiduciary duties to the stockholders, to proceed to recommend the Merger to
the stockholders of NETCOM as contemplated in the Merger Agreement.
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Upon the request of ICG, NETCOM will prepare and deliver to ICG, within
twenty days after such request, such financial statements (including audited
financial statements) as may be required by ICG to meet its financial
reporting obligations (including requirements under applicable securities
laws.)
NETCOM shall take no action that reasonably could be expected to adversely
affect the qualification of the Merger as a reorganization under Section
368(a) of the Code.
NETCOM will use its reasonable best efforts to dispose of all of its
interest in Internetcom do Brasil, S.A., or, alternatively, acquire and hold
more than 51 percent of the equity interests of such company. In December
1997, NETCOM disposed of such interest.
Prior to the Effective Time, except as contemplated, permitted or required
by the Merger Agreement, (i) ICG will, and will cause its subsidiaries to,
conduct its business in the ordinary course in accordance with past practice
and will, and will cause its subsidiaries to, use its reasonable best efforts
to preserve intact its present business organization and to preserve
relationships with customers, suppliers and others having business dealings
with them; (ii) ICG will not take or agree to take, and will cause its
subsidiaries not to take or agree to take, any action that would (a) make any
representation or warranty of ICG set forth in the Merger Agreement untrue or
incorrect in any material respect, or (b) result in any breach of the Merger
Agreement or of the conditions of ICG set forth in the Merger Agreement not to
be satisfied as of the Effective Time; (iii) without the prior written consent
of NETCOM, for a period ending upon the earlier of the termination of the
Merger Agreement or twelve months after the date of the Merger Agreement, ICG
will not, except as provided in the Merger Agreement, (a) acquire or agree to
acquire any voting securities or direct or indirect rights to acquire any
voting securities of NETCOM, or (b) (1) make or participate in any
"solicitation" of "proxies" to vote (as such terms are used in the proxy rules
of the Commission) with respect to the voting of any securities of NETCOM, (2)
form, join or in any way participate in a group within the meaning of Section
13(d)(3) of the Exchange Act with respect to any voting securities of NETCOM
or (3) otherwise act, alone or with others, to seek to control the management,
Board of Directors or policies of NETCOM.
The Board of Directors of ICG will recommend to the stockholders of ICG the
approval of the Merger, unless the Board of Directors reasonably determines in
good faith, after consultation with outside counsel, that such action would be
inconsistent with its fiduciary duties to its stockholders as required by law
and, if such determination is made, will give written notice to NETCOM within
two business days of the making of such determination. Upon the issuance of
such written notice to NETCOM, and upon the election of NETCOM, ICG will
negotiate in good faith with NETCOM for a period of two business days
regarding such adjustments in the terms of the Merger as would enable the
Board of Directors of ICG, consistent with its fiduciary duties to the
stockholders, to proceed to recommend the Merger to the stockholders of ICG as
contemplated by the Merger Agreement.
ICG shall take no action that reasonably could be expected to adversely
affect the qualification of the Merger for pooling-of-interests accounting
treatment under GAAP.
ICG shall take no action that reasonably could be expected to adversely
affect the qualification of the Merger as a reorganization under Section
368(a) of the Code.
ICG shall not enter into any agreement with any person for the purchase or
other acquisition by such person of more than 50 percent of the ICG Common
Stock, unless such person agrees in writing prior to the Effective Time to
vote in favor of the Merger.
COVENANTS
Each of NETCOM and ICG and their respective subsidiaries will give the other
access throughout the period prior to the Effective Time to its properties,
books, contracts, commitments, records and personnel. NETCOM and ICG have
further agreed to prepare and file with the Commission a registration
statement consisting of this Joint Proxy Statement-Prospectus with respect to
the ICG Common Stock to be issued in connection with the
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Merger and to make all necessary filings with respect to the transactions
contemplated by the Merger under applicable state securities laws.
Prior to the Closing Date, NETCOM has agreed to deliver to ICG a letter
identifying all persons who were in NETCOM's opinion, at the date of the
Merger Agreement, "affiliates" of NETCOM as that term is used in Rule 145
under the Securities Act (the "Affiliates"). NETCOM agreed to use its
reasonable best efforts to cause each Affiliate to deliver to ICG, a written
agreement that such person will not sell ICG Common Stock unless such sale has
been registered under the Securities Act, such sale is effected in compliance
with Rule 145, or in the opinion of independent counsel or pursuant to a "no
action" letter obtained from the staff of the Commission, such sale is exempt
from registration under the Securities Act.
NETCOM and ICG each filed notifications under the HSR Act in connection with
the Merger and the transactions contemplated thereby, and agreed to respond as
promptly as practicable to any inquiries received from the FTC and the
Antitrust Division for additional information and documentation and to respond
as promptly as possible to all inquiries and requests from any State Attorney
General or other governmental authority in connection with antitrust matters.
The waiting period under the federal antitrust laws has terminated.
Each of NETCOM and ICG has agreed to use its commercially reasonable efforts
to take, or cause to be taken, all appropriate action, and to do, or cause to
be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
the Merger Agreement in the most expeditious manner practicable, including the
satisfaction of all conditions to the Merger.
EFFECT ON EMPLOYEE BENEFIT PLANS
For a period of at least one year after the Effective Time, ICG will cause
the Surviving Corporation to make generally available to the employees of
NETCOM employee benefits, including severance benefits and accrued vacation
time, which are no less favorable than those currently afforded to the
employees of NETCOM. At the Effective Time, NETCOM's employee stock purchase
plan will be terminated and any cash in participants' accounts will be
refunded to them.
NO SOLICITATION
NETCOM and its subsidiaries will (i) not take any action to initiate,
solicit or encourage, directly or indirectly, any inquires or the making or
implementation of any proposal or offer (including, without limitation, any
proposal or offer to its stockholders) with respect to a merger, acquisition,
consolidation or similar transaction involving, or any purchase of all or any
significant portion of assets or any equity securities of, NETCOM or any of
its subsidiaries (any such proposal or offer being hereinafter referred to as
an "Acquisition Proposal"), or engage in any negotiations concerning, or
provide any confidential information or data to, or have any discussions with,
any person or other entity or group as defined in Section 13(d)(3) of the
Exchange Act relating to an Acquisition Proposal, or otherwise facilitate any
effort or attempt to make or implement an Acquisition Proposal; (ii)
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties previously conducted with respect
to any of the foregoing and take the necessary steps to inform the individuals
or entities referred to above of the obligations undertaken hereby; and (iii)
notify ICG immediately if any such inquiries or proposals are received by, any
such information is requested from or any such negotiations or discussions are
sought to be initiated or continued with, NETCOM or any of its subsidiaries.
Nothing contained in this paragraph will prohibit the Board of Directors of
NETCOM from (1) furnishing information to, or entering into discussions or
negotiations with, any person or other entity or group that makes an
Acquisition Proposal or recommending to its stockholders that they accept such
Acquisition Proposal, if (A) the Board of Directors of NETCOM reasonably
determines in good faith, after consultation with outside counsel, that such
action is consistent with its fiduciary duties to stockholders imposed by law,
(B) prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, NETCOM provides written notice to
ICG to the effect that it is furnishing information to, or entering into
69
<PAGE>
discussions or negotiations with, such person or entity, and (C) subject to
any confidentiality agreement with such other party (which NETCOM determines
in good faith, after consultation with outside counsel, is required to be
executed in order for the Board of Directors to act consistently with its
fiduciary duties to stockholders imposed by law), NETCOM keeps ICG informed of
the status (not the terms) of any such discussions or negotiations; and (2) to
the extent applicable, complying with Rule 14e-2 promulgated under the
Exchange Act with regard to an Acquisition Proposal. Nothing in this paragraph
will (x) permit any party to terminate the Merger Agreement (except as
specifically provided in the Merger Agreement), (y) permit any party to enter
into any agreement with respect to an Acquisition Proposal during the term of
the Merger Agreement (it being agreed that during the term of the Merger
Agreement, no party will enter into any agreement with any person that
provides for, or in any way facilitates, an Acquisition Proposal (other than a
confidentiality agreement in customary form)), or (z) breach any obligation of
any party under the Merger Agreement.
INDEMNIFICATION
ICG will cause the Surviving Corporation to, and, should the Surviving
Corporation fail or be unable to do so, ICG will, indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date of
the Merger Agreement or who becomes prior to the Effective Time, an officer or
director of NETCOM (each, an "Executive"), against all losses, expenses,
damages, liabilities, costs, judgments, and amounts paid in settlement in
connection with any claim, action, suit, proceeding, or investigation based on
or arising out of, in whole or in part, any actions or omissions of such
Executive as an officer or director of NETCOM on or prior to the Effective
Time, including actions or omissions relating to any of the transactions
contemplated by the Merger Agreement, to the fullest extent permitted under
Delaware law, the Certificate of Incorporation and By-Laws of NETCOM and any
indemnification agreements with such Executive, a list of which has been
provided to ICG. ICG will cause the Surviving Corporation to pay expenses in
advance of the final disposition of any such claim, action, suit, proceeding,
or investigation to each Executive to the fullest extent permitted by
applicable law upon receipt of any undertaking required or contemplated by
applicable law. Without limiting the foregoing, in any case in which approval
of or a determination by the Surviving Corporation is required to effectuate
any indemnification, (i) the Executives will conclusively be deemed to have
met the applicable standards for indemnification with respect to any actions
or omissions of such Executives as an officer or director of NETCOM on or
prior to the Effective Time relating to any of the transactions contemplated
by the Merger Agreement and (ii) ICG shall cause the Surviving Corporation to
direct, at the election of any Executive, that the determination of any such
approval shall be made by independent counsel selected by the Executive and
reasonably acceptable to ICG. If any such claim, action, suit, proceeding, or
investigation is brought against any Executive (whether arising before or
after the Effective Time), (i) the Executive may retain counsel satisfactory
to him or her that is reasonably acceptable, and (ii) ICG will pay or cause
the Surviving Corporation to pay all reasonable fees and expenses of such
counsel for the Executive, as such fees and expenses are incurred, upon
receipt of a written undertaking by the Executive that the Executive will
repay the amounts so paid if it ultimately is determined in a final non-
appealable judgment by a court of competent jurisdiction that he is not
entitled to be indemnified by the Surviving Corporation as authorized by
Delaware law. Neither ICG nor the Surviving Corporation shall have any
obligation under the Merger Agreement to any Executive when and if a court of
competent jurisdiction shall ultimately determine in a final non-appealable
judgment that such Executive is not entitled to indemnification under the
Merger Agreement.
The Surviving Corporation will maintain in effect for a period of one year
after the Effective Time the policy of officers' and directors' liability
insurance maintained by NETCOM on the date of the Merger Agreement, with
coverage in amount and scope at least as favorable as NETCOM's then existing
directors' and officers' liability insurance coverage; provided that such
policy will not be required to be maintained if equivalent coverage is
provided to such persons under another policy of officers' and directors'
liability insurance maintained by ICG or any of its Affiliates; and provided
further that in satisfying the obligations under the indemnification provision
of the Merger Agreement, the Surviving Corporation will not be obligated to
pay annual premiums in excess of 200% of the amount per annum paid by NETCOM
in its last full fiscal year. The amount per annum of premiums paid by NETCOM
in its last full fiscal year equaled $426,500.
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<PAGE>
If ICG or the Surviving Corporation or any of its successors or assigns (i)
consolidates with or merges into any other person and will not be the
continuing or surviving person of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any person,
then and in each such case, proper provisions will be made so that the
successors and assigns of ICG or the Surviving Corporation assume the
indemnification obligations under the Merger Agreement.
TERMINATION; REMEDIES; FEES AND EXPENSES
The obligations of NETCOM and ICG to consummate the Merger are subject to
various conditions as described above under "--Conditions to Consummation of
the Merger."
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of NETCOM or ICG as follows:
(i) by mutual written consent of the Boards of Directors of NETCOM and
ICG;
(ii) by either ICG or NETCOM (a) if at the special meeting of its
stockholders (including any postponement or adjournment thereof), the
Merger is not approved and adopted by the affirmative vote specified in the
Merger Agreement, (b) after March 1, 1998 or (c) if its independent
accountants advise it in writing that the Merger will not qualify for
pooling-of-interests accounting treatment under GAAP;
(iii) by NETCOM if it receives notice from ICG of the good faith
determination of the Board of Directors of ICG, after consultation with
outside counsel, that the Board of Directors of ICG will not recommend to
the stockholders of ICG the approval of the Merger because such action
would be inconsistent with its fiduciary duties to its stockholders as
required by law;
(iv) by ICG, if it receives notice from NETCOM of the good faith
determination of the Board of Directors of NETCOM, after consultation with
outside counsel, that the Board of Directors of NETCOM will not recommend
to the Stockholders of NETCOM the approval of the Merger because such
action would be inconsistent with its fiduciary duties to its stockholders
as required by law; or
(v) by ICG, if any person (other than ICG and any of its Affiliates)
shall have acquired before the Effective Time or the termination of the
Merger Agreement 50 percent or more of the outstanding NETCOM Common Stock,
unless such person has delivered to ICG within two business days of such
acquisition definitive written confirmation to the effect that such person
will vote in favor of the Merger at the special meeting and take no action
to prevent or delay the Merger.
In the event of the termination of the Merger Agreement or breach of any
provision of the Merger Agreement by either ICG or NETCOM, ICG and NETCOM will
be entitled to all remedies available at law, provided that, subject to the
specific performance remedy in the succeeding sentence, the remedies specified
in the following paragraphs will be the sole remedies allowable to ICG or
NETCOM, as the case may be, as a result of the events specified therein.
Notwithstanding anything to the contrary in the Merger Agreement, in the event
of a breach of any provision of the Merger Agreement prior to the termination
of the Merger Agreement, the non-breaching party will be entitled to all
available equitable remedies.
Subject to the paragraph below the following paragraph, if (i) (w) ICG
receives notice from NETCOM of the good faith determination of the Board of
Directors of NETCOM, after consultation with outside counsel, that the Board
of Directors of NETCOM will not recommend to the stockholders of NETCOM the
approval of the Merger because such action would be inconsistent with its
fiduciary duties to its stockholders as required by law, (x) the Board of
Directors of NETCOM fails to recommend to the stockholders of NETCOM the
approval of the Merger prior to March 2, 1998, or withdraws such
recommendation, (y) the Merger is not consummated as a direct result of the
failure of NETCOM to obtain the requisite stockholder approval or (z) the
opinion of BT Alex. Brown is withdrawn, and the giving of such notice or such
failure or withdrawal is neither the result of the failure of ICG to have
performed or complied in all material respects with all material agreements
and covenants required by the Merger Agreement to be performed or complied
with by it prior to the Effective Time, nor the
71
<PAGE>
result of the failure of ICG's representations and warranties contained in the
Merger Agreement to be true and correct in all material respects as of the
Effective Time, (ii) any person (other than ICG and any of its Affiliates)
shall have acquired before the Effective Time or the termination of the Merger
Agreement 50 percent or more of the outstanding NETCOM Common Stock and such
person fails to timely deliver the written confirmation to ICG to the effect
that such person will vote in favor of the Merger and take no action to
prevent or delay the Merger, or (iii) if NETCOM's representations and
warranties contained in the Merger Agreement fail to be true and correct in
all material respects as of the Effective Time, or NETCOM has failed to
materially perform or comply with all its material agreements and covenants
required by the Merger Agreement, and NETCOM's failure to perform such
agreements and covenants prevented the consummation of the Merger prior to
March 2, 1998, NETCOM will promptly pay to ICG by wire transfer, in
immediately available funds, a termination fee in the amount of $11,340,000
(the "Termination Fee").
Subject to the following paragraph, if (i)(w) NETCOM receives notice from
ICG of the good faith determination of the Board of Directors of ICG, after
consultation with outside counsel, that the Board of Directors of ICG will not
recommend to the stockholders of ICG the approval of the Merger because such
action would be inconsistent with its fiduciary duties to its stockholders as
required by law, (x) the Board of Directors of ICG fails to recommend to the
stockholders of ICG the approval of the Merger prior to March 2, 1998, or
withdraws such recommendation, (y) if the Merger is not consummated as a
direct result of the failure of ICG to obtain the requisite stockholder
approval or (z) the opinion of Gleacher NatWest is withdrawn, and the giving
of such notice or such failure or withdrawal is not the result of the failure
of NETCOM to satisfy the conditions set forth in clause (iii) of the foregoing
paragraph, or (ii) if ICG fails to fulfill the warranties and representations
contained in the Merger Agreement, or fails to comply or perform in all
material respects with all material agreements and covenants required by the
Merger Agreement and ICG's failure to perform such agreements and covenants
prevented the consummation of the Merger prior to March 2, 1998, ICG will
promptly pay to NETCOM by wire transfer, in immediately available funds, the
Termination Fee.
Notwithstanding anything to the contrary in the Merger Agreement, no party
will have any liability under the Merger Agreement, including under the
provisions thereof specifically governing termination remedies, in the event
the Merger Agreement is terminated or terminable as a consequence of the
nonfulfillment of any of the following conditions: (i) effectiveness of the
Registration Statement on Form S-4 that includes this Joint Proxy Statement-
Prospectus in accordance with the provisions of the Securities Act and
approvals under any necessary state securities law and no stop orders with
respect thereto will have been issued by the Commission and remain in effect;
(ii) the waiting period applicable to the consummation of the Merger under the
HSR Act will have expired or been earlier terminated; (iii) the absence of any
federal or state court in the United States which prevents the consummation of
the Merger (each party agrees to use its best efforts to have any such
injunctions lifted); (iv) as of the Effective Time, the shares of ICG Common
Stock issued in connection with the Merger will be quoted on Nasdaq, subject
to the satisfaction, in each case, of applicable Nasdaq requirements upon
official notice of issuance; (v) David W. Garrison will have been appointed to
the Board of Directors of ICG effective as of the Effective Time; and (vi)
NETCOM will have received a written opinion of Pillsbury Madison & Sutro LLP,
or other evidence, in form and substance reasonably satisfactory to NETCOM, to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368 of the Code; unless such nonfulfillment is caused by that
party's material breach of any of its covenants or obligations under the
Merger Agreement.
If NETCOM or ICG terminates the Merger Agreement as a consequence of any
failure of ICG's or NETCOM's respective representations and warranties
contained in the Merger Agreement to be true and correct in all material
respects as of the Effective Time for purposes of determining whether payment
of the Termination Fee by either party is required, the party so terminating
the Merger Agreement on that basis will bear the burden of proof of
demonstrating by clear and convincing evidence that such failure occurred and
in so doing may not introduce into evidence, nor may a court consider in its
deliberation, any change in the stock price of the capital stock of either
party whether or not such change is in conjunction with or otherwise relates
to the event giving rise to the breach or otherwise.
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<PAGE>
Generally, all costs and expenses incurred in connection with the Merger
will be paid by the party incurring such expense.
AMENDMENT; WAIVER
The Merger Agreement provides that it may be amended by the parties thereto,
by or pursuant to action taken by the respective Boards of Directors of NETCOM
and ICG, at any time before or after approval thereof by the stockholders of
NETCOM and ICG and prior to the Effective Time, but, after either such
approval, no amendment may be made that changes the Exchange Ratio or changes,
in any way adverse to such stockholders, the terms of the ICG Common Stock or
that in any other way materially adversely affects the rights of such
stockholders, without the further approval of such stockholders. The Merger
Agreement may not be amended except by an instrument in writing signed on
behalf of each of ICG and NETCOM.
At any time prior to the Effective Time, the parties to the Merger
Agreement, by or pursuant to action taken by their respective Boards of
Directors, may: (i) extend the time for performance of any of the obligations
or other acts of the other party thereto; (ii) waive any inaccuracies in the
representations and warranties contained therein or in any documents delivered
pursuant thereto; and (iii) waive compliance with any of the agreements or
conditions contained therein. Any agreement on the part of a party to the
Merger Agreement to any such extension or waiver will be valid if set forth in
an instrument in writing signed on behalf of such party.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
OF ICG AND NETCOM
The following sets forth the unaudited pro forma combined condensed
financial statements of ICG and NETCOM. The following combined financial
statements give effect to the Merger as though it occurred on September 30,
1997 for the balance sheet and October 1, 1993 for the statements of
operations, using the pooling-of-interests method of accounting. The combined
financial statements are not necessarily indicative of the results that
actually would have occurred if the Merger had been completed on the dates
indicated or which may be expected in the future. Such combined financial
statements should be read in conjunction with the audited historical
Consolidated Financial Statements and notes thereto of ICG and NETCOM
incorporated by reference herein.
NETCOM's fiscal year ends December 31. The historical consolidated financial
statements of NETCOM have been recast and reclassified to conform with ICG's
historical financial statement presentation.
Estimated direct costs of the Merger and other costs of consolidation have
not been determined and are not included in the following combined financial
statements. Such amounts are not expected to be significant to the combined
operations of the companies.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
OF ICG AND NETCOM
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
ICG NETCOM ADJUSTMENT(1) COMBINED
---------- ---------- ------------- ---------
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents ..... $ 267,357 66,733 334,090
Short-term investments
available for sale............. 120,834 -- 120,834
Other current assets........... 81,632 4,643 86,275
---------- ------- ---------
Total current assets......... 469,823 71,376 541,199
Net property, plant and
equipment...................... 565,252 77,908 643,160
Other non-current assets....... 96,575 3,607 100,182
---------- ------- ---------
Total assets................. $1,131,650 152,891 1,284,541
========== ======= =========
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
<S> <C> <C> <C> <C>
Liabilities:
Accounts payable and accrued
liabilities.................. $ 85,129 26,807 111,936
Current portion of long-term
debt and capital lease
obligations.................. 7,859 2,342 10,201
Long-term debt and capital
lease obligations, net of
current portion.............. 929,571 4,013 933,584
---------- ------- ---------
Total liabilities........... 1,022,559 33,162 1,055,721
---------- ------- ---------
Redeemable preferred securities
of subsidiaries ($406.1
million liquidation value).... 393,618 -- 393,618
Stockholders' equity (deficit):
Common stock.................. 700 117 101 918
Additional paid-in capital.... 307,811 206,700 (101) 514,410
Cumulative translation
adjustment and other......... -- 171 171
Accumulated deficit........... (593,038) (87,259) (680,297)
---------- ------- ---------
Total stockholders' equity
(deficit)................... (284,527) 119,729 (164,798)
---------- ------- ---------
Total liabilities and
stockholders' equity
(deficit).................. $1,131,650 152,891 1,284,541
========== ======= =========
</TABLE>
- - --------
(1) The pro forma adjustment reflects the par value of ICG Common Stock to be
issued as a result of the Merger, using an assumed Exchange Ratio of
0.8628 provided by the Merger Agreement, as though the Merger occurred on
December 15, 1997.
75
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
OF ICG AND NETCOM
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
ICG NETCOM COMBINED
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenue:
Telecom services............................ $ 123,187 120,131 243,318
Network services............................ 50,059 -- 50,059
Satellite services.......................... 22,306 -- 22,306
--------- ------- --------
Total revenue.............................. 195,552 120,131 315,683
--------- ------- --------
Operating costs and expenses:
Operating costs ............................ 179,000 71,695 250,695
Selling, general and administrative
expenses................................... 111,943 50,228 162,171
Depreciation and amortization............... 37,624 25,495 63,119
Other operating costs and expenses.......... 1,035 605 1,640
--------- ------- --------
Total operating costs and expenses......... 329,602 148,023 477,625
Operating loss............................. (134,050) (27,892) (161,942)
Other income (expense):
Interest expense............................ (82,315) (311) (82,626)
Other income, net........................... 16,948 2,999 19,947
--------- ------- --------
(65,367) 2,688 (62,679)
--------- ------- --------
Loss before income taxes and minority
interest.................................... (199,417) (25,204) (224,621)
Income taxes................................. -- (13) (13)
--------- ------- --------
Loss before minority interest ............... (199,417) (25,217) (224,634)
Minority interest in share of losses, net of
accretion and preferred dividends on
subsidiary preferred securities............. (24,981) -- (24,981)
--------- ------- --------
Net loss..................................... $(224,398) (25,217) (249,615)
========= ======= ========
Loss per share............................... $ (7.00) (2.16) (5.92)
========= ======= ========
Weighted average number of shares outstanding
(1)......................................... 32,066 11,698 42,200
========= ======= ========
</TABLE>
- - --------
(1) The weighted average number of shares outstanding of ICG represents ICG
Common Stock and Holdings-Canada Class A common shares (not owned by ICG).
Pro forma combined weighted average number of shares outstanding includes
the estimated number of shares of ICG Common Stock to be issued as a
result of the Merger, using actual shares outstanding of NETCOM at
September 30, 1997 and an assumed Exchange Ratio of 0.8628 as provided by
the Merger Agreement, as though the Merger occurred on October 1, 1993.
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
OF ICG AND NETCOM
THREE MONTHS ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
ICG NETCOM COMBINED
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenue:
Telecom services............................. $ 34,787 36,379 71,166
Network services............................. 15,981 -- 15,981
Satellite services........................... 6,188 -- 6,188
-------- ------- -------
Total revenue............................... 56,956 36,379 93,335
-------- ------- -------
Operating costs and expenses:
Operating costs ............................. 49,929 22,661 72,590
Selling, general and administrative
expenses..................................... 24,253 16,918 41,171
Depreciation and amortization................ 9,825 9,354 19,179
-------- ------- -------
Total operating costs and expenses.......... 84,007 48,933 132,940
Operating loss.............................. (27,051) (12,554) (39,605)
Other income (expense):
Interest expense............................. (24,454) -- (24,454)
Other income, net............................ 6,670 1,076 7,746
-------- ------- -------
(17,784) 1,076 (16,708)
-------- ------- -------
Loss before income taxes and minority
interest...................................... (44,835) (11,478) (56,313)
Income taxes.................................. -- (12) (12)
-------- ------- -------
Loss before minority interest ................ (44,835) (11,490) (56,325)
Minority interest in share of losses, net of
accretion and preferred dividends on
subsidiary preferred securities.............. (4,988) -- (4,988)
-------- ------- -------
Net loss...................................... $(49,823) (11,490) (61,313)
======== ======= =======
Loss per share................................ $ (1.56) (0.99) (1.46)
======== ======= =======
Weighted average number of shares outstanding
(1)........................................... 31,840 11,630 41,974
======== ======= =======
</TABLE>
- - --------
(1) The weighted average number of shares outstanding of ICG represents ICG
Common Stock and Holdings-Canada Class A common shares (not owned by ICG).
Pro forma combined weighted average number of shares outstanding includes
the estimated number of shares of ICG Common Stock to be issued as a
result of the Merger, using actual shares outstanding of NETCOM at
September 30, 1997 and an assumed Exchange Ratio of 0.8628 as provided by
the Merger Agreement, as though the Merger occurred on October 1, 1993.
77
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
OF ICG AND NETCOM
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL PRO FORMA
ICG(1) NETCOM COMBINED
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenue:
Telecom services............................ $ 87,681 103,833 191,514
Network services............................ 60,116 -- 60,116
Satellite services.......................... 18,819 -- 18,819
--------- ------- --------
Total revenue.............................. 166,616 103,833 270,449
--------- ------- --------
Operating costs and expenses:
Operating costs ............................ 133,340 62,680 196,020
Selling, general and administrative
expenses.................................... 75,449 59,455 134,904
Depreciation and amortization............... 29,715 24,361 54,076
Other operating costs and expenses.......... 9,994 1,200 11,194
--------- ------- --------
Total operating costs and expenses......... 248,498 147,696 396,194
Operating loss............................. (81,882) (43,863) (125,745)
Other income (expense):
Interest expense............................ (85,714) -- (85,714)
Other income, net........................... 10,295 5,657 15,952
--------- ------- --------
(75,419) 5,657 (69,762)
--------- ------- --------
Loss before income taxes, minority interest,
share of losses and cumulative effect of
change in accounting........................ (157,301) (38,206) (195,507)
Income taxes................................. 5,131 (15) 5,116
--------- ------- --------
Loss before minority interest ............... (152,170) (38,221) (190,391)
Minority interest in share of losses, net of
accretion and preferred dividends on
subsidiary preferred securities............. (25,306) -- (25,306)
Share of losses of joint venture and
investment................................... (1,814) -- (1,814)
--------- ------- --------
Net loss before cumulative effect of change
in accounting (2)........................... $(179,290) (38,221) (217,511)
========= ======= ========
Loss per share before cumulative effect of
change in accounting ....................... $ (6.65) (3.45) (5.86)
========= ======= ========
Weighted average number of shares outstanding
(3).......................................... 26,955 11,084 37,089
========= ======= ========
</TABLE>
- - --------
(1) In March 1996, ICG completed the sale of four teleports used in its
Satellite Services operations. The above pro forma historical statement of
operations of ICG presents ICG's operations as though the sale of these
assets was completed on October 1, 1995 and, accordingly, excludes the
operating results of the teleports for the year ended September 30, 1996.
(2) During the year ended September 1996, ICG changed its method of accounting
for long-term telecom services contracts to recognize revenue as services
are provided. The cumulative effect of this change in accounting of $3.5
million is not included in the pro forma historical statement of
operations. See ICG's audited Consolidated Financial Statements for the
year ended September 30, 1996 incorporated by reference herein.
(3) The weighted average number of shares outstanding of ICG represents
Holdings-Canada common shares for the period from October 1, 1995, through
August 2, 1996 and ICG Common Stock and Holdings-Canada Class A common
shares (not owned by ICG) for the period subsequent to August 5, 1996. Pro
forma combined weighted average number of shares outstanding includes the
estimated number of shares of ICG Common Stock to be issued as a result of
the Merger, using actual shares outstanding of NETCOM at September 30,
1997 and an assumed Exchange Ratio of 0.8628 as provided by the Merger
Agreement, as though the Merger occurred on October 1, 1993.
78
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
OF ICG AND NETCOM
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL HISTORICAL PRO FORMA
ICG (1) NETCOM COMBINED
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenue:
Telecom services............................. $ 32,330 37,934 70,264
Network services ............................ 58,778 -- 58,778
Satellite services .......................... 11,360 -- 11,360
-------- ------ -------
Total revenue .............................. 102,468 37,934 140,402
-------- ------ -------
Operating costs and expenses:
Operating costs ............................. 73,042 21,928 94,970
Selling, general and administrative expenses
............................................. 59,180 19,515 78,695
Depreciation and amortization ............... 14,410 6,451 20,861
Other operating costs and expenses .......... 7,000 -- 7,000
-------- ------ -------
Total operating costs and expenses ......... 153,632 47,894 201,526
Operating loss ............................. (51,164) (9,960) (61,124)
Other income (expense):
Interest expense ............................ (23,966) (9) (23,975)
Other income, net............................ 3,403 1,178 4,581
-------- ------ -------
(20,563) 1,169 (19,394)
-------- ------ -------
Loss before income taxes, minority interest
and share of losses.......................... (71,727) (8,791) (80,518)
Income taxes.................................. -- 23 23
-------- ------ -------
Loss before minority interest ................ (71,727) (8,768) (80,495)
Minority interest in share of losses, net of
accretion and preferred dividends on
subsidiary preferred securities.............. (1,123) -- (1,123)
Share of losses of joint venture and
investment.................................... (741) -- (741)
-------- ------ -------
Net loss ..................................... $(73,591) (8,768) (82,359)
======== ====== =======
Loss per share................................ (3.12) (1.22) (2.44)
======== ====== =======
Weighted average number of shares outstanding
(2)........................................... $ 23,604 7,175 33,738
======== ====== =======
</TABLE>
- - --------
(1) In March 1996, ICG completed the sale of four teleports used in its
Satellite Services operations. The above pro forma historical statement of
operations of ICG presents ICG's operations as though the sale of these
assets was completed on October 1, 1994 and accordingly, excludes the
operating results of the teleports for the year ended September 30, 1995.
(2) The weighted average number of shares outstanding of ICG represents
Holdings-Canada common shares. Pro forma combined weighted average number
of shares outstanding includes the estimated number of shares of ICG
Common Stock to be issued as a result of the Merger, using actual shares
outstanding of NETCOM at September 30, 1997 and an assumed Exchange Ratio
of 0.8628 as provided by the Merger Agreement, as though the Merger
occurred on October 1, 1993.
79
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
OF ICG AND NETCOM
YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
ICG NETCOM COMBINED
---------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenue:
Telecom services............................. $ 14,854 8,107 22,961
Network services............................. 36,019 -- 36,019
Satellite services........................... 8,121 -- 8,121
Other........................................ 118 -- 118
-------- ----- -------
Total revenue............................... 59,112 8,107 67,219
-------- ----- -------
Operating costs and expenses:
Operating costs ............................. 38,165 3,640 41,805
Selling, general and administrative
expenses..................................... 28,015 3,647 31,662
Depreciation and amortization................ 8,198 683 8,881
-------- ----- -------
Total operating costs and expenses.......... 74,378 7,970 82,348
Operating loss.............................. (15,266) 137 (15,129)
Other income (expense):
Interest expense............................. (8,481) (30) (8,511)
Other income, net............................ 925 10 935
-------- ----- -------
(7,556) (20) (7,576)
-------- ----- -------
Loss before income taxes, minority interest
and share of losses.......................... (22,822) 117 (22,705)
Income taxes.................................. -- (36) (36)
-------- ----- -------
Loss before minority interest ................ (22,822) 81 (22,741)
Minority interest in share of losses, net of
accretion and preferred dividends on
subsidiary preferred securities.............. 435 -- 435
Share of losses of joint venture and
investment.................................... (1,481) -- (1,481)
-------- ----- -------
Net loss ..................................... $(23,868) 81 (23,787)
======== ===== =======
Earnings (loss) per share..................... $ (1.56) 0.01 (0.93)
======== ===== =======
Weighted average number of shares outstanding
(1)........................................... 15,342 6,254 25,476
======== ===== =======
</TABLE>
- - --------
(1) The weighted average number of shares outstanding of ICG represents
Holdings-Canada common shares. Pro forma combined weighted average number
of shares outstanding includes the estimated number of shares of ICG
Common Stock to be issued as a result of the Merger, using actual shares
outstanding of NETCOM at September 30, 1997 and an assumed Exchange Ratio
of 0.8628 as provided by the Merger Agreement, as though the Merger
occurred on October 1, 1993.
80
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
The following is a summary of material differences between the rights of
holders of ICG Common Stock and the rights of holders of NETCOM Common Stock.
Each of ICG and NETCOM is organized under the laws of the State of Delaware.
Any material differences in the rights of their respective stockholders would
arise from various provisions of the Certificate of Incorporation and By-Laws
of each of ICG and NETCOM. Among the differences between the rights of the
holders of ICG and NETCOM are the following:
CAPITAL STOCK. The total number of authorized shares of capital stock of ICG
is 101,000,000 shares, consisting of 100,000,000 shares of Common Stock with a
par value of $.01 per share and 1,000,000 shares of Preferred Stock with a par
value of $.01 per share, while the total number of authorized shares of
capital stock of NETCOM is 45,000,000 shares, consisting of 40,000,000 shares
of Common Stock with a par value of $.01 per share and 5,000,000 shares of
Preferred Stock with a par value of $.01 per share.
SPECIAL MEETINGS OF STOCKHOLDERS. The By-laws of ICG provide that a special
meeting of the stockholders may be called only by the Chairman of the Board,
the President or a majority of the directors, while the By-laws of NETCOM
provide that the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or one or more stockholders entitled to cast not less than
20% of the votes at such meeting may call a special meeting.
ANNUAL MEETINGS OF STOCKHOLDERS. The By-laws of NETCOM provide that to
propose business to be transacted at an annual meeting, a stockholder's timely
notice must be received by NETCOM not less than 50 days nor more than 75 days
prior to the meeting; provided, however, that in the event that less than 65
days' notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so
received not later than the close of business on the 15th day following the
day on which such notice of the date of the annual meeting was mailed or such
public disclosure was made, while the By-laws of ICG remain silent on this
notice issue.
QUORUM. The By-laws of ICG provide that the holders of one-third of the
outstanding shares of each class of stock entitled to vote at meetings,
present in person or represented by proxy, shall constitute a quorum, and at
all meetings of the Board of Directors the presence of a majority of the total
number of directors shall constitute a quorum for the transaction of business,
while the By-laws of NETCOM provide that the holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person
or represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business, and at all meetings of the board
a majority of directors then in office, or two directors, whichever number is
greater, but in no event less than one third of the entire board, shall
constitute a quorum for the transaction of business and the act of a majority
of the directors present at any meeting at which there is a quorum shall be
the act of the board of directors.
ADJOURNMENTS OF STOCKHOLDER MEETINGS. The By-laws of ICG provide that if the
adjournment of a meeting of stockholders is for more than 30 days, or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting, while the By-laws of NETCOM provide that if the
adjournment is for more than 45 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at each meeting.
REMOVAL OF DIRECTORS. The By-laws of ICG provide that directors may be
removed with or without cause at any time upon the affirmative vote of a
majority of the total number of directors, while the By-laws of NETCOM provide
that any director or the entire board of directors may be removed, but only
for cause, by the holders of a majority of shares then entitled to vote at an
election of directors, unless otherwise specified by law or the Certificate of
Incorporation.
81
<PAGE>
NOMINATION OF DIRECTORS. The By-laws of NETCOM provide that a stockholder's
notice in connection with the nomination of directors is timely if received by
NETCOM not less than 120 days prior to any meeting of stockholders called for
the election of directors; provided, however, that if less than 100 days'
notice of the meeting is given to stockholders, such nomination shall have
been mailed or delivered to the secretary or the assistant secretary of NETCOM
not later than the close of business on the seventh day following the day on
which the notice of meeting was mailed, while the By-laws of ICG are silent on
this issue.
LEGAL MATTERS
The legality of the ICG Common Stock offered hereby will be passed upon for
ICG by Reid & Priest LLP, New York, New York. Pillsbury Madison & Sutro LLP,
Palo Alto, California, will opine as to certain federal income tax
consequences of the Merger.
EXPERTS
The Consolidated Financial Statements of ICG Communications, Inc. as of
September 30, 1995 and 1996, and December 31, 1996 and for each of the years
in the three-year period ended September 30, 1996 and the three-month period
ended December 31, 1996, and the related schedule, 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 authority of said firm as experts
in accounting and auditing. The reports of KPMG Peat Marwick LLP covering the
September 30, 1996 consolidated financial statements refers to a change in the
method of accounting for long-term telecom services contracts.
The Consolidated Financial Statements of NETCOM On-Line Communication
Services, Inc. appearing in NETCOM's Annual Report (Form 10-KSB) for the year
ended December 31, 1996, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
ICG. Proposals of stockholders intended to be presented at ICG's 1998 Annual
Meeting of Stockholders must be received by ICG at ICG's principal executive
office not later than January 16, 1998. All such proposals should be in
compliance with applicable Commission regulations.
NETCOM. NETCOM will hold a 1998 Annual Meeting of Stockholders only if the
Merger is not consummated before the time of such meeting. In the event such a
meeting is held, any proposals of stockholders intended to be presented must
be received by NETCOM no later than December 23, 1997. All such proposals
should be in compliance with applicable Commission regulations.
82
<PAGE>
ANNEX A-1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
DATED
OCTOBER 12, 1997
AMONG
ICG COMMUNICATIONS, INC.
AND
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
ARTICLE I
Definitions
<C> <S> <C>
Section 1.1 Definitions................................................. 1
Section 1.2 Other Definitions........................................... 2
Section 1.3 Use of Terms................................................ 3
ARTICLE II
The Merger and Related Matters
Section 2.1 The Merger.................................................. 4
Section 2.2 Effective Time of the Merger................................ 4
ARTICLE III
Conversion of Capital Stock
Section 3.1 Conversion of Stock......................................... 4
Section 3.2 Exchange of Certificates.................................... 5
Section 3.3 Dividends and Other Distributions........................... 6
Section 3.4 No Fractional Shares........................................ 7
Section 3.5 No Liability................................................ 7
Section 3.6 Lost Certificates........................................... 7
Section 3.7 Treatment of Stock Options, Etc. ........................... 7
Section 3.8 Closing of the Company's Transfer Books..................... 8
Section 3.9 Closing..................................................... 8
Section 3.10 No Repurchase Rights........................................ 8
ARTICLE IV
Representations and Warranties of ICG
Section 4.1 Organization and Qualification.............................. 8
Section 4.2 Capitalization.............................................. 8
Section 4.3 Subsidiaries................................................ 8
Section 4.4 Authority Relative to this Agreement........................ 9
Section 4.5 No Breach; Required Consents................................ 9
Section 4.6 Consents and Approvals...................................... 9
Section 4.7 Reports and Financial Statements............................ 10
Section 4.8 Compliance with Law; Litigation............................. 10
Section 4.9 Title to Assets............................................. 11
Section 4.10 Employee Matters............................................ 11
Section 4.11 ERISA....................................................... 11
Section 4.12 Operations of Acquisition Sub............................... 12
Section 4.13 No Broker................................................... 12
Section 4.14 Taxes....................................................... 12
Section 4.15 Environmental Laws.......................................... 12
Section 4.16 Transactions with Affiliates................................ 13
Section 4.17 Approval.................................................... 13
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE V
Representations and Warranties of the Company
<C> <S> <C>
Section 5.1 Organization and Qualification............................ 13
Section 5.2 Capitalization............................................ 13
Section 5.3 Subsidiaries.............................................. 14
Section 5.4 Authority Relative to this Agreement...................... 14
Section 5.5 No Breach; Required Consents.............................. 15
Section 5.6 Consents and Approvals.................................... 15
Section 5.7 Reports and Financial Statements.......................... 15
Section 5.8 Compliance with Law; Litigation........................... 16
Section 5.9 Title to Assets........................................... 16
Section 5.10 Employee Matters.......................................... 16
Section 5.11 ERISA..................................................... 16
Section 5.12 Approval.................................................. 17
Section 5.13 Financial Advisor......................................... 18
Section 5.14 Taxes..................................................... 18
Section 5.15 Environmental Laws........................................ 18
Section 5.16 Transactions with Affiliates.............................. 18
Section 5.17 Contracts................................................. 18
Section 5.18 Intellectual Property..................................... 18
ARTICLE VI
Conduct of Business Pending the Merger
Section 6.1 Conduct of Business of the Company........................ 19
Section 6.2 Conduct of Business of ICG................................ 21
ARTICLE VII
Additional Agreements
Section 7.1 Access and Information.................................... 22
Section 7.2 SEC Filings............................................... 22
Section 7.3 Meetings of Stockholders.................................. 24
Section 7.4 Compliance with the Securities Act........................ 24
Section 7.5 Reasonable Best Efforts................................... 25
Section 7.6 Confidentiality and Public Announcements.................. 25
Section 7.7 Notification.............................................. 25
Section 7.8 HSR Act Filings........................................... 25
Section 7.9 Indemnification of Executives............................. 26
Section 7.10 Employee Benefits......................................... 26
ARTICLE VIII
Conditions Precedent
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger................................................... 27
Section 8.2 Conditions to Obligation of the Company to Effect the
Merger................................................... 27
Section 8.3 Conditions to Obligations of ICG and Acquisition Sub to
Effect the Merger........................................ 28
</TABLE>
A-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE IX
Termination, Amendment and Waiver
<C> <S> <C>
Section 9.1 Termination............................................... 28
Section 9.2 Remedies.................................................. 29
Section 9.3 Amendment................................................. 29
Section 9.4 Waiver.................................................... 30
ARTICLE X
General Provisions; Definitions
Section 10.1 Non-Survival of Representations, Warranties and
Agreements............................................... 30
Section 10.2 Notices................................................... 30
Section 10.3 Fees and Expenses......................................... 31
Section 10.4 Specific Performance...................................... 31
Section 10.5 Third Party Beneficiaries................................. 31
Section 10.6 Entire Agreement; Miscellaneous........................... 31
Section 10.7 Governing Law and Venue; Waiver of Jury Trial............. 31
</TABLE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
A Form of Affiliate Agreement
</TABLE>
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated October 12,
1997 and is entered into by and among ICG Communications, Inc., a Delaware
corporation ("ICG"), and NETCOM On-Line Communication Services, Inc., a
Delaware corporation (the "Company").
RECITALS
A. ICG and the Company have agreed to enter into a transaction in which a
Delaware subsidiary of ICG to be formed ("Acquisition Sub") will merge with
and into the Company (the "Merger"). At the effective time of the Merger, the
outstanding shares of the capital stock of the Company shall be converted into
the right to receive shares of common stock of ICG (except as provided
herein). As a result, ICG will become the holder of all the outstanding shares
of capital stock of the Company and the holders of shares of capital stock of
the Company outstanding immediately prior to the Merger will become holders of
shares of common stock of ICG.
B. The Boards of Directors of ICG and the Company each have determined that
the transactions described herein are in the best interests of their
respective corporations and stockholders.
C. It is intended that, for federal income tax purposes, the Merger shall
qualify as a reorganization under the provisions of Section 368(a) of the
Code.
D. For financial accounting purposes, it is intended that the Merger shall
be accounted for as a "pooling-of-interests" under generally accepted
accounting principles.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained in this Agreement, the
parties to this Agreement agree as follows:
ARTICLE I
Definitions
Section 1.1 Definitions. As used in this Agreement, the following terms
with initial capital letters will have the meanings set forth below:
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, controls, is under common control with, or is controlled by, such
Person. As used in this definition, "control" (including, with correlative
meaning, "controlling," "controlled by" and "under common control with") means
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person (whether through the
ownership of voting securities, by contract or otherwise).
"Business Day" means any day on which commercial banks are open for business
in Denver, Colorado and San Jose, California.
"Company Common Stock" means the shares of common stock, par value $.01 per
share, of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Environmental Law" means any applicable Legal Requirement relating to the
protection, preservation or restoration of the environment (including, air,
water vapor, surface water, ground water, drinking water supply, surface land,
subsurface land, plant and animal life or any other natural resource).
"Equity Affiliate" means, as to any Person, any other Person in which such
Person or any of its Subsidiaries holds a five percent or greater equity
interest.
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means, as to any Person, any trade or business (whether or
not incorporated) that is treated as a single employer with such Person under
Section 414(b), (c), (m) or (o) or the Code.
"GAAP" means generally accepted accounting principles as in effect from time
to time in the United States of America.
"ICG Closing Stock Price" means the average of the Volume Weighted Average
Price of ICG Common Stock, as quoted by NASDAQ, for the ten consecutive
trading days ending two trading days prior to the Closing Date.
"ICG Common Stock" means the shares of common stock, par value $.01 per
share, of ICG.
"Intellectual Property" means copyrights, patents, trademarks, service
marks, service names, trade names, applications therefor, technology rights
and licenses, computer software (including any source or object codes therefor
or documentation relating thereto), trade secrets, franchises, know-how,
inventions, and other intellectual property rights.
"Knowledge" means the actual present knowledge of a Person that is a human
being and, in the case of a Person that is not a human being, the present
actual knowledge of any executive officer (or any human being having duties
comparable to those of an executive officer) of such Person.
"Legal Requirement" means any statute, ordinance, code, law, rule,
regulation, order or other requirement, standard or procedure enacted, adopted
or applied by any Governmental Entity, including judicial decisions applying
common law or interpreting any other Legal Requirement or any agreement
entered into with a Governmental Entity in resolution of a dispute or
otherwise.
"Lien" means any lien, security interest, pledge, charge, claim, option,
right to acquire, restriction on transfer, voting restriction or encumbrance
of any nature.
"Material Adverse Effect" means a material adverse effect on the business,
properties, assets, prospects, condition (financial or otherwise), liabilities
or operations of a Person and its Subsidiaries, taken as a whole, or on the
ability of such Person to perform its obligations under this Agreement.
"NASDAQ" means the over-the-counter market of the National Association of
Securities Dealers, Inc.
"Person" means any human being or any partnership, limited liability
company, corporation, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Entity or other
entity.
"SEC" means the United States Securities and Exchange Commission.
"Subsidiary" means, with respect to any Person, any other Person more than
50% of whose outstanding voting securities or partnership or other equity
interests, as the case may be, are directly or indirectly owned by such
Person.
"Termination Fee" means cash in the amount of $11,340,000.
Section 1.2 Other Definitions. The following terms are defined in the
Sections indicated:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Acquisition Proposal 6.1(h)
Acquisition Sub Recital A
Agreement Preamble
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Antitrust Division 7.8
BT Alex. Brown 5.4
Certificate of Incorporation 2.1(a)
Certificate of Merger 2.2
Closing 3.9
Closing Date 3.9
Company Preamble
Company Benefit Plans 5.11(a)
Company Options 3.7
Company Permits 5.8(a)
Company SEC Reports 5.7(a)
Company Stock 3.1(b)
Company Stock Certificates 3.2(a)
DGCL 2.1
Effective Time 2.2
Exchange Act 4.6
Exchange Agent 3.2(a)
Exchange Ratio 3.1(a)
Executive 7.9(a)
FTC 7.8
Governmental Entity 4.8(a)
HSR Act 4.6
ICG Preamble
ICG Benefit Plans 4.11(a)
ICG Certificates 3.2(a)
ICG Permits 4.8(a)
ICG SEC Reports 4.7(a)
Indemnified Party 7.2(h)(iii)
Indemnifying Party 7.2(h)(iii)
Joint Proxy Statement/Prospectus 7.2(a)
Losses 7.2(h)(i)
Meeting 7.3
Merger Recital A
Most Recent Company Balance Sheet 5.7(c)
Most Recent ICG Balance Sheet 4.7(c)
NASD 7.3
Other Filings 7.2(b)
Preliminary Joint Proxy Statement/Prospectus 7.2(a)
Secretary 2.2
SEC Filings 7.2(c)
Securities Act 4.6
Surviving Corporation 2.1
Tax 4.14
</TABLE>
Section 1.3 Use of Terms. Terms used with initial capital letters will have
the meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. All pronouns (and any variations) will be deemed
to refer to the masculine, feminine or neuter, as the identity of the Person
may require. The singular or plural includes the other, as the context
requires or permits. The word include (and any variation) is used in an
illustrative sense rather than a limiting sense. The word day means a calendar
day. All accounting terms not otherwise defined in this Agreement will have
the meanings ascribed to them under GAAP.
A-3
<PAGE>
ARTICLE II
The Merger and Related Matters
Section 2.1 The Merger. Subject to the terms and conditions of this
Agreement and applicable provisions of the Delaware General Corporation Law
("DGCL"), at the Effective Time: (i) Acquisition Sub will be merged with and
into the Company; (ii) the separate existence of Acquisition Sub will cease
and the Company will continue as the surviving corporation in the Merger (the
"Surviving Corporation"); and (iii) the name of the Surviving Corporation will
be NETCOM On-Line Communication Services, Inc. From and after the Effective
Time, and without any further action on the part of any Person, the Merger
will have all the effects provided by applicable Legal Requirements, including
Sections 251 and 259 of the DGCL, the effects described in Section 3.1 with
respect to the capital stock of Acquisition Sub and the Company and, subject
to applicable Legal Requirements, the following additional effects as of the
Effective Time:
(a) Certificate of Incorporation. The certificate of incorporation of
Acquisition Sub (the "Certificate of Incorporation"), will become the
certificate of incorporation of the Surviving Corporation, and such
Certificate of Incorporation may thereafter be amended and/or restated as
provided therein and by the DGCL.
(b) Bylaws. The bylaws of Acquisition Sub, as in effect immediately prior
to the Effective Time, will become the bylaws of the Surviving Corporation,
and such bylaws may thereafter be amended or repealed in accordance with
their terms and the Certificate of Incorporation and as provided by the
DGCL.
(c) Directors. The directors of Acquisition Sub immediately prior to the
Effective Time will become the directors of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and
bylaws of the Surviving Corporation and the DGCL and until the earlier of
such director's resignation or removal or such director's successor is duly
elected and qualified, as the case may be.
(d) Officers. The officers of Acquisition Sub immediately prior to the
Effective Time will become the officers of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and
bylaws of the Surviving Corporation and the DGCL and until the earlier of
such officer's resignation or removal or such officer's successor is duly
appointed and qualified, as the case may be.
(e) Properties and Liabilities. All the properties, rights, privileges,
powers and franchises of the Company and Acquisition Sub will vest in the
Surviving Corporation, and all debts, liabilities, agreements and duties of
the Company and Acquisition Sub will become the debts, liabilities,
agreements and duties of the Surviving Corporation.
(f) New ICG Director. David W. Garrison, Chief Executive Officer and
Chairman of the Board of Directors of the Company, will become a member of
the Board of Directors of ICG to hold office in accordance with the
certificate of incorporation and bylaws of ICG and the DGCL and until the
earlier of Mr. Garrison's resignation or removal or his successor is duly
elected and qualified.
Section 2.2 Effective Time of the Merger. Subject to the terms and
conditions of this Agreement, on the Closing Date the parties will prepare,
sign and acknowledge, in accordance with the DGCL, a certificate of merger
(the "Certificate of Merger") and deliver the Certificate of Merger to the
Secretary of State of the State of Delaware (the "Secretary") for filing
pursuant to the DGCL. The Merger will become effective upon the filing of the
Certificate of Merger with the Secretary. As used in this Agreement, the
"Effective Time" means the time at which the Certificate of Merger is filed
with the Secretary.
ARTICLE III
Conversion of Capital Stock
Section 3.1 Conversion of Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of ICG, Acquisition Sub, the Company
or the holders of any of the following securities, the parties agree as
follows:
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(a) Each share of Company Common Stock outstanding immediately prior to
the Effective Time (except shares subject to Section 3.1(b)), shall be
converted into the right to receive, and there shall be paid and issued as
provided in this Agreement in exchange for such share, that number of
shares of ICG Common Stock equal to the Exchange Ratio (as defined below),
plus cash in lieu of any fractional share as provided in Section 3.4. The
"Exchange Ratio" shall be determined as follows: (i) if the ICG Closing
Stock Price of a share of ICG Common Stock is greater than or equal to
$22.125, the Exchange Ratio shall equal 0.8628, (ii) if the ICG Closing
Stock Price of a share of ICG Common Stock is greater than or equal to
$19.00 but less than $22.125, the Exchange Ratio shall equal a fraction
(rounded to the nearest ten-thousandth) determined by dividing $19.0625 by
the ICG Closing Stock Price of a share of ICG Common Stock, and (iii) if
the ICG Closing Stock Price is less than $19.00, the Exchange Ratio shall
equal 1.0078.
(b) Each share of capital stock of the Company (the "Company Stock")
issued and outstanding immediately prior to the Effective Time and owned
directly or indirectly by the Company, if any, will be canceled and
retired, and no ICG Common Stock or other consideration will be delivered
in exchange therefor.
(c) Each share of common stock, par value $.01 per share, of Acquisition
Sub issued and outstanding immediately prior to the Effective Time (except
shares subject to Section 3.1(d)) will be converted into and will
thereafter evidence and become that number of validly issued, fully paid,
and nonassessable shares of common stock, par value $.01 per share, of the
Surviving Corporation equal to the quotient of (a) the number of shares of
Company Common Stock outstanding immediately prior to the Effective Time
divided by (b) the number of shares of common stock of Acquisition Sub
outstanding immediately prior to the Effective Time rounded, in the case of
any fractional share, down to the nearest whole number.
(d) Each share of the capital stock of Acquisition Sub issued and
outstanding immediately prior to the Effective Time and owned directly or
indirectly by Acquisition Sub, if any, will be canceled and retired, and no
common stock of the Surviving Corporation or other consideration will be
delivered in exchange therefor.
(e) In the event ICG changes the number of shares of ICG Common Stock
issued and outstanding after the date of this Agreement and prior to the
Effective Time as a result of a stock split, stock dividend, or similar
recapitalization with respect to ICG Common Stock and the record date
therefor (in the case of a stock dividend) or the effective date thereof
(in the case of a stock split or similar recapitalization for which a
record date is not established) is after the date of this Agreement and
prior to the Effective Time, the Exchange Ratio will be appropriately
adjusted to reflect such stock split, stock dividend or similar
recapitalization.
Section 3.2 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, ICG shall enter into an
agreement with a bank or trust company selected by ICG and reasonably
acceptable to the Company which Person will act as exchange agent (the
"Exchange Agent") in connection with the surrender of certificates that, prior
to the Effective Time, evidenced outstanding shares of Company Common Stock
("Company Stock Certificates"). Prior to the Closing Date, ICG will deposit
with the Exchange Agent for exchange in accordance with this Section 3.2
certificates evidencing the shares of ICG Common Stock to be issued in the
Merger ("ICG Certificates"), which shares of ICG Common Stock will be deemed
to be issued at the Effective Time. At and following the Effective Time, ICG
will deliver to the Exchange Agent such cash as may be required from time to
time to make payments of cash in lieu of fractional shares of ICG Common Stock
in accordance with Section 3.4.
(b) Exchange. As soon as practicable after the Effective Time, ICG will
cause the Exchange Agent to mail to each Person who was a holder of record of
Company Common Stock at the Effective Time: (i) a letter of transmittal (which
will specify that delivery will be effective, and risk of loss and title to
any Company Stock Certificates will pass, only upon delivery of the Company
Stock Certificates to the Exchange Agent and will be in such form and will
have such other provisions that are specified by ICG and reasonably acceptable
to the Company); and (ii) instructions for use in effecting the surrender of
Company Stock Certificates in exchange for
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ICG Certificates (together with any dividend or distribution with respect
thereto made after the Effective Time and any cash to be paid in lieu of
fractional shares of ICG Common Stock pursuant to Section 3.4). Upon surrender
of a Company Stock Certificate for cancellation to the Exchange Agent or to
such other agent or agents as may be appointed by ICG, together with such
letter of transmittal, duly executed, and such other documents as may be
required by the Exchange Agent or such other agent, the holder of such Company
Stock Certificate will be entitled to receive in exchange therefor ICG
Certificates representing the number of whole shares of ICG Common Stock that
such holder has the right to receive pursuant to this Agreement (together with
any dividend or distribution with respect thereto made after the Effective
Time and any cash to be paid in lieu of fractional shares of ICG Common Stock
pursuant to Section 3.4) and the Company Stock Certificate so surrendered will
be canceled. In the event of a transfer of ownership of Company Common Stock
that is not registered in the transfer records of the Company, ICG
Certificates representing the proper number of shares of ICG Common Stock may
be issued to a Person other than the Person in whose name the surrendered
Company Stock Certificate is registered if the Company Stock Certificate
representing such Company Common Stock is presented to the Exchange Agent
accompanied by all documents required to evidence and effect such transfer and
by evidence reasonably satisfactory to ICG that any applicable stock transfer
tax has been paid. ICG will not directly or indirectly pay or reimburse any
Person for any transfer taxes of the type referred to in the preceding
sentence. If any ICG Certificates are to be delivered to a Person other than
the Person in whose name the Company Stock Certificates surrendered in
exchange therefor are registered, it will be a condition to the delivery of
such ICG Certificates that the Company Stock Certificates so surrendered are
properly endorsed or accompanied by appropriate stock powers and otherwise in
proper form for transfer, that such transfer otherwise is proper and that the
Person requesting such transfer pay to the Exchange Agent any transfer or
other taxes payable by reason of the foregoing or establishes to the
satisfaction of the Exchange Agent that such taxes have been paid or are not
required to be paid.
(c) Certificates Not Exchanged. After the Effective Time, each outstanding
Company Stock Certificate will, until surrendered for exchange in accordance
with this Section 3.2, be deemed for all purposes to evidence ownership of the
number of whole shares of ICG Common Stock into which the shares of Company
Common Stock (which, prior to the Effective Time, were represented thereby)
are converted in accordance with Section 3.1, together with the right to
receive any dividend or distribution with respect thereto made after the
Effective Time and any cash to be paid in lieu of fractional shares of ICG
Common Stock pursuant to Section 3.4.
(d) Expenses. Except as otherwise expressly provided in this Agreement, ICG
will pay all charges and expenses, including those of the Exchange Agent, in
connection with the exchange of shares of ICG Common Stock for shares of
Company Common Stock, except any charges or expenses that are otherwise solely
the liability of one or more holders of Company Common Stock. Any ICG
Certificates deposited with the Exchange Agent that remain unclaimed by the
former stockholders of the Company after six months following the Effective
Time will be delivered to ICG upon its demand, and any former stockholders of
the Company who have not then complied with the instructions for exchanging
their Company Stock Certificates will thereafter look only to ICG for exchange
of Company Stock Certificates and for any dividend or distribution with
respect thereto made after the Effective Time and any cash to be paid in lieu
of fractional shares of ICG Common Stock pursuant to Section 3.4.
Section 3.3 Dividends and Other Distributions. No dividends or other
distributions declared or made after the Effective Time with respect to shares
of ICG Common Stock with a record date after the Effective Time will be paid
to the holder of any unsurrendered Company Stock Certificate with respect to
the shares of ICG Common Stock issuable upon surrender thereof until the
holder of such Company Stock Certificate surrenders such Company Stock
Certificate in accordance with Section 3.2. Subject to the effect of
applicable Legal Requirements, following surrender of any such Company Stock
Certificate, ICG will pay or cause to be paid, without interest, to the record
holder of ICG Certificates issued in exchange therefor, (a) at the time of
such surrender, the amount of cash in lieu of fractional shares of ICG Common
Stock to which such holder is entitled pursuant to Section 3.4 and the amount,
if any, of dividends or other distributions by ICG with a record date after
the Effective Time theretofore paid with respect to such whole shares of ICG
Common Stock and (b) at the
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appropriate payment date, the amount of dividends or other distributions (if
any) by ICG with a record date after the Effective Time but prior to surrender
of such Company Stock Certificate and a payment date subsequent to such
surrender payable with respect to such whole shares of ICG Common Stock.
Section 3.4 No Fractional Shares.
(a) Cash Payment in Lieu of Fractional Shares. No certificates or scrip
representing fractional shares of ICG Common Stock will be issued upon the
surrender of Company Stock Certificates pursuant to Section 3.2. No such
fractional interest will entitle the owner thereof to any rights as a security
holder of ICG. In lieu of any such fractional shares of ICG Common Stock, each
holder of Company Common Stock entitled to receive shares of ICG Common Stock
in the Merger, upon surrender of such Person's Company Stock Certificates for
exchange pursuant to Section 3.2, will be entitled to receive an amount in
cash (without interest), rounded to the nearest cent, determined by
multiplying the fractional share interest in ICG Common Stock to which such
holder would otherwise be entitled (after taking into account all shares of
Company Common Stock held of record by such holder immediately prior to the
Effective Time) by the market value of one share of ICG Common Stock at the
Effective Time. The market value of one share of ICG Common Stock at the
Effective Time will be the ICG Closing Stock Price.
(b) Deposit with Exchange Agent. As soon as practicable after the
determination of the amount of cash, if any, to be paid to holders of shares
of Company Common Stock in lieu of any fractional shares of ICG Common Stock,
ICG will promptly deposit with the Exchange Agent cash in the required amounts
and the Exchange Agent will mail such amounts without interest to such
holders; provided however, that no such amount will be paid to any holder with
respect to any Company Stock Certificate prior to the surrender by such holder
of such Company Stock Certificate.
Section 3.5 No Liability. None of ICG, Acquisition Sub, the Company, the
Surviving Corporation or the Exchange Agent will be liable to any holder of
shares of Company Common Stock for any shares of ICG Common Stock, dividends
or distributions with respect thereto or cash payable in lieu of fractional
shares of ICG Common Stock delivered to a state abandoned property
administrator or other public official pursuant to any applicable abandoned
property, escheat or similar law.
Section 3.6 Lost Certificates. If any Company Stock Certificate is lost,
stolen or destroyed, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Company Stock Certificate the shares of ICG Common Stock
(and any dividend or distribution with respect thereto made after the
Effective Time and any cash payable in lieu of fractional shares of ICG Common
Stock pursuant to Section 3.4) deliverable in respect thereof as determined in
accordance with the terms of this Agreement, subject to the condition that the
Person to whom the ICG Common Stock (and any dividend or distribution with
respect thereto made after the Effective Time and any cash payable in lieu of
fractional shares pursuant to Section 3.4) is to be issued shall have (a)
delivered to ICG an affidavit claiming such Company Stock Certificate to be
lost, stolen, or destroyed and (b) if required by ICG, given ICG an indemnity
satisfactory to ICG against any claim that may be made against ICG with
respect to the Company Stock Certificate alleged to have been lost, stolen or
destroyed.
Section 3.7 Treatment of Stock Options, Etc. At the Effective Time, each
outstanding stock option, warrant or other right to acquire shares of Company
Common Stock ("Company Options"), whether or not exercisable, as of the
Effective Time will be converted into and become rights with respect to ICG
Common Stock, and ICG shall assume each Company Option, in accordance with the
terms and conditions of the stock option, warrant or other agreement by which
it is evidenced, except that from and after the Effective Time, (i) each
Company Option assumed by ICG may be exercised solely for shares of ICG Common
Stock, (ii) the number of shares of ICG Common Stock subject to such Company
Option will be equal to the number of shares of Company Common Stock subject
to such Company Option immediately prior to the Effective Time multiplied by
the Exchange Ratio, and (iii) the per share exercise price under each such
Company Option will be adjusted by dividing the per share exercise price under
each such Company Option by the Exchange Ratio and rounding up to the nearest
cent. Notwithstanding the provisions of clause (ii) of the preceding sentence,
ICG will not be obligated to issue any fraction of a share of ICG Common Stock
upon exercise of Company Options.
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Section 3.8 Closing of the Company's Transfer Books. At the Effective Time,
the stock transfer books of the Company will be closed and no transfer of
shares of Company Common Stock will be made thereafter. In the event that,
after the Effective Time, Company Stock Certificates are presented to the
Surviving Corporation, they will be canceled and exchanged for ICG
Certificates (and, if required, cash) as provided in Section 3.2(b) and
Section 3.4.
Section 3.9 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") will take place (i) at the offices of Sherman &
Howard L.L.C., 633 Seventeenth Street, Suite 3000, Denver, Colorado, at 9:00
a.m. local time on the date that is the first Business Day after the day on
which the last of the conditions set forth in Article VIII (excluding delivery
of opinions and certificates) is fulfilled or waived or (ii) at such other
place and time as ICG and the Company agree in writing. The date on which the
Closing occurs is referred to in this Agreement as the "Closing Date."
Section 3.10 No Repurchase Rights. The holders of ICG Common Stock received
pursuant to the Merger or issuable pursuant to the Company Options shall have
no right to require ICG or its Affiliates to repurchase any such shares of ICG
Common Stock.
ARTICLE IV
Representations and Warranties of ICG
ICG represents and warrants to the Company as follows (it being understood
that the representations and warranties relating to Acquisition Sub will be
deemed to be made only as of the Closing Date):
Section 4.1 Organization and Qualification. Each of ICG and Acquisition Sub
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware, and has all requisite corporate power and
authority to carry on its business as it is now being conducted. Each of ICG
and Acquisition Sub is duly qualified as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its activities make such
qualification necessary, except where the failure to be so qualified will not,
individually or in the aggregate, have a Material Adverse Effect on it.
Section 4.2 Capitalization.
(a) As of September 30, 1997, the authorized capital stock of ICG consisted
of: (i) 100,000,000 shares of common stock, par value $.01 per share, of which
32,381,310 are issued and outstanding; (ii) 1,000,000 shares of preferred
stock, par value $.01 per share, of which no shares are issued and
outstanding; (iii) 4,786,680 shares of common stock of ICG issuable upon
conversion of outstanding preferred stock of ICG and its Affiliates; and (iv)
7,439,998 shares of common stock issuable with respect to all other options,
warrants, convertible debt and similar rights to acquire shares of ICG Common
Stock.
(b) All shares of ICG Common Stock to be issued in connection with the
Merger, when issued in accordance with this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable.
(c) Acquisition Sub is a direct, wholly owned subsidiary of ICG. ICG will
own all of the issued and outstanding stock of (i) Acquisition Sub immediately
prior to the Effective Time and (ii) Surviving Corporation immediately after
the Effective Time, all of which stock will be owned beneficially and of
record by ICG.
Section 4.3 Subsidiaries. A list of all of the Equity Affiliates of ICG has
been delivered to the Company, which list reflects the percentage and nature
of ICG's ownership of each Subsidiary and Equity Affiliate of ICG. Each of
ICG's Subsidiaries is a corporation or partnership (including solely for
purposes of this Section 4.3 a limited liability company) duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or formation and has the corporate or partnership power to carry
on its business
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as it is now being conducted or currently proposed to be conducted. Each of
ICG's Subsidiaries is duly qualified as a foreign corporation or partnership
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary except where the failure to be
so qualified will not have a Material Adverse Effect on ICG. All the
outstanding shares of capital stock of each of ICG's Subsidiaries that is a
corporation are validly issued, fully paid and nonassessable. Except as set
forth on the list of Equity Affiliates, the shares of capital stock or
partnership or other ownership interests in each of ICG's Subsidiaries or
Equity Affiliates that are owned by ICG or by a Subsidiary of ICG are owned
free and clear of any Liens, are not subject to and have not been issued in
violation of any preemptive rights and have not been issued in violation of
any federal or state securities laws or any other Legal Requirement. Except as
set forth on the list of Equity Affiliates, there are not, as of the date
hereof, and at the Effective Time there will not be, any outstanding options,
warrants, calls or other rights, agreements or commitments of any character,
to which ICG or any of its Subsidiaries is a party, relating to the issued or
unissued capital stock, other securities or partnership or other ownership
interests in any of the Subsidiaries or Equity Affiliates of ICG.
Section 4.4 Authority Relative to this Agreement. ICG has all requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement by ICG have been duly authorized by the Board
of Directors of ICG, and no other corporate proceedings on the part of ICG
(other than the approval of ICG stockholders as contemplated by this
Agreement) are necessary to authorize this Agreement and the transactions
contemplated by this Agreement. The Board of Directors of ICG has received the
opinion of Gleacher NatWest Inc., as financial advisor to ICG, dated October
12, 1997, satisfactory to ICG and its Board of Directors to the effect that,
as of the date of this Agreement, the Exchange Ratio is fair from a financial
point of view to ICG and its stockholders. This Agreement constitutes a valid
and binding obligation of ICG enforceable against it in accordance with its
terms, except (i) as enforcement may be limited by bankruptcy, insolvency or
other similar Legal Requirements affecting the enforcement of creditors'
rights generally, (ii) as the availability of indemnification and other
remedies may be limited by federal and state securities laws and (iii) for
limitations imposed by general principles of equity.
Section 4.5 No Breach; Required Consents. The execution and delivery of this
Agreement by ICG does not, and the consummation of the transactions
contemplated by this Agreement by ICG and Acquisition Sub will not: (a)
subject to approval of holders of ICG Common Stock, violate or conflict with
the certificate of incorporation or bylaws of ICG or Acquisition Sub; (b)
constitute a breach or default (or an event that with notice or lapse of time
or both would become a breach or default) or give rise to any Lien, third-
party right of termination, cancellation, modification or acceleration under
any agreement or undertaking to which ICG or Acquisition Sub is a party or by
which any of them is bound, except where such breach, default, Lien, third-
party right of termination, cancellation, modification or acceleration would
not have a Material Adverse Effect on ICG or Acquisition Sub; or (c) subject
to obtaining the approvals and making the filings described in Section 4.6,
constitute a violation of any applicable Legal Requirement, except where such
violation would not have a Material Adverse Effect on ICG or Acquisition Sub.
Section 4.6 Consents and Approvals. Neither the execution and delivery of
this Agreement by ICG nor the consummation of the transactions contemplated by
this Agreement by ICG and Acquisition Sub will require ICG or Acquisition Sub
to make any filing or registration with, or obtain any authorization, consent
or approval of, any Governmental Entity, except those required in connection,
or in compliance, with the provisions of (i) the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), (ii) the Communications
Act of 1934, as amended, (iii) the Securities Act of 1933, as amended (the
"Securities Act"), (iv) the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and (v) the corporation, securities or blue sky laws or
regulations, or similar Legal Requirements, of various states of the United
States, and other than such filings, registrations, authorizations, consents
or approvals the failure of which to make or obtain would not have a Material
Adverse Effect on ICG or Acquisition Sub or prevent the consummation of the
transactions contemplated by this Agreement.
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Section 4.7 Reports and Financial Statements.
(a) SEC Reports. ICG has filed all required forms, reports and documents
required to be filed with the SEC since December 31, 1993 (collectively, the
"ICG SEC Reports"). As of their respective dates or effective dates and except
as the same may have been corrected, updated or superseded by means of a
subsequent filing with the SEC prior to the date of this Agreement, none of
the ICG SEC Reports, including any financial statements or schedules included
or incorporated by reference therein, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated or
incorporated by reference therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading insofar as such statements relate to ICG. ICG has delivered or made
available to the Company, in the forms filed with the SEC, all the ICG SEC
Reports.
(b) Financial Statements. The audited consolidated financial statements of
ICG contained in the ICG SEC Reports comply in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
GAAP applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto) and present fairly ICG's consolidated
financial condition and the results of its operations as of the relevant dates
thereof and for the periods covered thereby. The unaudited consolidated
interim financial statements of ICG contained in the ICG SEC Reports comply in
all material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, were prepared
on a basis consistent with prior interim periods (except as required by
applicable changes in GAAP or in SEC accounting policies) and include all
adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of ICG's consolidated financial condition and results of
operations for such periods.
(c) Absence of Certain Changes. Since the date of the most recent
consolidated balance sheet of ICG included in ICG's Quarterly Report on Form
10-Q filed with the SEC for the quarter ended June 30, 1997 (the "Most Recent
ICG Balance Sheet"), there has not been any: (i) transaction, commitment,
dispute or other event or condition (financial or otherwise) of any character
(whether or not in the ordinary course of business) that, individually or in
the aggregate, has had, or would have, a Material Adverse Effect on ICG (other
than as a result of changes in laws or regulations of general applicability or
any changes resulting from general economic, financial, market or industry-
wide conditions); (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with
respect to the capital stock of ICG; provided that dividends will be paid on
shares of preferred stock issued by ICG after the date of this Agreement; or
(iii) entry into any commitment or transaction material to ICG and its
Subsidiaries taken as a whole (including any borrowing or sale of assets)
except in the ordinary course of business consistent with past practice, other
than the sale of exchangeable preferred shares of ICG Funding, LLC and the
pending purchase of the stock of Communications Buying Group, Inc. and the
pending issuance of ICG Common Stock to shareholders of that company.
(d) Absence of Undisclosed Liabilities. ICG does not have any indebtedness,
liability or obligation required by GAAP to be reflected on a balance sheet
that is not reflected or reserved against in the Most Recent ICG Balance Sheet
except (i) liabilities, obligations and contingencies that were incurred after
the date of the Most Recent ICG Balance Sheet in the ordinary course of
business and which would not, in the aggregate, have a Material Adverse Effect
and (ii) other liabilities, obligations and contingencies that would not, in
the aggregate, have a Material Adverse Effect on ICG.
Section 4.8 Compliance with Law; Litigation.
(a) ICG and its Subsidiaries hold all permits, licenses, franchises,
variances, exemptions, concessions, leases, instruments, orders and approvals
(the "ICG Permits") of all courts, administrative agencies or commissions or
other governmental authorities or instrumentalities, domestic or foreign
(each, a "Governmental Entity") required to be held under applicable Legal
Requirements, except for such ICG Permits the failure of which to hold,
individually or in the aggregate, does not have and, in the future is not
likely to have, a Material Adverse Effect on ICG. To ICG's Knowledge, ICG and
its Subsidiaries are in compliance with the terms of the
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ICG Permits, except for such failures to comply that, individually or in the
aggregate, would not have a Material Adverse Effect on ICG. To ICG's
Knowledge, the businesses of ICG and its Subsidiaries are not being conducted
in violation of any Legal Requirement, except for such violations which,
individually or in the aggregate, would not have a Material Adverse Effect on
ICG. No investigation or review by any Governmental Entity with respect to ICG
or any of its Subsidiaries is pending, or, to the Knowledge of ICG,
threatened, nor has any Governmental Entity indicated to ICG in writing an
intention to conduct the same, other than those the outcome of which would not
reasonably be expected to have a Material Adverse Effect on ICG.
(b) There is no suit, action or proceeding pending or, to the Knowledge of
ICG, threatened, against or affecting ICG or any of its Subsidiaries that has
had or is likely to have a Material Adverse Effect on ICG, nor is there any
judgment, decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against ICG or any of its Subsidiaries that has had or
is likely to have a Material Adverse Effect on ICG.
Section 4.9 Title to Assets. ICG and its Subsidiaries have valid title to
all material assets reflected on the Most Recent ICG Balance Sheet, free and
clear of any Lien except: (a) landlord's Liens and Liens for property taxes
not delinquent; (b) Liens that were created in the ordinary course of business
and do not materially detract from the value of such assets or materially
impair the use thereof in the operation of ICG's business; (c) leased
interests in property owned by others and leased interests in property leased
to others; and (d) zoning, building or similar restrictions, easements,
rights-of-way, reservations of rights, conditions, or other restrictions or
encumbrances relating to or affecting real property that do not, individually
or in the aggregate, materially interfere with the use of such real property
in the operation of ICG's business.
Section 4.10 Employee Matters. ICG and its Subsidiaries are in compliance
with all applicable Legal Requirements relating to the employment of its
employees, including any obligations relating to employment standards
legislation, pay equity, occupational health and safety, labor relations and
human rights legislation except for such failures to comply as do not have,
and are not likely to have, a Material Adverse Effect on ICG.
Section 4.11 ERISA.
(a) Copies of all "employee benefit plans," as defined in ERISA, and all
other material employee benefit arrangements, programs or payroll practices,
including severance pay, sick leave, vacation pay, salary continuation for
disability, deferred compensation, bonus, stock purchase, hospitalization,
medical insurance, life insurance, tuition reimbursement, employee assistance
and employee discounts, that ICG or any of its ERISA Affiliates maintains or
has an obligation to make contributions (the "ICG Benefit Plans") have been
delivered or made available to the Company.
(b) Neither ICG nor any of its ERISA Affiliates has incurred any unsatisfied
withdrawal liability, as defined in Section 4201 of ERISA, with respect to any
multiemployer plan, nor has any of them incurred any liability due to the
termination or reorganization of any multiemployer plan, except any such
liability that would not have a Material Adverse Effect on ICG. To the
Knowledge of ICG, neither ICG nor any of its ERISA Affiliates reasonably
expects to incur any liability due to a withdrawal from or termination or
reorganization of a multiemployer plan, except any such liability that would
not have a Material Adverse Effect on ICG.
(c) Each ICG Benefit Plan that is intended to qualify under Section 401 of
the Code and the trust maintained pursuant thereto is the subject of a
favorable determination letter or notification letter issued by the Internal
Revenue Service, and to the Knowledge of ICG, nothing has occurred with
respect to any such plan since such determination letter or notification
letter that is likely to result in the loss of such exemption or the
imposition of any material liability, penalty or tax under ERISA or the Code.
To the Knowledge of ICG and its ERISA Affiliates, each ICG Benefit Plan has at
all times been maintained in all material respects, by its terms and in
operation, in accordance with all applicable Legal Requirements.
(d) All contributions (including all employer contributions and employee
salary reduction contributions) required to have been made under the ICG
Benefit Plans or pursuant to applicable Legal Requirements (without regard to
any waivers granted under Section 412 of the Code) to any funds or trusts
established thereunder or in
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connection therewith have been made by the due date thereof (including any
valid extension or grace period) and no accumulated funding deficiency exists
with respect to any of the ICG Benefit Plans subject to Section 412 of the
Code.
(e) To the Knowledge of ICG, there have been no violations of ERISA or the
Code with respect to the filing of applicable reports, documents and notices
regarding the ICG Benefit Plans with the Secretary of Labor and the Secretary
of the Treasury or the furnishing of such reports, documents and notices to
the participants or beneficiaries of the ICG Benefit Plans, except such
violations that, individually or in the aggregate, would not have a Material
Adverse Effect on ICG.
(f) There are no pending actions, claims or lawsuits that have been asserted
or instituted against the ICG Benefit Plans, the assets of any of the trusts
under such plans or the plan sponsor or the plan administrator, or against any
fiduciary of the ICG Benefit Plans, with respect to the operation of such
plans (other than routine benefit claims), nor does ICG have Knowledge of
facts that reasonably could be expected to form the basis for any such action,
claim or lawsuit, except any such actions, claims or lawsuits that,
individually or in the aggregate, would not have a Material Adverse Effect on
ICG.
Section 4.12 Operations of Acquisition Sub. As of the Closing, Acquisition
Sub will have engaged in no other business activities other than in
contemplation of this Agreement and the transactions contemplated by this
Agreement and will have no material assets or liabilities other than its
rights and obligations under this Agreement.
Section 4.13 No Broker. Except for the fee payable by ICG to Gleacher
NatWest Inc., no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the Merger
or the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of ICG or Acquisition Sub.
Section 4.14 Taxes. ICG and each of its Subsidiaries have timely filed all
Tax returns required to be filed by any of them and have timely paid or have
established an adequate reserve for the payment of, all Taxes owed in respect
of the periods covered by such returns, except where the failure to file such
Tax returns or timely pay or establish an adequate reserve for the payment of
such Taxes will not have a Material Adverse Effect on ICG. The information
contained in such Tax returns is complete and accurate in all material
respects. Neither ICG nor any Subsidiary of ICG is delinquent in the payment
of any Tax or other amount owed to any Governmental Entity, except where the
amount owed, when paid, or the delinquency in paying the amount owed will not
have a Material Adverse Effect on ICG. There are no claims or investigations
pending or, to ICG's Knowledge, threatened against ICG or any of its
Subsidiaries for past Taxes, except claims and investigations that would not
have a Material Adverse Effect on ICG and adequate provision for which has
been made on the Most Recent Balance Sheet. None of ICG or its Subsidiaries
has waived or extended any applicable statute of limitations relating to the
assessment of any Taxes, other than state sales and use Taxes, that would be
payable by ICG or such Subsidiary. For the purposes of this Agreement, the
term "Tax" includes all federal, state, local and foreign income, profits,
estimated, franchise, gross receipts, payroll, sales, employment, use,
property, withholding, excise and other taxes, duties and assessments of any
nature whatsoever together with all interest, penalties and additions imposed
with respect to such amounts.
Section 4.15 Environmental Laws.
(a) Each of ICG and its Subsidiaries is in compliance in all respects with
all Environmental Laws, except where the failure to so comply would not have a
Material Adverse Effect on ICG; and
(b) No orders, directions or notices have been issued pursuant to any
Environmental Law and no Governmental Entity has submitted to any of ICG and
its Subsidiaries any written request for information pursuant to any
Environmental Law.
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Section 4.16 Transactions with Affiliates. Except as disclosed in the ICG
SEC Reports, there is no lease, sublease, indebtedness, contract, agreement,
commitment, understanding or other arrangement of any kind entered into by ICG
with any officer, director or stockholder of ICG or any "affiliate" or
"associate" of any of them (as those terms are defined in the Exchange Act) or
of ICG, except, in each case, for compensation paid to directors and officers
consistent with previously established policies (including normal merit
increases in such compensation in the ordinary course of business),
reimbursements of ordinary and necessary expenses incurred in connection with
their employment and amounts paid or benefits granted pursuant to ICG Benefit
Plans and except for transactions that are not required to be disclosed
pursuant to applicable Legal Requirements.
Section 4.17 Approval.
(a) The Board of Directors of ICG at a meeting duly called and held: (i)
determined that the Merger is advisable and fair and in the best interests of
ICG and its stockholders; (ii) approved the Merger and this Agreement and the
transactions contemplated by this Agreement; and (iii) recommended the
approval of this Agreement and the Merger by the holders of ICG Common Stock
and directed that the Merger be submitted for consideration by ICG's
stockholders at the Meeting.
(b) The majority vote of the total votes cast at the Meeting with respect to
this Agreement and the Merger is the minimum vote required for the adoption
and approval of this Agreement, the Merger and the other transactions
contemplated by this Agreement.
Section 4.18 Contracts. Each of ICG and its Subsidiaries are in material
compliance with each material contract or agreement to which it is a party,
and each such contract is in full force and effect, without material monetary
default by ICG or any such Subsidiary and, to the Knowledge of ICG, without
any breach or default by any other party thereto, except where such breach or
default would not result in a Material Adverse Effect. No written notice has
been received by ICG or any such Subsidiary or, to ICG's Knowledge, threatened
regarding termination, suspension or material alteration or amendment thereof.
Each such contract or agreement is a valid and binding obligation of ICG or
its Subsidiary, as the case may be, in accordance with its terms.
Section 4.19 Intellectual Property. ICG and its Subsidiaries own or have the
right to use all of its registered trademarks, service marks and copyrights
used by ICG or its Subsidiaries. To ICG's Knowledge, ICG and its Subsidiaries
own or have the legal right to use, by license or otherwise, all of its
Intellectual Property which is material to the operation of its business. To
ICG's Knowledge, the continued operation of the business of ICG and such
Subsidiaries as currently conducted will not interfere with, infringe upon,
misappropriate or conflict with any Intellectual Property of another Person.
ARTICLE V
Representations and Warranties of the Company
The Company represents and warrants to ICG as follows:
Section 5.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to carry
on its business as it is now being conducted. The Company is duly qualified as
a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or held under lease
or the nature of its activities makes such qualification necessary, except
where the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
Section 5.2 Capitalization.
(a) The authorized capital stock of the Company consists of 40,000,000
shares of Company Common Stock, $.01 par value per share, of which 11,738,388
shares are issued and outstanding as of October 10, 1997, and
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5,000,000 shares of preferred stock, $.01 par value per share, none of which
are issued and outstanding and 200,000 of which have been designated Series C
Preferred Stock.
(b) The Company has delivered to ICG a schedule of all options, warrants,
calls, subscriptions or other rights, agreements or commitments of any kind
(including preemptive rights), to which the Company or any of its Subsidiaries
is a party, relating to the issued or unissued capital stock or other
securities of the Company. Such schedule sets forth for all such options,
warrants, calls, subscriptions or other rights, agreements or commitments that
are outstanding (i) the number of shares of Company Common Stock issuable
pursuant thereto, (ii) the exercise or conversion price, and (iii) the date of
grant. Any such options, warrants, calls, subscriptions or other rights,
agreements or commitments set forth on such schedule, if not exercised before
the Effective Time, as of the Effective Time will be converted pursuant to
Section 3.7.
(c) All issued and outstanding shares of Company Stock have been duly
authorized and validly issued and are fully paid and nonassessable, are not
subject to, and have not been issued in violation of, any preemptive rights,
and have not been issued in violation of any federal or state securities laws
or any other Legal Requirement.
Section 5.3 Subsidiaries. A list of all the Equity Affiliates of the Company
has been delivered to ICG, which list reflects the percentage and nature of
the Company's ownership of each Subsidiary and Equity Affiliate of the
Company. Each of the Company's Subsidiaries is a corporation or partnership
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or formation and has the corporate or
partnership power to carry on its business as it is now being conducted or
currently proposed to be conducted. Each of the Company's Subsidiaries is duly
qualified as a foreign corporation or partnership to do business, and is in
good standing, in each jurisdiction where the character of its properties
owned or held under lease or the nature of its activities makes such
qualification necessary except where the failure to be so qualified will not
have a Material Adverse Effect on the Company. All the outstanding shares of
capital stock of each of the Company's Subsidiaries that is a corporation are
validly issued, fully paid and nonassessable. Except as set forth on the list
of Equity Affiliates, the shares of capital stock or partnership or other
ownership interests in each of the Company's Subsidiaries or Equity Affiliates
that are owned by the Company or by a Subsidiary of the Company are owned free
and clear of any Liens, are not subject to and have not been issued in
violation of any preemptive rights and have not been issued in violation of
any federal or state securities laws or any other Legal Requirement. Except as
set forth on the list of Equity Affiliates, there are not, as of the date
hereof, and at the Effective Time there will not be, any outstanding options,
warrants, calls or other rights, agreements or commitments of any character,
to which the Company or any of its Subsidiaries is a party, relating to the
issued or unissued capital stock, other securities or partnership or other
ownership interests in any of the Subsidiaries or Equity Affiliates of the
Company.
Section 5.4 Authority Relative to this Agreement. The Company has all
requisite corporate power and authority to execute and deliver this Agreement
and, subject to approval of this Agreement by the holders of the Company
Stock, to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement have been duly authorized by the
Company's Board of Directors. Except for the approval of the holders of
Company Stock, no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement and the transactions contemplated by
this Agreement. The Board of Directors of the Company has received the opinion
of BT Alex. Brown Incorporated ("BT Alex. Brown") as financial advisor to the
Company dated October 12, 1997 satisfactory to the Company and its Board of
Directors to the effect that, as of the date of this Agreement, the Exchange
Ratio is fair to the Company's stockholders from a financial point of view.
This Agreement constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms except (i) as enforcement may be
limited by bankruptcy, insolvency or other similar Legal Requirements
affecting the enforcement of creditors' rights generally, (ii) as the
availability of indemnification and other remedies may be limited by federal
and state securities laws and (iii) for limitations imposed by general
principles of equity.
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Section 5.5 No Breach; Required Consents. The execution and delivery of this
Agreement by the Company does not, and the consummation of the transactions
contemplated by this Agreement by the Company will not: (a) subject to the
approval of holders of Company Stock, violate or conflict with the certificate
of incorporation or bylaws of the Company; (b) constitute a breach or default
(or an event that with notice or lapse of time or both would become a breach
or default) or give rise to any Lien, third-party right of termination,
cancellation, modification or acceleration under any agreement or undertaking
to which the Company is a party or by which it is bound, except where such
breach, default, Lien, third-party right of termination, cancellation,
modification, or acceleration would not have a Material Adverse Effect on the
Company; or (c) subject to obtaining the consents, approvals or authorizations
and making the filings or registrations described in Section 5.6, constitute a
violation of any Legal Requirement, except where such violation would not have
a Material Adverse Effect on the Company.
Section 5.6 Consents and Approvals. Neither the execution and delivery of
this Agreement by the Company nor the consummation of the transactions
contemplated by this Agreement by the Company will require the Company to make
any filing or registration with, or obtain any authorization, consent or
approval of, any Governmental Entity or any other Person, except those
required in connection, or in compliance, with the provisions of (i) the HSR
Act, (ii) the Communications Act of 1934, as amended, (iii) the Securities
Act, (iv) the Exchange Act and (v) the corporation, securities or blue sky
laws or regulations, or similar Legal Requirements, of the various states of
the United States, and other than such other filings, registrations,
authorizations, consents or approvals the failure of which to make or obtain
would not have a Material Adverse Effect on the Company or prevent the
consummation of the transactions contemplated by this Agreement.
Section 5.7 Reports and Financial Statements.
(a) SEC Reports. The Company has filed all required forms, reports and
documents required to be filed with the SEC since December 31, 1993
(collectively, the "Company SEC Reports"). As of their respective dates or
effective dates and except as the same may have been corrected, updated or
superseded by means of a subsequent filing with the SEC prior to the date of
this Agreement, none of the Company SEC Reports, including any financial
statements or schedules included or incorporated by reference therein,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated or incorporated by reference therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company has
delivered or made available to ICG, in the forms filed with the SEC, all the
Company SEC Reports.
(b) Financial Statements. The audited consolidated financial statements of
the Company contained in the Company SEC Reports comply in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto, were prepared in accordance
with GAAP applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and present fairly the Company's
consolidated financial condition and the results of its operations as of the
relevant dates thereof and for the periods covered thereby. The unaudited
consolidated interim financial statements of the Company contained in the
Company SEC Reports comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, were prepared on a basis consistent with prior interim
periods (except as required by applicable changes in GAAP or in SEC accounting
policies) and include all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation of the Company's consolidated
financial condition and results of operations for such periods.
(c) Absence of Certain Changes. Since the date of the most recent
consolidated balance sheet of the Company included in the Company's Quarterly
Report on Form 10-Q filed with the SEC for the quarter ended June 30, 1997
(the "Most Recent Company Balance Sheet"), there has not been any: (i)
transaction, commitment, dispute or other event or condition (financial or
otherwise) of any character (whether or not in the ordinary course of
business) that, individually or in the aggregate, has had, or would have, a
Material Adverse Effect on the Company (other than as a result of changes in
laws or regulations of general applicability or any changes resulting from
general economic, financial, market or industry-wide conditions); (ii) any
declaration,
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setting aside or payment of any dividend or other distribution (whether in
cash, stock or property) with respect to the capital stock of the Company; or
(iii) entry into any commitment or transaction material to the Company and its
Subsidiaries taken as a whole (including any borrowing or sale of assets)
except in the ordinary course of business consistent with past practice.
(d) Absence of Undisclosed Liabilities. The Company does not have any
indebtedness, liability or obligation required by GAAP to be reflected on a
balance sheet that is not reflected or reserved against in the Most Recent
Company Balance Sheet except (i) liabilities, obligations and contingencies
that were incurred after the date of the Most Recent Company Balance Sheet in
the ordinary course of business and which would not in the aggregate have a
Material Adverse Effect and (ii) other liabilities, obligations and
contingencies that would not, in the aggregate, have a Material Adverse Effect
on the Company.
Section 5.8 Compliance with Law; Litigation.
(a) To the Company's Knowledge, the Company and its Subsidiaries hold all
permits, licenses, franchises, variances, exemptions, concessions, leases,
instruments, orders and approvals (the "Company Permits") of all Governmental
Entities required to be held under applicable Legal Requirements, except such
Company Permits the failure of which to hold, individually or in the
aggregate, does not have and, in the future is not likely to have, a Material
Adverse Effect on the Company. To the Company's Knowledge, the Company and its
Subsidiaries are in compliance with the terms of the Company Permits, except
for such failures to comply that, individually or in the aggregate, would not
have a Material Adverse Effect on the Company. To the Company's Knowledge, the
businesses of the Company and its Subsidiaries are not being conducted in
violation of any Legal Requirement, except for such violations which,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company. No investigation or review by any Governmental Entity with
respect to the Company or any of its Subsidiaries is pending, or, to the
Knowledge of the Company, threatened, nor has any Governmental Entity
indicated to the Company in writing an intention to conduct the same, other
than those the outcome of which would not reasonably be expected to have a
Material Adverse Effect on the Company.
(b) There is no suit, action or proceeding pending or, to the Knowledge of
the Company, threatened against or affecting the Company or any of its
Subsidiaries that has had or is likely to have a Material Adverse Effect on
the Company nor is there any judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against the Company or any
of its Subsidiaries that has had or is likely to have a Material Adverse
Effect on the Company.
Section 5.9 Title to Assets. The Company and its Subsidiaries have valid
title to all material assets reflected on the Most Recent Company Balance
Sheet, free and clear of any Lien except: (a) landlord's Liens and Liens for
property taxes not delinquent; (b) Liens that were created in the ordinary
course of business and do not materially detract from the value of such assets
or materially impair the use thereof in the operation of the Company's
business; (c) leased interests in property owned by others; and leased
interests in property leased to others; and (d) zoning, building or similar
restrictions, easements, rights-of-way, reservations of rights, conditions, or
other restrictions or encumbrances relating to or affecting real property that
do not, individually or in the aggregate, materially interfere with the use of
such real property in the operation of the Company's business.
Section 5.10 Employee Matters. The Company and its Subsidiaries are in
compliance with all applicable Legal Requirements relating to the employment
of employees, including any obligations relating to employment standards
legislation, pay equity, occupational health and safety, labor relations and
human rights legislation except for such failures to comply as do not have,
and are not likely to have, a Material Adverse Effect on the Company.
Section 5.11 ERISA.
(a) Copies of all "employee benefit plans," as defined in ERISA, and all
other material employee benefit arrangements, programs or payroll practices,
including severance pay, sick leave, vacation pay, salary
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continuation for disability, deferred compensation, bonus, stock purchase,
hospitalization, medical insurance, life insurance, tuition reimbursement,
employee assistance and employee discounts, that the Company or any of its
ERISA Affiliates maintains or has an obligation to make contributions (the
"Company Benefit Plans") have been delivered or made available to the Company.
(b) Neither the Company nor any of its ERISA Affiliates has incurred any
unsatisfied withdrawal liability, as defined in Section 4201 of ERISA, with
respect to any multiemployer plan, nor has any of them incurred any liability
due to the termination or reorganization of any multiemployer plan, except any
such liability that would not have a Material Adverse Effect on the Company.
To the Knowledge of the Company, neither the Company nor any of its ERISA
Affiliates reasonably expects to incur any liability due to a withdrawal from
or termination or reorganization of a multiemployer plan, except any such
liability that would not have a Material Adverse Effect on the Company.
(c) Each Company Benefit Plan that is intended to qualify under Section 401
of the Code, and a form of trust that is similar in all material respects to
the trust maintained pursuant thereto, have been determined to be exempt from
federal income taxation under Section 501 of the Code by the Internal Revenue
Service, and to the Knowledge of the Company, nothing has occurred with
respect to any such plan since such determination that is likely to result in
the loss of such exemption or the imposition of any material liability,
penalty or tax under ERISA or the Code. Each Company Benefit Plan has at all
times been maintained in all material respects, by its terms and in operation,
in accordance with all applicable Legal Requirements.
(d) All contributions (including all employer contributions and employee
salary reduction contributions) required to have been made under the Company
Benefit Plans or pursuant to applicable Legal Requirements (without regard to
any waivers granted under Section 412 of the Code) to any funds or trusts
established thereunder or in connection therewith have been made by the due
date thereof (including any valid extension or grace period) and no
accumulated funding deficiency exists with respect to any of the Company
Benefit Plans subject to Section 412 of the Code.
(e) To the Knowledge of the Company, there have been no violations of ERISA
or the Code with respect to the filing of applicable reports, documents and
notices regarding the Company Benefit Plans with the Secretary of Labor and
the Secretary of the Treasury or the furnishing of such reports, documents and
notices to the participants or beneficiaries of the Company Benefit Plans,
except such violations that, individually or in the aggregate, would not have
a Material Adverse Effect on the Company.
(f) There are no pending actions, claims or lawsuits that have been asserted
or instituted against the Company Benefit Plans, the assets of any of the
trusts under such plans or the plan sponsor or the plan administrator, or
against any fiduciary of the Company Benefit Plans, with respect to the
operation of such plans (other than routine benefit claims), nor does the
Company have Knowledge of facts that reasonably could be expected to form the
basis for any such action, claim or lawsuit, except any such actions, claims
or lawsuits that, individually or in the aggregate, would not have a Material
Adverse Effect on the Company.
Section 5.12 Approval.
(a) The Board of Directors of the Company at a meeting duly called and held:
(i) determined that the Merger is advisable and fair and in the best interests
of the Company and its stockholders; (ii) approved the Merger and this
Agreement and the transactions contemplated by this Agreement in accordance
with the provisions of Section 251 of the DGCL; (iii) recommended the approval
of this Agreement and the Merger by the holders of the Company Stock and
directed that the Merger be submitted for consideration by the Company's
stockholders at the Meeting; and (iv) adopted a resolution having the effect
of causing the Merger not to be subject to Section 203 of the DGCL to the
extent applicable, if applicable, and to the extent permitted by applicable
Legal Requirements.
(b) The vote of a majority of the outstanding shares of the Company Stock is
the vote required for the adoption and approval of this Agreement, the Merger
and the other transactions contemplated by this Agreement.
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Section 5.13 Financial Advisor/Investment Banker. Except for amounts payable
to BT Alex. Brown, pursuant to the letter agreement dated June 1, 1997, no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company or its Subsidiaries. There has been delivered to ICG a true and
complete copy of the agreement pursuant to which BT Alex. Brown has been
retained to act as financial advisor to the Company and its Subsidiaries in
connection with the Merger.
Section 5.14 Taxes. The Company and each of its Subsidiaries have timely
filed all Tax returns required to be filed by any of them and have timely paid
or have established an adequate reserve for the payment of, all Taxes owed in
respect of the periods covered by such returns, except where the failure to
file such Tax returns or timely pay or establish an adequate reserve for the
payment of such Taxes, will not have a Material Adverse Effect on the Company.
The information contained in such Tax returns is complete and accurate in all
material respects. Neither the Company nor any Subsidiary of the Company is
delinquent in the payment of any Tax or other amount owed to any Governmental
Entity, except where the amount owed, when paid, or the delinquency in paying
the amount owed will not have a Material Adverse Effect on the Company. There
are no claims or investigations pending or, to the Company's Knowledge,
threatened against the Company or any of its Subsidiaries for past Taxes,
except claims and investigations that would not have a Material Adverse Effect
on the Company and adequate provision for which has been made on the Most
Recent Balance Sheet. None of the Company or its Subsidiaries has waived or
extended any applicable statute of limitations relating to the assessment of
any material Taxes that would be payable by the Company or such Subsidiary.
Section 5.15 Environmental Laws.
(a) Each of the Company and its Subsidiaries is in compliance in all
respects with all Environmental Laws, except where the failure to so comply
would not have a Material Adverse Effect on the Company; and
(b) No orders, directions or notices have been issued pursuant to any
Environmental Law and no Governmental Entity has submitted to any of the
Company and its Subsidiaries any request for information pursuant to any
Environmental Law.
Section 5.16 Transactions with Affiliates. Except as disclosed in the
Company SEC Reports, there is no lease, sublease, indebtedness, contract,
agreement, commitment, understanding or other arrangement of any kind entered
into by the Company with any officer, director or stockholder of the Company
or any "affiliate" or "associate" of any of them (as those terms are defined
in the Exchange Act) or of the Company, except, in each case, for compensation
paid to directors and officers consistent with previously established policies
(including normal merit increases in such compensation in the ordinary course
of business), reimbursements of ordinary and necessary expenses incurred in
connection with their employment and amounts paid or benefits granted pursuant
to Company Benefit Plans and except for transactions that are not required to
be disclosed pursuant to applicable Legal Requirements.
Section 5.17. Contracts. Each of the Company and its Subsidiaries are in
material compliance with each material contract or agreement to which it is a
party, and each such contract is in full force and effect, without material
monetary default by the Company or any such Subsidiary and, to the Knowledge
of the Company, without any breach or default by any other party thereto,
except where such breach or default would not result in a Material Adverse
Effect. No written notice has been received by the Company or any such
Subsidiary or, to the Company's Knowledge, threatened regarding termination,
suspension or material alteration or amendment thereof. Each such contract or
agreement is a valid and binding obligation of the Company or its Subsidiary,
as the case may be, in accordance with its terms.
Section 5.18. Intellectual Property. The Company and its Subsidiaries own or
have the right to use all of its registered trademarks, service marks and
copyrights used by the Company or its Subsidiaries. To the Company's
Knowledge, the Company and its Subsidiaries own or have the legal right to
use, by license or otherwise, all of its Intellectual Property which is
material to the operation of its business. To the Company's
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Knowledge, the continued operation of the business of the Company and such
Subsidiaries as currently conducted will not interfere with, infringe upon,
misappropriate or conflict with any Intellectual Property of another Person.
ARTICLE VI
Conduct of Business Pending the Merger
Section 6.1 Conduct of Business of the Company. Prior to the Effective Time,
except as contemplated, permitted or required by this Agreement:
(a) The Company will conduct, and will cause each of its Subsidiaries to
conduct, its business in the ordinary course in accordance with past
practice, and will use, and will cause each of its Subsidiaries to use, its
reasonable best efforts to preserve intact its present business
organization and to preserve relationships with customers, suppliers and
others having business dealings with them.
(b) The Company will not, and will not permit any of its Subsidiaries to:
(i) amend or propose to amend the certificate of incorporation or bylaws of
the Company or any of its Subsidiaries; (ii) split, combine or reclassify
the outstanding capital stock of, or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of, or other ownership interests
in, the Company or any of its Subsidiaries; (iii) or declare, set aside or
pay any dividend, distribution, or other payment to any stockholder,
director or officer of the Company or any of its Subsidiaries, other than
payments made in accordance with existing practices; (iv) directly or
indirectly redeem, purchase or otherwise acquire or agree to redeem,
purchase or otherwise acquire any shares of capital stock of, or other
ownership interests in, the Company or any of its Subsidiaries other than
existing contractual rights of repurchase at cost upon termination of
employment; or (v) agree to do any of the foregoing.
(c) Except with the written consent of ICG, which consent will not be
unreasonably withheld, the Company will not, and will not permit any of its
Subsidiaries to: (i) encumber, issue, deliver or sell or agree to issue,
deliver or sell any shares of capital stock of, or other equity interests
(including any option, warrant or other similar right to acquire any equity
interest) in the Company or any of its Subsidiaries, except for shares
issued under the Company's Employee Stock Purchase Plan and except for
options to purchase an aggregate of up to 150,000 shares of Company Common
Stock, exercisable for fair market value on the date of grant, issued
consistent with past practices to employees either hired before or after
October 12, 1997 and officers hired after October 12, 1997; (ii) acquire,
lease or dispose of any assets other than in the ordinary course of
business consistent with past practice; (iii) create, assume or incur any
indebtedness except in the ordinary course of business consistent with past
practice; (iv) encumber any of its assets other than in connection with
equipment leases incurred in the ordinary course of business consistent
with past practice; (v) enter into any other material transaction other
than in each case in the ordinary course of business consistent with past
practice; (vi) make any payment with respect to any indebtedness of the
Company or its Subsidiaries except such payments that are scheduled to come
due prior to the Effective Time; (vii) acquire by merging or consolidating
with, or by acquiring assets of, or by purchase a substantial ownership
interest in, or by any other method, any business or any other Person; or
(viii) agree to do any of the foregoing.
(d) Except with the written consent of ICG, which consent will not be
unreasonably withheld, and except as required to comply with applicable
Legal Requirements or existing Company Benefit Plans, the Company will not,
and will not permit any of its Subsidiaries to: (i) adopt, terminate or
amend any bonus, profit sharing, compensation, severance, termination,
stock option, pension, retirement, deferred compensation, employment or
other Company Benefit Plan, agreement, trust, fund or other arrangement for
the benefit or welfare of any director, officer or current or former
employee; (ii) increase in any manner the compensation or benefits of any
director, officer or employee (except normal increases in the ordinary
course of business consistent with past practice); (iii) except as
permitted under Section 6.1(c)(i), grant any
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award or option under any bonus, incentive, performance or other
compensation plan or arrangement or Company Benefit Plan; (iv) take any
action to fund or in any other way secure the payment of compensation or
benefits (including any option, warrant or other similar right to acquire
any equity interest) under any employee plan, agreement, contract or
arrangement or Company Benefit Plan (except in the ordinary course of
business consistent with past practice); or (v) agree to do any of the
foregoing.
(e) The Company will not take or agree to take, and will cause its
Subsidiaries not to take or agree to take, any action that would: (i) make
any representation or warranty of the Company set forth in this Agreement
untrue or incorrect so as to cause the condition set forth in Section
8.3(a) of this Agreement not to be fulfilled as of the Effective Time; or
(ii) result in any breach of this Agreement or of the other conditions of
this Agreement set forth in Section 8.1 or Section 8.3 of this Agreement
not to be satisfied as of the Effective Time.
(f) The Company will not, and will not permit any of its Subsidiaries to
enter into any transaction with any officer, stockholder, director,
consultant or employee of the Company of any Subsidiary thereof or any
person or entity that is an "affiliate" or "associate" of any of the
foregoing, as those terms are defined in Rule 12b-2 under the Exchange Act,
whether or not such transaction would be in the ordinary course of
business.
(g) The Company will take no action that reasonably could be expected to
adversely affect the qualification of the Merger for pooling-of-interests
accounting treatment under GAAP.
(h) The Company and its Subsidiaries will (i) not take any action to
initiate, solicit or encourage, directly or indirectly, any inquires or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to a
merger, acquisition, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, the Company or any of its Subsidiaries (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal"), or
engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person or other
entity or group as defined in Section 13(d)(3) of the Exchange Act relating
to an Acquisition Proposal, or otherwise facilitate any effort or attempt
to make or implement an Acquisition Proposal; (ii) immediately cease and
cause to be terminated any existing activities, discussions or negotiations
with any parties previously conducted with respect to any of the foregoing
and take the necessary steps to inform the individuals or entities referred
to above of the obligations undertaken in this Section 6.1(h); and (iii)
notify ICG immediately if any such inquiries or proposals are received by,
any such information is requested from or any such negotiations or
discussions are sought to be initiated or continued with, the Company or
any of its Subsidiaries. Nothing contained in this Section 6.1(h) will
prohibit the Board of Directors of the Company from (1) furnishing
information to, or entering into discussions or negotiations with, any
person or other entity or group that makes an Acquisition Proposal or
recommending to its stockholders that they accept such Acquisition
Proposal, if (A) the Board of Directors of the Company reasonably
determines in good faith, after consultation with outside counsel, that
such action is consistent with its fiduciary duties to stockholders imposed
by law, (B) prior to furnishing such information to, or entering into
discussions or negotiations with, such person or entity, the Company
provides written notice to ICG to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such
person or entity, and (C) subject to any confidentiality agreement with
such other party (which the Company determines in good faith, after
consultation with outside counsel, is required to be executed in order for
the Board of Directors to act consistently with its fiduciary duties to
stockholders imposed by law), the Company keeps ICG informed of the status
(not the terms) of any such discussions or negotiations; and (2) to the
extent applicable, complying with Rule 14e-2 promulgated under the Exchange
Act with regard to an Acquisition Proposal. Nothing in this Section 6.1(h)
shall (x) permit any party to terminate this Agreement (except as
specifically provided in Section 9.1(d)), (y) permit any party to enter
into any agreement with respect to an Acquisition Proposal during the term
of this Agreement (it being agreed that during the term of this Agreement,
no party shall enter into any agreement with any person that provides for,
or in any way facilitates, an Acquisition Proposal (other than a
confidentiality agreement in customary form)), or (z) breach any obligation
of any party under this Agreement.
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(i) The Board of Directors of the Company will recommend to the
stockholders of the Company the approval of the Merger, unless the Board of
Directors reasonably determines in good faith, after consultation with
outside counsel, that such action would be inconsistent with its fiduciary
duties to stockholders as required by law and, if such determination is
made, will give written notice to ICG of such determination within two
Business Days of the making of such determination. Upon the issuance of
such written notice to ICG, and upon the written election of ICG, the
Company will negotiate in good faith with ICG for a period of two Business
Days regarding such adjustments in the terms of the Merger as would enable
the Board of Directors of the Company, consistent with its fiduciary duties
to the stockholders, to proceed to recommend the Merger to the stockholders
of the Company as contemplated in this Agreement.
(j) Upon the request of ICG, the Company will prepare and deliver to ICG,
within twenty days after such request, such financial statements (including
audited financial statements) as may be required by ICG to meet its
financial reporting obligations (including requirements under applicable
securities laws).
(k) The Company shall take no action that reasonably could be expected to
adversely affect the qualification of the Merger as a reorganization under
Section 368(a) of the Code.
(l) The Company will use its reasonable best efforts to dispose of all of
its interest in Internetcom do Brazil, S.A., or, alternatively, acquire and
hold more than 51 percent of the equity interests of such company.
Section 6.2 Conduct of Business of ICG. Prior to the Effective Time, except
as contemplated, permitted or required by this Agreement:
(a) ICG will conduct, and will cause each of its Subsidiaries to conduct,
its business in the ordinary course in accordance with past practice, and
will use, and will cause each of its Subsidiaries to use, its reasonable
best efforts to preserve intact its present business organization and to
preserve relationships with customers, suppliers and others having business
dealings with them.
(b) ICG will not take or agree to take, and will cause its Subsidiaries
not to take or agree to take, any action that would (i) make any
representation or warranty of ICG set forth in this Agreement untrue or
incorrect so as to cause the condition set forth in Section 8.2(a) of this
Agreement not to be fulfilled as of the Effective Time or (ii) result in
any breach of this Agreement or of the other conditions set forth in
Section 8.1 or Section 8.2 of this Agreement not to be satisfied as of the
Effective Time.
(c) Without the prior written consent of the Company, for a period ending
upon the earlier of the termination of this Agreement or twelve months
after the date of this Agreement, ICG will not except as provided in this
Agreement (i) acquire or agree to acquire any voting securities or direct
or indirect rights to acquire any voting securities of the Company or (ii)
(1) make or participate in any "solicitation" of "proxies" to vote (as such
terms are used in the proxy rules of the SEC) with respect to the voting of
any securities of the Company, (2) form, join or in any way participate in
a group within the meaning of Section 13(d)(3) of the Exchange Act with
respect to any voting securities of the Company or (3) otherwise act, alone
or with others, to seek to control the management, Board of Directors or
policies of the Company. ICG has not taken any of these actions prior to
the date of this Agreement.
(d) The Board of Directors of ICG will recommend to the stockholders of
ICG the approval of the Merger, unless the Board of Directors reasonably
determines in good faith, after consultation with outside counsel, that
such action would be inconsistent with its fiduciary duties to its
stockholders as required by law and, if such determination is made, will
give written notice to the Company within two Business Days of the making
of such determination. Upon the issuance of such written notice to the
Company, and upon the election of the Company, ICG will negotiate in good
faith with the Company for a period of two Business Days regarding such
adjustments in the terms of the Merger as would enable the Board of
Directors of ICG, consistent with its fiduciary duties to the stockholders,
to proceed to recommend the Merger to the stockholders of ICG as
contemplated by this Agreement.
(e) ICG shall take no action that reasonably could be expected to
adversely affect the qualification of the Merger for pooling-of-interests
accounting treatment under GAAP.
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(f) ICG shall take no action that reasonably could be expected to
adversely affect the qualification of the Merger as a reorganization under
Section 368(a) of the Code.
(g) ICG shall not enter into any agreement with any Person for the
purchase or other acquisition by such Person of more than 50 percent of the
ICG Common Stock, unless such Person agrees in writing prior to the
Effective Time to vote in favor of the Merger.
ARTICLE VII
Additional Agreements
Section 7.1 Access and Information. Each of the Company and ICG and their
respective Subsidiaries will afford to the other and to the other's
accountants, counsel and other representatives full access during normal
business hours (and at such other times as the parties may mutually agree)
throughout the period prior to the Effective Time to all of its properties,
books, contracts, commitments, records and personnel.
Section 7.2 SEC Filings.
(a) The Company and ICG will prepare jointly, and as soon as reasonably
practicable after the date of this Agreement, file with the SEC a joint proxy
statement/registration statement (the "Preliminary Joint Proxy
Statement/Prospectus") comprising preliminary proxy materials of the Company
and ICG under the Exchange Act with respect to the Merger and a Registration
Statement on Form S-4 and preliminary prospectus of ICG under the Securities
Act with respect to the ICG Common Stock to be issued in the Merger, and will
thereafter use their respective reasonable best efforts to respond to any
comments of the SEC with respect thereto and to cause a definitive joint proxy
statement/registration statement (including all supplements and amendments
thereto, the "Joint Proxy Statement/Prospectus") and proxy to be mailed to the
Company's and ICG's stockholders as promptly as practicable.
(b) As soon as reasonably practicable after the date hereof, the Company
and ICG will prepare and file any other filings relating to the Merger and the
other transactions contemplated hereby that are required to be filed by each
under the Exchange Act and other applicable Legal Requirements (collectively
"Other Filings"), and will use their reasonable best efforts to respond to any
comments of the SEC or any other appropriate government official with respect
thereto.
(c) The Company, on the one hand, and ICG, on the other, will cooperate with
each other and provide all information necessary to prepare the Preliminary
Joint Proxy Statement/Prospectus, the Joint Proxy Statement/Prospectus and the
Other Filings (collectively "SEC Filings") and will provide promptly to the
other party any information that such party may obtain that could necessitate
amending any such document.
(d) Each of the Company and ICG will notify the other promptly of the
receipt of any comments from the SEC or its staff or any other government
official and of any requests by the SEC or its staff or any other government
official for amendments or supplements to any of the SEC Filings or for
additional information and will supply the other with copies of all
correspondence between the Company or any of its representatives or ICG or any
of its representatives, as the case may be, on the one hand, and the SEC or
its staff or any other government official, on the other hand, with respect
thereto. If at any time prior to the Effective Time, any event occurs that
should be set forth in an amendment of, or a supplement to, any of the SEC
Filings, the Company and ICG promptly will prepare and file such amendment or
supplement and will distribute such amendment or supplement as required by
applicable Legal Requirements, including, in the case of an amendment or
supplement to the Joint Proxy Statement/Prospectus, mailing such supplement or
amendment to the Company's stockholders.
(e) ICG covenants that the SEC Filings (other than any information provided
by the Company for inclusion in the SEC Filings) (i) will comply in all
material respects with the Securities Act and the Exchange Act and (ii) will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements contained therein, in light of the circumstances under which they
are made, not misleading.
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(f) The Company covenants that the SEC Filings (other than any information
provided by ICG for inclusion in the SEC Filings) (i) will comply in all
material respects with the Securities Act and the Exchange Act and (ii) will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(g) ICG will be responsible for all reasonable expenses incurred in
complying with this Section 7.2, including all registration, qualification and
filing fees, printing expenses, fees and disbursements of counsel (other than
counsel to the Company) and applicable blue-sky fees and expenses.
(h) (i) ICG will indemnify, defend, and hold harmless the Company, its
officers, directors, employees and agents and each other Person, if any, who
controls any of the foregoing within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities (collectively, "Losses"), joint or several, to which
any of the foregoing may become subject under the Securities Act or the
Exchange Act or otherwise, insofar as such Losses (or actions in respect
thereof) arise out of or are based upon (A) an untrue statement or alleged
untrue statement of a material fact contained in any SEC Filing, or (B) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided that such
misstatement or omission was based on or omitted from information provided by
ICG in writing for inclusion in the SEC Filings or was made in reliance upon
and in conformity with such information. ICG promptly will reimburse the
Company and each such officer, director, employee, agent and controlling
Person for any legal or any other expenses reasonably incurred by any of them
in connection with investigating or defending any such Losses (or action in
respect thereof).
(ii) If this Agreement is terminated prior to the consummation of the
Merger, the Company will indemnify, defend and hold harmless each of ICG and
Acquisition Sub and their officers, employees and agents and directors and
each other Person, if any, who controls any of the foregoing within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
against any Losses, joint or several, to which any of the foregoing may become
subject under the Securities Act or the Exchange Act or otherwise, insofar as
such Losses (or actions in respect thereof) arise out of or are based upon (A)
an untrue statement or alleged untrue statement of a material fact contained
in any SEC Filing or (B) the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, provided that the misstatement or omission was based on or omitted
from information provided by the Company in writing for use in the SEC Filings
or was made in reliance upon and in conformity with such information. The
Company promptly will reimburse ICG and Acquisition Sub and each such officer,
director, employee, agent and controlling Person for any legal or any other
expenses reasonably incurred by any of them in connection with investigating
or defending any such Losses (or action in respect thereof).
(iii) For purposes of this Section 7.2, (A) "Indemnifying Party" means the
Person having an obligation hereunder to indemnify any other Person pursuant
to this Section 7.2, (B) "Indemnified Party" means the Person having the right
to be indemnified pursuant to this Section 7.2 and (C) any information
concerning the Company that is included in any SEC Filing that is provided to
the Company or its counsel for review within a reasonable period before filing
or use thereof and to which the Company has not provided written notice of
objection to ICG will be deemed to have been provided by the Company for
inclusion in such SEC Filing. Whenever any claim for indemnification arises
under this Section 7.2, the Indemnified Party will promptly notify the
Indemnifying Party in writing of such claim and, when known, the facts
constituting the basis for such claim (in reasonable detail). Failure by the
Indemnified Party so to notify the Indemnifying Party will not relieve the
Indemnifying Party of any liability hereunder except to the extent that such
failure materially prejudices the Indemnifying Party.
(iv) After such notice, if the Indemnifying Party undertakes to defend any
such claim, then the Indemnifying Party will be entitled, if it so elects, to
take control of the defense and investigation with respect to
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such claim and to employ and engage attorneys of its own choice to handle and
defend such claim, at the Indemnifying Party's cost, risk and expense, upon
notice to the Indemnified Party of such election, which notice acknowledges
the Indemnifying Party's obligation to provide indemnification hereunder. The
Indemnifying Party will not settle any third-party claim that is the subject
of indemnification without the written consent of the Indemnified Party, which
consent will not be unreasonably withheld; provided however, that the
Indemnifying Party may settle a claim without the Indemnified Party's consent
if the settlement (A) makes no admission or acknowledgment of liability or
culpability with respect to the Indemnified Party, (B) includes a complete
release of the Indemnified Party and (C) does not require the Indemnified
Party to make any payment or forego or take any action. The Indemnified Party
will cooperate in all reasonable respects with the Indemnifying Party and its
attorneys in the investigation, trial and defense of any lawsuit or action
with respect to such claim and any appeal arising therefrom (including the
filing in the Indemnified Party's name of appropriate cross claims and
counterclaims) and the Indemnifying Party will reimburse the Indemnified Party
for all reasonable direct out-of-pocket expenses incurred by the Indemnified
Party in connection with such cooperation. The Indemnified Party may, at its
own expense, participate in any investigation, trial and defense of such
lawsuit or action controlled by the Indemnifying Party and any appeal arising
therefrom. If, after receipt of a claim notice pursuant to Section
7.2(h)(iii), the Indemnifying Party does not undertake to defend any such
claim, the Indemnified Party may, but will have no obligation to, contest any
lawsuit or action with respect to such claim and the Indemnifying Party will
be bound by the result obtained with respect thereto by the Indemnified Party
(including the settlement thereof without the consent of the Indemnifying
Party). If there are one or more defenses available to the Indemnified Party
that conflict with, or are additional to, those available to the Indemnifying
Party, the Indemnified Party will have the right, at the expense of the
Indemnifying Party, to participate in the defense of the lawsuit or action;
provided however, that the Indemnified Party may not settle such lawsuit or
action without the consent of the Indemnifying Party, which consent will not
be unreasonably withheld.
(v) If the indemnification provided for in this Section 7.2(h) is for any
reason unavailable to the Indemnified Party in respect of any Losses (or
action in respect thereof) then the Indemnifying Party will, in lieu of
indemnifying the Indemnified Party, contribute to the amount paid or payable
by the Indemnified Party as a result of such Losses (or action in respect
thereof), in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Party on the one hand and the Indemnified Party on the
other with respect to the statement or omission that resulted in such Losses
(or action in respect thereof) as well as any other relevant equitable
considerations. Relative fault with respect to an untrue or alleged untrue
statement or omission of a material fact will be determined by reference to
whether the untrue or alleged untrue statement or omission of a material fact
related to information supplied by the Indemnifying Party on the one hand or
the Indemnified Party on the other, the intent of the parties and their
relative Knowledge, access to information and opportunity to correct or
prevent such statement or omission. The amount paid or payable by the
Indemnified Party as a result of the Losses (or action in respect thereof)
referred to above will be deemed to include any legal or other expenses
reasonably incurred by the Indemnified Party in connection with investigating,
trying or defending any such action or claim. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
Section 7.3 Meetings of Stockholders. Each of the Company and ICG will take
all action necessary, in accordance with the DGCL, the rules and regulations
of the National Association of Securities Dealers, Inc. ("NASD") and the
certificate of incorporation and bylaws of the Company or ICG, as applicable,
to duly call, give notice of, convene and hold a meeting of its stockholders
as promptly as practicable, to consider and vote upon the adoption and
approval of this Agreement (as a plan of merger under Section 251 of the
DGCL), the Merger and the other transactions contemplated by this Agreement
(each, individually, the "Meeting"), to the extent such approval is required
by the DGCL, the NASD or the certificate of incorporation of the Company or
ICG, as applicable. Each of the Company and ICG will use its best efforts to
hold such meetings at the same date and time.
Section 7.4 Compliance with the Securities Act. Prior to the Closing Date,
the Company will cause to be delivered to ICG a letter from the Company,
identifying all Persons who are, in its opinion, as of the date of
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this Agreement, "affiliates" of the Company as that term is used in paragraphs
(c) and (d) of Rule 145 under the Securities Act. The Company shall use its
reasonable best efforts to cause each such Person to deliver to ICG not later
than October 20, 1997, a written agreement substantially in the form of
Exhibit A. The Company will, as of the date of the Meeting of its
stockholders, identify other Persons who at that time are affiliates, and use
its reasonable best efforts to cause each such Person to deliver to ICG on a
prompt basis such a written agreement. ICG may cause the ICG Certificates
evidencing shares of ICG Common Stock issued to such Persons to bear a legend
referring to the applicability of paragraphs (c) and (d) of Rule 145 under the
Securities Act.
Section 7.5 Reasonable Best Efforts. Without limiting the termination and
other rights of the parties under this Agreement (and subject to the parties'
rights to take certain actions pursuant to Section 6.1(h), Section 6.1(i) and
Section 6.2(d) consistent with the fiduciary duties of their respective Boards
of Directors) each of the parties to this Agreement will use its commercially
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable
under applicable Legal Requirements to consummate and make effective the
transactions contemplated by this Agreement in the most expeditious manner
practicable, including the satisfaction of all conditions to the Merger.
Section 7.6 Confidentiality and Public Announcements. Each party to this
Agreement agrees that it will treat this Agreement and all negotiations and
communications between them relating to this Agreement, the Merger or
otherwise, and all information disclosed to a party by the other party, as
confidential. No party to this Agreement will make any public announcements or
otherwise communicate with any news media with respect to this Agreement or
any of the transactions contemplated by this Agreement without prior approval
of the other party, which approval will not unreasonably be withheld, as to
the timing and contents of any such announcement as may be reasonable under
the circumstances; provided however, that nothing contained herein will
prevent any party from promptly making all filings with Governmental Entities
that may, in its reasonable judgment, be required or advisable in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated by this Agreement so long as such party gives timely
notice to the other parties of the anticipated disclosure and cooperates with
the other party in designing reasonable procedural and other safeguards to
preserve, to the maximum extent possible, the confidentiality of all
information furnished by the other party pursuant to this Agreement.
Section 7.7 Notification. In the event of, or after obtaining Knowledge of
the occurrence or threatened occurrence of, any fact or circumstance that
would cause or constitute a breach or violation of any of its representations,
warranties, covenants or other agreements set forth herein, each party to this
Agreement promptly will give notice thereof to the other party and will use
its best efforts to prevent or remedy such breach.
Section 7.8 HSR Act Filings. ICG and the Company each will make or cause to
be made an appropriate filing of a Notification and Report Form pursuant to
the HSR Act no later than 15 Business Days after the date of this Agreement.
Each such filing will request early termination of the waiting period imposed
by the HSR Act. The Company and ICG each will use its reasonable best efforts
to respond or cause a response to be made as promptly as reasonably
practicable to any inquiries received from the Federal Trade Commission (the
"FTC") and the Antitrust Division of the Department of Justice (the "Antitrust
Division") for additional information or documentation and to respond as
promptly as reasonably practicable to all inquiries and requests received from
any other Governmental Entity in connection with antitrust matters; provided
however, that nothing contained herein will be deemed to preclude either the
Company or ICG from negotiating reasonably with any Governmental Entity
regarding the scope and content of any such requested information or
documentation. The Company and ICG each will use their respective reasonable
best efforts to overcome any objections that may be raised by the FTC, the
Antitrust Division or any other Governmental Entity having jurisdiction over
antitrust matters. Notwithstanding the foregoing, neither ICG nor the Company
will be required to make any significant change in the operations or
activities of the business (or any material assets employed therein) of ICG or
any of its Affiliates, or of the Company or any of its Affiliates, as the case
may be, if ICG or the Company, as the case may be, determines in good faith
that such change would be materially adverse to the operations or activities
of the business (or any material assets employed therein) of ICG or any of its
Affiliates or the Company or any of its Affiliates, as the case may be.
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Section 7.9 Indemnification of Executives.
(a) Indemnification. ICG will cause the Surviving Corporation to, and,
should the Surviving Corporation fail or be unable to do so, ICG shall,
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date of this Agreement or who becomes prior to the Effective
Time, an officer or director of the Company (each, an "Executive"), against
all losses, expenses, damages, liabilities, costs, judgments, and amounts paid
in settlement in connection with any claim, action, suit, proceeding, or
investigation based on or arising out of, in whole or in part, any actions or
omissions of such Executive as an officer or director of the Company on or
prior to the Effective Time, including actions or omissions relating to any of
the transactions contemplated by this Agreement, to the fullest extent
permitted under the DGCL, the certificate of incorporation and bylaws of the
Company and the Indemnification Agreements, a list of which has been provided
to ICG. ICG will cause the Surviving Corporation to pay expenses in advance of
the final disposition of any such claim, action, suit, proceeding, or
investigation to each Executive to the fullest extent permitted by applicable
Legal Requirements upon receipt of any undertaking required or contemplated by
applicable Legal Requirements. Without limiting the foregoing, in any case in
which approval of or a determination by the Surviving Corporation is required
to effectuate any indemnification, (i) the Executives will conclusively be
deemed to have met the applicable standards for indemnification with respect
to any actions or omissions of such Executives as an officer or director of
the Company on or prior to the Effective Time relating to any of the
transactions contemplated by this Agreement and (ii) ICG shall cause the
Surviving Corporation to direct, at the election of any Executive, that the
determination of any such approval shall be made by independent counsel
selected by the Executive and reasonably acceptable to ICG. If any such claim,
action, suit, proceeding, or investigation is brought against any Executive
(whether arising before or after the Effective Time), (i) the Executive may
retain counsel satisfactory to him or her that is reasonably acceptable, and
(ii) ICG will pay or will cause the Surviving Corporation to pay all
reasonable fees and expenses of such counsel for the Executive, as such fees
and expenses are incurred, upon receipt of a written undertaking by the
Executive that the Executive will repay the amounts so paid if it ultimately
is determined in a final non-appealable judgment by a court of competent
jurisdiction that he is not entitled to be indemnified by the Surviving
Corporation as authorized by the DGCL. Neither ICG nor the Surviving
Corporation shall have any obligation hereunder to any Executive when and if a
court of competent jurisdiction shall ultimately determine in a final non-
appealable judgment that such Executive is not entitled to indemnification
hereunder.
(b) The Surviving Corporation shall maintain in effect for a period of one
year after the Effective Time the policy of officers' and directors' liability
insurance maintained by the Company on the date of this Agreement, with
coverage in amount and scope at least as favorable as the Company's existing
directors' and officers' liability insurance coverage; provided that such
policy shall not be required to be maintained if equivalent coverage is
provided to such Persons under another policy of officers' and directors'
liability insurance maintained by ICG or any of its Affiliates; and provided
further that in satisfying the obligations under this provision, the Surviving
Corporation shall not be obligated to pay annual premiums in excess of 200% of
the amount per annum paid by the Company in its last full fiscal year. The
amount per annum of premiums paid by the Company in its last full fiscal year
equaled $426,500.
(c) Successors. If ICG or the Surviving Corporation or any of its successors
or assigns (i) consolidates with or merges into any other Person and will not
be the continuing or surviving Person of such consolidation or merger or (ii)
transfers all or substantially all of its properties and assets to any Person,
then and in each such case, proper provisions will be made so that the
successors and assigns of ICG or the Surviving Corporation assume the
obligations set forth in this Section 7.9.
Section 7.10 Employee Benefits. For a period of at least one year after the
Effective Time, ICG will cause the Surviving Corporation to make generally
available to the employees of the Company employee benefits, including
severance benefits and accrued vacation time, which are no less favorable than
those currently afforded to the employees of the Company. On the Effective
Date, the Company's employee stock purchase plan shall be terminated and any
cash in participants' accounts will be refunded to them.
A-26
<PAGE>
ARTICLE VIII
Conditions Precedent
Section 8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger will be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) This Agreement, the Merger and the transactions contemplated by this
Agreement shall have been duly approved, to the extent required by
applicable law or rule by (i) the holders of the outstanding Company Stock
entitled to vote, (ii) the holders of the outstanding ICG Common Stock
entitled to vote, and (iii) ICG as the sole stockholder of Acquisition Sub.
(b) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been earlier terminated.
(c) The Registration Statement on Form S-4 that includes the Joint Proxy
Statement/Prospectus shall have become effective in accordance with the
provisions of the Securities Act and any necessary state securities law
approvals shall have been obtained and no stop orders with respect thereto
shall have been issued by the SEC and remain in effect.
(d) No Governmental Entity shall have enacted, issued, promulgated,
enforced or entered any Legal Requirement that remains in effect and has
the effect of making the transactions contemplated by this Agreement
illegal or otherwise prohibiting the transactions contemplated by this
Agreement, or that questions the validity or the legality of the
transactions contemplated by this Agreement and that could reasonably be
expected to materially and adversely affect the value of the business of
the Company, it being agreed that each party will use its reasonable best
efforts to have any such injunction lifted. All material consents of
Governmental Entities required to be obtained with respect to the Merger
and the other transactions contemplated by this Agreement shall have been
obtained.
(e) As of the Effective Time, the shares of ICG Common Stock issued in
connection with the Merger will be quoted on NASDAQ, subject to
satisfaction, in each case, of applicable NASDAQ requirements upon official
notice of issuance.
Section 8.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger will be subject to
the fulfillment at or prior to the Effective Time of the additional following
conditions:
(a) The representations and warranties of ICG contained in this Agreement
shall be true and correct in all material respects as of the Effective
Time, with the same force and effect as if made as of the Effective Time,
except (i) for changes contemplated by this Agreement, (ii) for those
representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date), and
(iii) in all such cases, for such breaches or inaccuracies of such
representations and warranties as do not have a Material Adverse Effect on
ICG, and the Company shall have received a certificate of ICG to such
effect signed by the Chief Executive Officer of ICG. For purposes of
determining whether there has been a failure to satisfy the condition set
forth in this Section 8.2(a), there shall not be considered any change in
the stock price of capital stock of ICG after the date of this Agreement.
(b) ICG shall have performed or complied in all material respects with
all material agreements and covenants required by this Agreement to be
performed or complied with by it prior to the Effective Time, and the
Company shall have received a certificate of ICG to such effect signed by
the Chief Executive Officer of ICG.
(c) David W. Garrison shall have been appointed to the Board of Directors
of ICG effective as of the Effective Time.
(d) The opinion of BT Alex. Brown referenced in Section 5.4 shall not
have been withdrawn.
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<PAGE>
(e) The Company shall have received a written opinion of Pillsbury
Madison & Sutro LLP, or other evidence, in form and substance reasonably
satisfactory to the Company, to the effect that the Merger will constitute
a reorganization within the meaning of Section 368 of the Code. In
rendering such opinion, counsel may rely upon representations of the
parties contained herein and in certificates of officers of the Company and
others.
Section 8.3 Conditions to Obligations of ICG and Acquisition Sub to Effect
the Merger. The obligations of ICG and Acquisition Sub to effect the Merger
will be subject to the fulfillment at or prior to the Effective Time of the
additional following conditions:
(a) The representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects as of the
Effective Time, with the same force and effect as if made as of the
Effective Time, except (i) for changes contemplated by this Agreement, (ii)
for those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such date), and
(iii) in all such cases, for such breaches or inaccuracies of such
representations and warranties as do not have a Material Adverse Effect on
the Company, and ICG shall have received a certificate of the Company to
such effect signed by the Chief Executive Officer of the Company. For
purposes of determining whether there has been a failure to satisfy the
condition set forth in this Section 8.3(a), there shall not be considered
any change in the stock price or capital stock of the Company after the
date of this Agreement.
(b) The Company shall have performed or complied in all material respects
with all material agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time, and ICG
shall have received a certificate of the Company to such effect signed by
the Chief Executive Officer of the Company.
(c) The opinion of Gleacher NatWest, Inc. referenced in Section 4.4 shall
not have been withdrawn.
(d) Prior to the Effective Time, the Company shall have disposed of all
of its interest in Internetcom do Brazil, S.A. or, alternatively, shall
have acquired, and holds as of the Effective Time, more than 51 percent of
the equity interests of such company.
ARTICLE IX
Termination, Amendment and Waiver
Section 9.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval by the stockholders of
the Company or ICG:
(a) by mutual written consent of the Board of Directors of ICG and the
Board of Directors of the Company;
(b) by either ICG or the Company (i) if at the Meeting of its
stockholders (including any postponement or adjournment thereof), the
Merger is not approved and adopted by the affirmative vote specified
herein, (ii) after March 1, 1998 or (iii) if its independent accountants
advise it in writing that the Merger will not qualify for pooling-of-
interests accounting treatment under GAAP;
(c) by the Company, if it receives notice from ICG of the determination
of the Board of Directors of ICG as provided in Section 6.2(d);
(d) by ICG, if it receives notice from the Company of the determination
of the Board of Directors of the Company as provided in Section 6.1(i);
(e) by ICG, if any Person (other than ICG and any of its Affiliates)
shall have acquired before the Effective Time or the termination of this
Agreement 50 percent or more of the outstanding Company Stock, unless such
Person shall have delivered to ICG within two Business Days of such
acquisition definitive written confirmation to the effect that such Person
will vote in favor of the Merger at the Meeting and take no action to
prevent or delay the Merger.
A-28
<PAGE>
Section 9.2 Remedies.
(a) In the event of the termination of this Agreement or breach of any
provision of this Agreement by either ICG or the Company, ICG and the Company
shall be entitled to all remedies available at law, provided that, subject to
the specific performance remedy in the succeeding sentence, the remedies
specified in Section 9.2(b) and Section 9.2(c) shall be the sole remedies
allowable to ICG or the Company, as the case may be, as a result of the events
specified therein. Notwithstanding anything to the contrary in this Agreement,
in the event of a breach of any provision of this Agreement prior to the
termination of this Agreement, the non-breaching party shall be entitled to
all available equitable remedies.
(b) Subject to Section 9.2(d), if (i)(w) ICG receives notice from the
Company of the determination of the Board of Directors of the Company as
provided in Section 6.1(i), (x) the Board of Directors of the Company fails to
recommend to the stockholders of the Company the approval of the Merger prior
to March 2, 1998, or withdraws such recommendation, (y) the Merger is not
consummated as a direct result of the failure of the Company to obtain
stockholder approval as provided in Section 8.1(a)(i) or (z) the condition set
forth in Section 8.2(d) fails to be satisfied, and the giving of such notice
or such failure or withdrawal is not the result of the failure of ICG to
satisfy the conditions set forth in Section 8.2(a) or Section 8.2(b), (ii) any
Person (other than ICG and any of its Affiliates) shall have acquired before
the Effective Time or the termination of this Agreement 50 percent or more
outstanding Company Stock and such Person fails to timely deliver the written
confirmation to ICG as provided in Section 9.1(e), or (iii) if the Company
fails to satisfy the conditions set forth in either Section 8.3(a) or Section
8.3(b) and in the case of Section 8.3(b) such failure prevented the
consummation of the Merger prior to March 2, 1998, the Company will promptly
pay to ICG by wire transfer, in immediately available funds, the Termination
Fee.
(c) Subject to Section 9.2(d), if (i)(w) the Company receives notice from
ICG of the determination of the Board of Directors of ICG as provided in
Section 6.2(d), (x) the Board of Directors of ICG fails to recommend to the
stockholders of ICG the approval of the Merger prior to March 2, 1998, or
withdraws such recommendation, (y) if the Merger is not consummated as a
direct result of the failure of ICG to obtain stockholder approval as provided
in Section 8.1(a)(ii) or (z) the condition set forth in Section 8.3(c) fails
to be satisfied, and the giving of such notice or such failure or withdrawal
is not the result of the failure of the Company to satisfy the conditions set
forth in Section 8.3(a) or Section 8.3(b), or (ii) if ICG fails to satisfy the
conditions set forth in either Section 8.2(a) or Section 8.2(b) and in the
case of Section 8.2(b) such failure prevented the consummation of the Merger
prior to March 2, 1998, ICG shall promptly pay to the Company by wire
transfer, in immediately available funds, the Termination Fee.
(d) Notwithstanding anything to the contrary herein, no party shall have any
liability under the Agreement, including Section 9.2(a), Section 9.2(b) or
Section 9.2(c), in the event the Agreement is terminated or terminable as a
consequence of the nonfulfillment of any of the conditions set forth in
Section 8.1(b), Section 8.1(c), Section 8.1(d), Section 8.1(e), Section 8.2(c)
or Section 8.2(e), unless such nonfulfillment is caused by that party's
material breach of any of its covenants or obligations under this Agreement.
(e) If the Company or ICG terminates the Agreement as a consequence of any
failure to satisfy the conditions set forth in Section 8.2(a) or Section
8.3(a), for purposes of determining whether payment of the Termination Fee
under Section 9.2(b) or Section 9.2(c) is required, the party so terminating
the Agreement on that basis shall bear the burden of proof of demonstrating by
clear and convincing evidence that such failure occurred and in so doing may
not introduce into evidence, nor may a court consider in its deliberation, any
change in the stock price of the capital stock of either party whether or not
such change is in conjunction with or otherwise relates to the event giving
rise to the breach or otherwise.
Section 9.3 Amendment. This Agreement may be amended by ICG and the Company
by or pursuant to action taken by their respective Boards of Directors at any
time before or after approval of this Agreement by the stockholders of the
Company and ICG and prior to the Effective Time, but, after either such
approval, no amendment will be made that changes the Exchange Ratio as
provided in Section 3.1 or changes, in any way
A-29
<PAGE>
adverse to such stockholders, the terms of the ICG Common Stock or that in any
other way materially adversely affects the rights of such stockholders,
without the further approval of such stockholders. This Agreement may not be
amended except by an instrument in writing signed on behalf of ICG and the
Company.
Section 9.4 Waiver. At any time prior to the Effective Time, subject to
Section 9.3, ICG and the Company, by or pursuant to action taken by their
respective Boards of Directors, may (i) extend the time for performance of any
of the obligations or other acts of the other party to this Agreement, (ii)
waive any inaccuracies in the representations and warranties set forth in this
Agreement or in any documents delivered pursuant to this Agreement and (iii)
waive compliance with any of the agreements or conditions set forth in this
Agreement. Any agreement on the part of a party to this Agreement to any such
extension or waiver will be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE X
General Provisions; Definitions
Section 10.1 Non-Survival of Representations, Warranties and Agreements. No
representations and warranties contained in this Agreement will survive beyond
the Closing Date. This Section 10.1 will not limit any covenant or agreement
of the parties to this Agreement that by its terms requires performance after
the Closing Date.
Section 10.2 Notices. All notices or other communications under this
Agreement will be in writing and will be given (and will be deemed to have
been duly given upon receipt) by delivery in person, by cable, telegram, telex
or other standard form of telecommunications, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to the Company: NETCOM On-Line Communication Services, Inc.
Two North Second Street, Plaza A
San Jose, California 95113
Attention: David W. Garrison,
Chief Executive Officer and
Chairman of the Board
Telecopy No.: 408-881-3430
With a copy to: Pillsbury, Madison & Sutro LLP
2700 Sand Hill Road
Menlo Park, California 94028
Attention: Jorge A. Del Calvo
Telecopy No.: 415-233-4545
If to ICG: ICG Communications, Inc.
9605 East Maroon Circle
Englewood, Colorado 80112
Attention: J. Shelby Bryan,
President and Chief Executive Officer and
H. Don Teague, General Counsel
Telecopy No.: 303-575-6278
With a copy to: Sherman & Howard L.L.C.
633 Seventeenth Street
Suite 3000
Denver, Colorado 80202
Attention: Robert Mintz, Esq.
Telecopy No.: 303-298-0940
or to such other addresses as any party may have furnished to the other
parties in writing in accordance with this Section 10.2.
A-30
<PAGE>
Section 10.3 Fees and Expenses. Except as provided in Section 9.2, whether
or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement will be paid by the party incurring such expenses.
Section 10.4 Specific Performance. The parties to this Agreement agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that, in accordance with Section
9.2(a), the parties will be entitled to enforce specifically the terms and
provisions of this Agreement in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity, and no party will raise any defense to the
institution of such equitable relief.
Section 10.5 Third Party Beneficiaries. The parties to this Agreement agree
that the Company's stockholders, officers, directors and employees are
intended third party beneficiaries of the terms of this Agreement, to the
extent such terms refer expressly to such Persons, with full rights hereunder
as if each of them were a party to this Agreement.
Section 10.6 Entire Agreement; Miscellaneous. This Agreement will be of no
force or effect until executed and delivered by all of the parties to this
Agreement. This Agreement (including the documents and instruments referred to
in this Agreement) when executed and delivered, constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
written and oral, among the parties, or any of them, with respect to the
subject matter of this Agreement. This Agreement may be executed in two or
more counterparts which together will constitute a single agreement. This
Agreement may be delivered by facsimile. Any certificate delivered pursuant to
this Agreement will be made without personal liability on the part of the
officer or employee of the Person giving such certificate.
Section 10.7 Governing Law and Venue; Waiver of Jury Trial.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE UNDER, AND IN ALL RESPECTS
SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH, THE
LAW OF THE STATE OF DELAWARE. The parties hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the Federal courts of
the United States of America located in the State of Delaware solely in
respect of the interpretation and enforcement of the provisions of this
Agreement and of the documents referred to in this Agreement, and in respect
of the transactions contemplated hereby, and hereby waive, and agree not to
assert, as a defense in any action, suit or proceeding for the interpretation
or enforcement hereof or of any such document, that it is not subject thereto
or that such action, suit or proceeding may not be brought or is not
maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any such document may not be enforced in or by such
courts, and the parties hereto irrevocably agree that all claims with respect
to such action or proceeding shall be heard and determined in such a Delaware
State or Federal court. The parties hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of
such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 10.2 or
in such other manner as may be permitted by law shall be valid and sufficient
service thereof.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES,
AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH
PARTY
A-31
<PAGE>
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 10.7.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by
their respective officers thereunder duly authorized all as of the date first
written above.
ICG Communications, Inc.
By: /s/ J. Shelby Bryan
---------------------------------
Name: J. Shelby Bryan
Title: President and Chief
Executive Officer
Netcom On-Line Communication
Services, Inc.
By: /s/ David W. Garrison
----------------------------------
Name: David W. Garrison
Title: Chief Executive Officer and
Chairman of the Board
A-32
<PAGE>
EXHIBIT A
TO AGREEMENT AND
PLAN OF MERGER
FORM OF AFFILIATE AGREEMENT
Gentlemen:
The undersigned is a holder of shares of Common Stock, par value $0.01 per
share ("Common Stock"), of NETCOM On-Line Communication Services, Inc., a
Delaware corporation ("NETCOM"), and will be entitled to receive in connection
with the merger (the "Merger") of a wholly-owned Delaware subsidiary of ICG
Communications, Inc., a Delaware corporation ("ICG"), with and into NETCOM,
shares of Common Stock, par value $0.01 per share, of ICG (the "Securities").
The undersigned acknowledges that the undersigned may be deemed an
"affiliate" of NETCOM within the meaning of Rule 145 ("Rule 145") promulgated
under the Securities Act of 1933, as amended (the "Act"), and/or as such term
is used in and for purposes of Accounting Series Releases 130 and 135, as
amended, of the Securities and Exchange Commission (the "Commission"),
although nothing contained herein shall be construed as an admission of such
status.
If in fact the undersigned were an affiliate of NETCOM under the Act, the
undersigned's ability to sell, assign or transfer any Securities received by
the undersigned in exchange for any shares of NETCOM pursuant to the Merger
may be restricted unless such transaction is registered under the Act or an
exemption from such registration is available. The undersigned understands
that such exemptions are limited and the undersigned has obtained advice of
counsel as to the nature and conditions of such exemptions, including
instruction with respect to the applicability to the sale of such Securities
of Rules 144 and 145(d) promulgated under the Act.
The undersigned hereby represents to and covenants to ICG that the
undersigned will not sell, assign or transfer any Securities received by the
undersigned in exchange for shares of Common Stock pursuant to the Merger
except (i) pursuant to an effective registration statement under the Act, (ii)
by a transaction in conformity with the volume and other limitations of Rule
145 or Rule 144 under the Act ("Rule 144"), to the extent applicable, or any
other applicable rules promulgated by the Commission or (iii) in a transaction
which, in the opinion of independent counsel reasonably satisfactory to ICG,
or as described in a "no-action" or interpretative letter from the Staff of
the Commission, is not required to be registered under the Act.
In the event of a sale of Securities pursuant to Rule 145, or, if
applicable, Rule 144, the undersigned will supply ICG with evidence of
compliance with such Rule, in the form of customary seller's and broker's Rule
145 or, if applicable, Rule 144, representation letters or as ICG may
otherwise reasonably request. The undersigned understands that ICG may
instruct its transfer agent to withhold the transfer of any Securities
disposed of by the undersigned in a manner inconsistent with this letter.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing Securities received by the undersigned in
the Merger or held by a transferee thereof, which legends will be removed (i)
by delivery of substitute certificates upon receipt of an opinion in form and
substance reasonably satisfactory to ICG to the effect that such legends are
no longer required for the purposes of the Act and the rules and regulations
of the Commission promulgated thereunder or (ii) in the event of a sale of the
Securities which has been registered under the Act.
The undersigned further represents to, and covenants with NETCOM and ICG
that the undersigned will not, during the period beginning on the date that
ICG gives written notice that consummation of the Merger is reasonably
expected to occur within sixty days of the date of such notice, sell, transfer
or otherwise dispose of, or reduce any risk relative to, the Securities
received by the undersigned in the Merger or any other shares of the capital
stock of ICG until after such time as results covering at least 30 days of
operations of ICG (including the
EXA-1
<PAGE>
combined operations of NETCOM) have been published by ICG in the form of a
quarterly earnings report, or an annual report on Form 10-K, if such 30-day
period includes the end of ICG's fiscal year, an effective registration
statement filed with the Commission, a report to the Commission on Form 10-K,
10-Q, or 8-K, or any other public filing or announcement which includes such
results of operations.
The undersigned acknowledges that it has carefully reviewed this letter and
understands the requirements hereof and the limitations imposed upon the
distribution, sale, transfer or other disposition of Securities.
Very truly yours,
_____________________________________
[Name]
[Address]
Dated: October , 1997
As an inducement to the above individual to deliver this letter, ICG agrees
that for so long and to the extent necessary to permit such individual to sell
the Securities pursuant to Rule 145 and, to the extent applicable, Rule 144
under the Act, ICG shall use all reasonable efforts to file, on a timely
basis, all reports and data required to be filed by it with the Commission
pursuant to Section 13 of the Securities and Exchange Act of 1934.
Very truly yours,
ICG Communications, Inc.
By: _________________________________
Name:
Title:
EXA-2
<PAGE>
ANNEX A-2
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is dated
December 15, 1997 and is entered into by and among ICG Communications, Inc., a
Delaware corporation ("ICG"), ICG Acquisition, Inc., a Delaware corporation
("Acquisition Sub"), and NETCOM On-Line Communication Services, Inc., a
Delaware corporation (the "Company").
recitals
A. ICG and the Company entered into an Agreement and Plan of Merger dated
October 12, 1997 (the "Agreement") pursuant to which Acquisition Sub will
merge with and into the Company.
B. Capitalized terms used but not defined in this Amendment shall have the
meanings ascribed thereto in the Agreement.
C. ICG and the Company desire to amend the Agreement to (i) include
Acquisition Sub as a party to the Agreement, (ii) modify the conversion of the
common stock, $.01 par value, of Acquisition Sub and (iii) provide for the
Surviving Corporation to assume certain obligations of ICG under the
Agreement.
D. The Board of Directors of each of ICG, Acquisition Sub and the Company
has determined that this Amendment is in the best interests of their
respective corporations and stockholders.
NOW, THEREFORE, in consideration of the foregoing premises, the parties to
this Amendment agree as follows:
1. The Agreement is hereby amended so that each obligation of ICG under
the Agreement, financial or otherwise, which is to be fulfilled from and
after the Effective Time (except those obligations under Sections 3.7, 7.9
(a) and 7.9 (c) of the Agreement) shall be the obligation of the Surviving
Corporation, and ICG shall hereby be released from each such obligation
thereunder. ICG agrees that it shall, in its capacity as the sole
stockholder, directly or indirectly, of the Surviving Corporation, use its
best efforts to cause the Surviving Corporation to satisfy all such
obligations. Nothing contained in this Amendment shall affect the
obligations of ICG prior to the Effective Time under the Agreement,
including without limitation, its obligations under Section 9.2(c) of the
Agreement.
2. Section 3.1(c) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"(c) All of the shares of common stock, par value $.01 per share, of
Acquisition Sub issued and outstanding immediately prior to the
Effective Time (except shares subject to Section 3.1(d)) will be
converted into and will thereafter evidence and become, a total of ten
shares of common stock, par value $.01 per share, of the Surviving
Corporation."
3. Except to the extent specifically amended herein, the terms and
conditions of the Agreement shall remain in full force and effect.
4. This Amendment sets forth the entire agreement among the parties
hereto as to the subject matter herein, and may not be amended or modified
except in accordance with Section 9.3 of the Agreement.
A-2-1
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be signed by
their respective officers thereunder duly authorized all as of the date first
written above.
ICG Communications, Inc.
/s/ J. Shelby Bryan
By: ____________________________________
Name: J. Shelby Bryan
Title: President and Chief Executive
Officer
ICG Acquisition, Inc.
/s/ H. Don Teague
By: ____________________________________
Name: H. Don Teague
Title: Executive Vice President
Netcom On-Line Communication Services,
Inc.
/s/ David W. Garrison
By: ____________________________________
Name: David W. Garrison
Title: Chief Executive Officer and
Chairman of the Board
A-2-2
<PAGE>
ANNEX B
OPINION OF BT ALEX. BROWN INCORPORATED
October 12, 1997
[LOGO OF BANKERS TRUST APPEARS HERE]
Board of Directors
NETCOM On-Line Communication Services, Inc.
Two North Second Street, Plaza A
San Jose, CA 95113
Dear Board of Directors:
We understand that NETCOM On-Line Communication Services, Inc ("NETCOM") and
ICG Communications, Inc. ("ICG") propose to enter into an Agreement and Plan
of Merger dated as of October 12, 1997 (the "Agreement") pursuant to which a
wholly-owned subsidiary of ICG will be merged with NETCOM (the "Merger"). The
Agreement provides, among other things, that each share of NETCOM common stock
issued and outstanding prior to the effective time of the Merger will be
converted into .8628 shares of common stock of ICG, subject to certain
adjustments as defined in the Agreement (the "Exchange Ratio"). We have
assumed, with your consent, that the Merger will qualify for pooling-of-
interests accounting treatment and as a tax-free transaction for federal
income tax purposes. The terms and conditions of the Merger are more fully set
forth in the Agreement. You have requested our opinion as to whether the
Exchange Ratio is fair, from a financial point of view, to NETCOM's
stockholders.
BT Alex. Brown Incorporated ("BT Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and
other purposes. We have acted as financial advisor to the Board of Directors
of NETCOM in connection with the transaction described above and will receive
a fee for our services, a portion of which is contingent upon the consummation
of the Merger and a portion of which becomes payable upon the delivery of this
opinion. We have also acted as the lead underwriter of two public offerings of
the common stock of NETCOM. BT Alex. Brown maintains a market in the common
stock of NETCOM and regularly publishes research reports regarding the
Internet and communications industries and the businesses and securities of
NETCOM and other publicly-owned companies in the Internet and communications
industries. In the ordinary course of business, BT Alex. Brown may actively
trade the securities of NETCOM and ICG for our own account and the account of
our customers and, accordingly, may at any time hold a long or short position
in such securities.
In connection with this opinion, we have reviewed certain publicly available
financial information and other information concerning NETCOM and ICG and
certain internal analyses and other information furnished to us by NETCOM. We
have also held discussions with the members of the senior managements of
NETCOM and ICG regarding the businesses and prospects of their respective
companies and the joint prospects of the combined company. In addition, we
have (i) reviewed the reported prices and trading activity for the common
stock of both NETCOM and ICG, (ii) compared certain financial and stock market
information for NETCOM and ICG with similar information for certain other
companies whose securities are publicly traded, (iii) reviewed the financial
terms of certain recent business combinations which we deemed comparable in
whole or in part, (iv) reviewed the terms of the Agreement and certain related
documents, and (v) performed such other studies and analyses and considered
such other factors as we deemed appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to the information relating to the prospects of NETCOM
and ICG,
B-1
<PAGE>
Board of Directors
NETCOM On-Line Communication Services, Inc.
October 12, 1997
Page 2
we have assumed that such information reflects the best currently available
judgments and estimates of the management of NETCOM and ICG as to the likely
future financial performance of NETCOM and ICG. In addition, we have not made
nor been provided with an independent evaluation or appraisal of the assets of
NETCOM or ICG, nor have we been furnished with any such evaluations or
appraisals. In rendering this opinion, we have not been asked to consider, and
we do not address, the relative merits of the Merger as compared to any
alternative business transactions with third parties that might exist for
NETCOM or the effect of any such other transaction in which NETCOM might
engage. We are not expressing our opinion as to the value of ICG common stock
when issued pursuant to the Merger of the prices at which ICG common stock
will trade subsequent to such issuance. Our opinion is based on market,
economic and other conditions as they exist and can be evaluated as of the
date of this letter.
Our advisory services and the opinion expressed herein were prepared for the
use of the Board of Directors of NETCOM and do not constitute a recommendation
to NETCOM's stockholders as to how they should vote at the stockholders'
meeting in connection with the Merger. We hereby consent, however, to the
inclusion of this opinion as an exhibit to any proxy or registration statement
distributed in connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Exchange Ratio is fair, from a financial point of
view, to NETCOM's stockholders.
Very truly yours,
/s/ BT Alex. Brown Incorporated
B-2
<PAGE>
[LOGO OF GLEACHER NATWEST APPEARS HERE]
ANNEX C
LOGO OPINION OF GLEACHER NATWEST INC.
October 12, 1997
Board of Directors
ICG Communications, Inc.
9605 East Maroon Circle
Englewood, Colorado 80112
Ladies and Gentlemen:
We understand that ICG Communications, Inc. ("ICG" or the "Company") is
contemplating entering into a definitive Agreement and Plan of Merger (the
"Merger Agreement") with NETCOM On-Line Communication Services, Inc.
("NETCOM") pursuant to which a new subsidiary of ICG to be formed will be
merged with and into NETCOM, with NETCOM as the surviving corporation (the
"Merger"). We further understand that in the Merger each share of NETCOM
common stock outstanding immediately prior to the effective time of the Merger
will be converted into that number of shares of ICG common stock equal to the
Exchange Ratio (as defined below), plus cash in lieu of any fractional share.
The "Exchange Ratio" shall be determined as follows: (i) if the ICG Closing
Stock Price (as defined in the Merger Agreement) is greater than or equal to
$22.125, the Exchange Ratio shall equal 0.8628, (ii) if the ICG Closing Stock
Price is greater than or equal to $19.00 but less than $22.125, the Exchange
Ratio shall equal a fraction determined by dividing $19.0625 by the ICG
Closing Stock Price, and (iii) if the ICG Closing Stock Price is less than
$19.00, the Exchange Ratio shall equal 1.0078. Furthermore, each option to
purchase a share of NETCOM common stock will be converted into an option to
purchase a number of shares of ICG common stock, and the number of shares and
the exercise price of such options will be adjusted as determined by the
Exchange Ratio.
You have asked for our opinion as to whether the Exchange Ratio is fair from a
financial point of view to ICG and its stockholders.
For the purposes of the opinion set forth herein, we have:
1.analyzed the historical publicly filed financial statements of NETCOM and
ICG;
2.discussed the past and current operations, the financial condition and the
prospects of NETCOM with the management of ICG and reviewed with the
management of ICG its due diligence of NETCOM;
3.discussed with the management of ICG certain forecasts involving NETCOM
and ICG, and certain estimates of financial synergies anticipated from the
business combination resulting from the Merger as prepared by ICG;
4.reviewed the historical market prices and reported trading volumes of ICG
Common Stock and NETCOM Common Stock;
5.compared the financial performance of NETCOM with, and reviewed the prices
and reported trading activity of the common shares of, a publicly traded
company whose operating characteristics and industry focus resemble those
of NETCOM;
6.reviewed the financial terms of selected precedent acquisitions of
companies whose operating characteristics and/or industry focus resemble
those of NETCOM;
7.performed a discounted cash flow analysis of NETCOM based upon public
estimates and the financial information provided to us as referred to
above; and
8.reviewed such other information and performed such other analyses as we
have deemed appropriate.
C-1
<PAGE>
We have assumed and relied upon, without assuming responsibility for
independent verification, the accuracy and completeness of the information
reviewed by us for purposes of this opinion. With respect to the financial
forecasts provided to us, we have assumed that they have been reasonably
prepared and reflect the best currently available estimates and judgments of
the senior management of ICG and NETCOM as to the future financial performance
of ICG and NETCOM. We have also assumed based upon the information which has
been provided to us and without assuming responsibility for independent
verification thereof that no material undisclosed or contingent liability
exists with respect to ICG or NETCOM. Our opinion is based necessarily on the
economic, market, and other conditions as in effect on, and the information
made available to us as of, the date hereof.
ICG acknowledges that the opinion and any advice or materials provided by
Gleacher NatWest in connection with its engagement hereunder is intended for
the benefit and use of the Board of Directors of ICG in considering the
transaction to which the opinion, advice or materials relate and the Company
agrees that, except for references to this opinion referred to in the Merger
Agreement and the Joint Proxy Statement / Prospectus to be prepared in
connection with the Merger, no such opinion, advice or material shall be used
for any other purpose or be reproduced, disseminated, quoted or referred to at
any time, in any manner or for any purpose, nor shall any public references to
Gleacher NatWest be made by or on behalf of the Company, in each case without
Gleacher NatWest's prior written consent.
Based upon and subject to the foregoing, we are of the opinion that as of the
date hereof the Exchange Ratio is fair from a financial point of view to ICG
and its stockholders.
Very truly yours,
GLEACHER NATWEST INC.
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ICG's Certificate of Incorporation provides that ICG will to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as
amended from time to time (the "GCL"), indemnify all persons whom it may
indemnify pursuant thereto. ICG's By-laws contain a similar provision
requiring indemnification of ICG's directors and officers to the fullest
extent authorized by the GCL. The GCL permits a corporation to indemnify its
directors and officers (among others) against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought (or
threatened to be brought) by third parties, if such directors or officers
acted in good faith and in a manner they reasonably believe to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. In a derivative action, i.e., one by or in the right of
the corporation, indemnification may be made for expenses (including
attorneys' fees) actually and reasonably incurred by directors and officers in
connection with the defense or settlement of such action if they had acted in
good faith and in a manner they reasonably believed to be in or not opposed to
the best interests of the corporation, except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged liable to the corporation unless and only to the extent
that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity of such expenses. The GCL further
provides that, to the extent any director or officer has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in this paragraph, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith. In addition,
ICG's Certificate of Incorporation contains a provision limiting the personal
liability of ICG's directors for monetary damages for certain breaches of
their fiduciary duty. ICG has indemnification insurance under which directors
and officers are insured against certain liability that may incur in their
capacity as such.
See Item 22 of this Registration Statement regarding the position of the
Securities and Exchange Commission on indemnification for liabilities arising
under the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<C> <S>
(3) Articles of Incorporation.
3.1: Certificate of Incorporation of ICG Communications, Inc.
[Incorporated by reference to Exhibit 3.1 to Registration Statement
on Form S-4, File No. 333-4226].
3.2: By-laws of ICG Communications, Inc. [Incorporated by reference to
Exhibit 3.2 to Registration Statement on Form S-4, File No. 333-
4226].
(5) Opinion regarding legality.
5.1: Opinion of Reid & Priest LLP.
(8) Opinion re tax matters.
8.1: Opinion of Pillsbury Madison & Sutro LLP
(21) Subsidiaries of the Registrant.
21.1: Subsidiaries of ICG Communications, Inc.*
(23) Consents.
23.1: Consent of KPMG Peat Marwick LLP.
23.2: Consent of Ernst & Young LLP, Independent Auditors
23.3: Consent of Reid & Priest LLP (included in Exhibit 5.1).
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 Pillsbury Madison & Sutro LLP (included in Exhibit 8.1).
(24) Power of Attorney.
24.2: Power of Attorney with respect to ICG Communications, Inc.*
</TABLE>
- - --------
* Previously filed.
II-1
<PAGE>
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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 whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request;
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective;
(3) 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 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the 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.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items
of the applicable form.
(5) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of
section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415 ((S)230.415 of this chapter), will be filed
as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes 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.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENT OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ENGLEWOOD, STATE OF
COLORADO, ON DECEMBER 15, 1997.
ICG Communications, Inc.
*
By: __________________________________
J. Shelby Bryan
President, Chief Executive Officer
and Director
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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the
____________________________________ Board of Directors
WILLIAM J. LAGGETT
* President, Chief December 15, 1997
____________________________________ Executive Officer
J. SHELBY BRYAN and Director
(Principal Executive
Officer)
/s/ James D. Grenfell Executive Vice December 15, 1997
____________________________________ President, Chief
JAMES D. GRENFELL Financial Officer
(Principal Financial
Officer)
/s/ Richard Bambach Vice President and December 15, 1997
____________________________________ Corporate Controller
RICHARD BAMBACH (Principal
Accounting Officer)
Director
____________________________________
HARRY R. HERBST
* Director December 15, 1997
____________________________________
STAN MCLELLAND
* Director December 15, 1997
____________________________________
KATHRYN PROFFITT
Director
____________________________________
LEONTIS TERYAZOS
- - --------
*By: /s/ H. Don Teague
--------------------------------
H. DON TEAGUE
(ATTORNEY-IN-FACT)
</TABLE>
II-3
<PAGE>
APPENDIX TO PROXY STATEMENT
ICG COMMUNICATIONS, INC.
SPECIAL MEETING OF STOCKHOLDERS--JANUARY 28, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of ICG COMMUNICATIONS, INC., a Delaware
corporation (the "Company"), acknowledges receipt of the Notice of Special
Meeting of Stockholders and Joint Proxy Statement-Prospectus, dated December
17, 1997, and hereby constitutes and appoints J. Shelby Bryan and James D.
Grenfell, or either of them acting singly in the absence of the other, with the
power of substitution in either of them, the proxies of the undersigned to vote
with the same force and effect as the undersigned all shares of Common Stock of
the Company held by the undersigned at the Special Meeting of Stockholders of
the Company to be held at the Inverness Hotel & Golf Club, 200 Inverness Drive
West, Englewood, Colorado 80112 on January 28, 1998, at 9:00 A.M., Local Time,
and at any adjournment or adjournments thereof, hereby revoking any proxy or
proxies heretofore given and ratifying and confirming all that said proxies may
do or cause to be done by virtue thereof with respect to the following matters:
<PAGE>
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
The undersigned hereby instructs
said proxies or their substitutes:
FOR AGAINST ABSTAIN
1. To approve the issuance (the "ICG Share Proposal")
of ICG Common Stock in connection with the Agreement
and Plan of Merger dated October 12, 1997, as
amended, among the Company, ICG Acquisition, Inc.
and NETCOM On-Line Communication Services, Inc. [ ] [ ] [ ]
2. To adjourn the Special Meeting of Stockholders to
solicit additional proxies in the event that the
number of proxies sufficient to approve the ICG Share
Proposal has not been received by the time of the
Special Meeting. [ ] [ ] [ ]
The proxy when properly executed will be voted as directed. If no direction is
indicated, the proxy will be voted FOR the ICG Share Proposal and FOR
adjournment of the Special Meeting to solicit additional votes, should such
additional solicitation be necessary.
PLEASE SIGN, DATE AND MAIL THIS PROXY IMMEDIATELY IN THE ENCLOSED ENVELOPE.
PLEASE CHECK HERE IF YOU PLAN TO ATTEND THE SPECIAL MEETING OF STOCKHOLDERS
AT 9:00 A.M. ON JANUARY 28, 1998. [ ]
Signature _______________________________ Date ________
Signature _______________________________ Date ________
Signature if held jointly
NOTE: Please sign your name exactly as it appears hereon. When signing as
attorney, executor, administrator, trustee or guardian, please give your
full title as it appears hereon. When signing as joint tenants, all
parties in the joint tenancy must sign. When a proxy is given by a
corporation, it should be signed by an authorized officer and the
corporate seal affixed. No postage is required if returned in the
enclosed envelope and mailed in the United States.
<PAGE>
APPENDIX TO PROXY STATEMENT
PROXY
NETCOM ON-LINE COMMUNICATION SERVICES, INC.
SPECIAL MEETING OF STOCKHOLDERS--JANUARY 28, 1998
The undersigned, revoking previous proxies relating to its shares of Common
Stock of NETCOM On-Line Communication Services, Inc. (the "Shares"), hereby
acknowledges receipt of the Notice of Special Meeting and Joint Proxy
Statement-Prospectus dated December 17, 1997 in connection with the Special
Meeting of Stockholders to be held at 8:00 a.m. on January 28, 1998 at the
Fairmont Hotel, 170 South Market Street, San Jose, California and hereby
appoints David W. Garrison and William Kaplan, and each of them, the attorneys
and proxies of the undersigned, each with the power of substitution, to vote
all the Shares which the undersigned is entitled to vote at said Special
Meeting, and any adjournments or postponements thereof, upon all matters that
may properly come before the Special Meeting with all the powers the
undersigned would have if personally present. Without otherwise limiting the
foregoing general authorization, the proxies are instructed to vote or act as
indicated herein.
THIS PROXY, WHICH IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WILL BE
VOTED FOR THE MATTERS DESCRIBED IN PARAGRAPHS 1 AND 2, UNLESS THE STOCKHOLDER
SPECIFIES OTHERWISE, IN WHICH CASE IT WILL BE VOTED AS SPECIFIED.
SEE REVERSE SIDE. IF YOU WISH TO VOTE IN ACCORDANCE WITH THE RECOMMENDATIONS
OF THE BOARD OF DIRECTORS, PLEASE SIGN THE PROXY. YOU NEED NOT MARK ANY BOXES.
(Continued and to be signed on reverse side)
FOLD AND DETACH HERE
<PAGE>
[X] Please mark
your votes
as indicated
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING MATTERS TO COME
BEFORE THE SPECIAL MEETING:
1. To adopt the Agreement and Plan of Merger, dated October 12, 1997, as
amended (the "Merger Agreement"), among ICG Communications, Inc., a Delaware
corporation ("ICG"), ICG Acquisition, Inc., a Delaware corporation
("Acquisition Sub") and NETCOM, providing for the merger (the "Merger") of
Acquisition Sub with and into NETCOM, and to authorize the Merger and the
other transactions contemplated by the Merger Agreement. The consummation of
the Merger will result in, among other things, the conversion of the
outstanding shares of the common stock of NETCOM into the right to receive
shares of common stock of ICG (except as provided in Section 3.1(b) of the
Merger Agreement). As a result, ICG will become the holder of all the
outstanding shares of common stock of NETCOM and the holders of shares of
common stock of NETCOM outstanding immediately prior to the Merger will
become holders of shares of common stock of ICG, all as more fully described
in the accompanying Joint Proxy Statement-Prospectus.
FOR AGAINST ABSTAIN
[_] [_] [_]
2. To adjourn the Special Meeting of Stockholders to solicit additional proxies
in the event that the number of proxies sufficient to approve the Merger
Agreement has not been received by the date of the Special Meeting of
Stockholders.
FOR AGAINST ABSTAIN
[_] [_] [_]
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO MARK,
SIGN, DATE AND PROMPTLY RETURN THIS PROXY, USING THE ENCLOSED ENVELOPE.
Signature ___________________ Date Signature _________________________ Date
Signature if held jointly
NOTE: Please sign your name exactly as it appears hereon. When signing as
attorney, executor, administrator, trustee or guardian, please give your
full title as it appears hereon. When signing as joint tenants, all
parties in the joint tenancy must sign. When a proxy is given by a
corporation, it should be signed by an authorized officer and the
corporate seal affixed. No postage is required if returned in the enclosed
envelope and mailed in the United States.
FOLD AND DETACH HERE
<PAGE>
OPINION OF REID & PRIEST LLP RE: LEGALITY
EXHIBIT 5.1
New York, New York
December 15, 1997
ICG Communications, Inc.
9605 East Maroon Circle
P.O. Box 6742
Englewood, Colorado 80155-6742
Re: ICG Communications, Inc.:
Registration Statement on Form S-4 (File No. 333-39737)
Ladies and Gentlemen:
We have acted as counsel to ICG Communications, Inc., a Delaware corporation
(the "Registrant"), in connection with the preparation and filing with the
Securities and Exchange Commission (the "Commission") of a Registration
Statement on Form S-4, File No. 333-39737 (the "Registration Statement"), with
respect to the registration under the Securities Act of 1933, as amended (the
"Act"), of up to 11,866,388 shares of Common Stock, $.01 par value per share
(the "Shares"), of the Registrant issuable in connection with the Agreement
and Plan of Merger by and among the Registrant, ICG Acquisition, Inc., a
Delaware corporation, and NETCOM On-Line Communication Services, Inc., a
Delaware corporation, as amended to date.
In connection with the proposed offering, we have examined the Certificate
of Incorporation and the By-Laws of the Registrant, resolutions of the Board
of Directors of the Registrant, and the Registration Statement. We have also
made such inquiries and have examined originals, certified copies or copies of
other instruments as we have deemed necessary or appropriate for the purpose
of this opinion. For purposes of such examination, we have assumed the
genuineness of all signatures on and the authenticity of all documents
submitted to us as originals, and the conformity to the originals of all
documents submitted to us as certified or photostatic copies.
Based upon the foregoing, we are of the opinion that the Shares covered by
the Registration Statement, when issued as provided for in the Registration
Statement, will be duly authorized, validly issued, fully paid and non-
assessable shares of Common Stock of the Registrant.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference therein to our firm under the
caption "Legal Matters." In giving the foregoing consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the Commission
promulgated thereunder.
Very truly yours,
/s/ Reid & Priest LLP
<PAGE>
OPINION OF PILLSBURY MADISON & SUTRO LLP RE: TAX
Exhibit 8.1
December 15, 1997
NETCOM On-Line Communication Services, Inc.
Two North Second Street, Plaza A
San Jose, California 95113
Ladies and Gentlemen:
With reference to the Registration Statement on Form S-4 (Registration No.
333-39737) (the "Registration Statement") filed by ICG Communications, Inc., a
Delaware corporation ("ICG"), with the Securities and Exchange Commission in
connection with the registration under the Securities Act of 1933, as amended,
of shares of ICG's common stock, par value $0.01 per share, to be issued
incident to the merger described in the Registration Statement (the "Merger")
of ICG Acquisition, Inc., a Delaware corporation wholly owned by ICG, with and
into NETCOM On-Line Communication Services, Inc., in our opinion the
discussion under the caption "The Merger--Federal Income Tax Consequences" in
the Registration Statement sets forth the material United States federal
income tax considerations generally applicable to the Merger.
We hereby consent to the filing of this opinion as Exhibit 8.1 to the
Registration Statement and to the use of our name in the Registration
Statement and in the Joint Proxy Statement-Prospectus included therein.
Very truly yours,
/s/ Pillsbury Madison & Sutro LLP
<PAGE>
CONSENT OF KPMG PEAT MARWICK LLP
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
ICG Communications, Inc.:
We consent to the use of our reports on the consolidated balance sheets of
ICG Communications, Inc. and subsidiaries as of September 30, 1995 and 1996,
and December 31, 1996, and the related consolidated statements of operations,
stockholders' equity (deficit), and cash flows for each of the years in the
three-year period ended September 30, 1996, and the three-month period ended
December 31, 1996, and the related schedule, incorporated by reference herein
and to the reference to our firm under the heading "Experts" in the Joint
Proxy Statement--Prospectus.
Our reports refer to a change in the method of accounting for long-term
telecom services contracts during the year ended September 30, 1996.
KPMG Peat Marwick LLP
Denver, Colorado
December 15, 1997
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and related Joint Proxy Statement-Prospectus
of ICG Communications, Inc. for the registration of 11,866,388 shares of its
common stock and to the incorporation by reference therein of our report dated
February 5, 1997, with respect to the consolidated financial statements of
NETCOM On-Line Communication Services, Inc. included in its Annual Report
(Form 10-KSB) for the year ended December 31, 1996, filed with the Securities
and Exchange Commission.
ERNST & YOUNG LLP
San Jose, California
December 15, 1997
