-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PPTWSSWcwA4/QKCUAVkcQAaP5PUpdhRQIfRMHcDPKsSg5XPPQyeuVGk56g4bp1oQ e5gOiDKPm9PeNHzExTlkiw== 0000786343-99-000005.txt : 19991026 0000786343-99-000005.hdr.sgml : 19991026 ACCESSION NUMBER: 0000786343-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 DATE AS OF CHANGE: 19991025 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ICG HOLDINGS CANADA CO /CO/ CENTRAL INDEX KEY: 0000786343 STANDARD INDUSTRIAL CLASSIFICATION: 4813 IRS NUMBER: 841128866 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11052 FILM NUMBER: 99732422 BUSINESS ADDRESS: STREET 1: 161 INVERNESS DRIVE WEST STREET 2: P O BOX 6742 CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3034145431 MAIL ADDRESS: STREET 1: 161 INVERNESS DRIVE STREET 2: PO BOX 6742 CITY: ENGLEWOOD STATE: CO ZIP: 80111 FORMER COMPANY: FORMER CONFORMED NAME: ICG HOLDINGS CANADA INC DATE OF NAME CHANGE: 19970225 FORMER COMPANY: FORMER CONFORMED NAME: INTERTEL COMMUNICATIONS INC DATE OF NAME CHANGE: 19930107 10-Q 1 FOR THE QUARTER ENDED JUNE 30, 1999 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Commission File Number 1-11965) ICG COMMUNICATIONS, INC. (Commission File Number 1-11052) ICG HOLDINGS (CANADA) CO. (Commission File Number 33-96540) ICG HOLDINGS, INC. (Exact names of registrants as specified in their charters) - - ------------------------------------------ ------------------------------------- Delaware 84-1342022 Nova Scotia Not Applicable Colorado 84-1158866 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) - - ------------------------------------------ ------------------------------------- 161 Inverness Drive West Not applicable Englewood, Colorado 80112 161 Inverness Drive West c/o ICG Communications, Inc. Englewood, Colorado 80112 161 Inverness Drive West Englewood, Colorado 80112 161 Inverness Drive West Not applicable Englewood, Colorado 80112 (Address of principal executive offices) (Address of U.S. agent for service) - - ------------------------------------------ ------------------------------------- Registrants' telephone numbers, including area codes: (888) 424-1144 or (303) 414-5000 Indicate by check mark whether the registrants (1) have 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 registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of registrants' outstanding common shares as of August 13, 1999 were 47,342,835, 31,931,558 and 1,918, respectively. ICG Canadian Acquisition, Inc., a wholly owned subsidiary of ICG Communications, Inc., owns all of the issued and outstanding common shares of ICG Holdings (Canada) Co. ICG Holdings (Canada) Co. owns all of the issued and outstanding shares of ICG Holdings, Inc. TABLE OF CONTENTS PART I........................................................................ 3 ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ...................... 3 Consolidated Balance Sheets as of December 31, 1998 and June 30, 1999 (unaudited)...................................... 3 Consolidated Statements of Operations (unaudited) for the Three Months and Six Months Ended June 30, 1998 and 1999....... 5 Consolidated Statement of Stockholders' Deficit (unaudited) for the Six Months Ended June 30, 1999 ........................ 7 Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 1998 and 1999 ....................... 8 Notes to Consolidated Financial Statements, December 31, 1998 and June 30, 1999 (unaudited)..................................10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ........................................26 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK .......43 PART II ....................................................................45 ITEM 1. LEGAL PROCEEDINGS ................................................45 ITEM 2. CHANGES IN SECURITIES ............................................45 ITEM 3. DEFAULTS UPON SENIOR SECURITIES ..................................45 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS ............45 ITEM 5. OTHER INFORMATION ................................................45 ITEM 6. EXHIBITS AND REPORT ON FORM 8-K ..................................45 Exhibits .........................................................45 Report on Form 8-K ...............................................46 2 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1998 and June 30, 1999 (unaudited)
December 31, June 30, 1998 1999 -------------------- -------------------- Assets (in thousands) Current assets: Cash and cash equivalents $ 210,307 234,713 Short-term investments available for sale 52,000 30,646 Receivables: Trade, net of allowance of $14,351 and $20,823 at December 31, 1998 and June 30, 1999, respectively (note 6) 113,030 160,990 Other 529 587 -------------------- -------------------- 113,559 161,577 Inventory - 67 Prepaid expenses and deposits 11,530 11,520 Net current assets of discontinued operations (note 3) 66 10,980 -------------------- -------------------- Total current assets 387,462 449,503 -------------------- -------------------- Property and equipment 1,064,112 1,299,116 Less accumulated depreciation (156,054) (195,747) -------------------- -------------------- Net property and equipment 908,058 1,103,369 -------------------- -------------------- Restricted cash 16,912 13,372 Investments in debt securities available for sale and restricted preferred stock (note 4) - 27,686 Other assets, net of accumulated amortization: Goodwill 110,513 105,575 Deferred financing costs 35,958 33,678 Transmission and other licenses 5,646 1,207 Deposits and other 22,324 14,152 -------------------- ------------------- 174,441 154,612 -------------------- ------------------- Net non-current assets of discontinued operations (note 3) 102,774 48,475 -------------------- ------------------- Total assets (note 7) $ 1,589,647 1,797,017 ==================== =================== (Continued)
3 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Balance Sheets (unaudited), Continued
December 31, June 30, 1998 1999 ------------------- ------------------- Liabilities and Stockholders' Deficit (in thousands) Current liabilities: Accounts payable $ 30,424 22,193 Accrued liabilities 51,565 75,443 Deferred revenue (note 6) 5,647 38,545 Deferred gain on sale (note 3) - 15,502 Current portion of capital lease obligations (note 6) 4,846 8,535 Current portion of long-term debt (note 5) 46 46 ------------------- ------------------- Total current liabilities 92,528 160,264 ------------------- ------------------- Capital lease obligations, less current portion (note 6) 62,946 63,314 Long-term debt, net of discount, less current portion (note 5) 1,598,998 1,726,525 Other long-term liabilities - 431 ------------------- ------------------- Total liabilities 1,754,472 1,950,534 ------------------- ------------------- Redeemable preferred stock of subsidiary ($371.2 million liquidation value at June 30, 1999) (note 5) 338,310 363,700 Company-obligated mandatorily redeemable preferred securities of subsidiary limited liability company which holds solely Company preferred stock ($133.4 million liquidation value at June 30, 1999) 128,042 128,233 Stockholders' deficit: Common stock, $0.01 par value, 100,000 shares authorized; 46,360,185 and 47,110,309 shares issued and outstanding at December 31, 1998 and June 30, 1999, respectively 464 471 Additional paid-in capital 577,940 589,239 Accumulated deficit (1,209,462) (1,235,160) Accumulated other comprehensive loss (119) - ------------------- ------------------- Total stockholders' deficit (631,177) (645,450) ------------------- ------------------- Commitments and contingencies (notes 5 and 6) Total liabilities and stockholders' deficit $ 1,589,647 1,797,017 =================== ===================
See accompanying notes to consolidated financial statements. 4 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statements of Operations (unaudited) Three Months and Six Months Ended June 30, 1998 and 1999
Three months ended June 30, Six months ended June 30, ------------------------------- ------------------------------- 1998 1999 1998 1999 --------------- -------------- --------------- -------------- (in thousands, except per share data) Revenue (note 7) $ 64,215 117,654 122,702 221,985 Operating costs and expenses: Operating costs 43,310 59,458 88,968 113,107 Selling, general and administrative expenses 37,832 42,975 73,214 85,783 Depreciation and amortization (note 7) 18,589 44,683 31,595 81,058 Provision for impairment of long-lived assets (note 8) - 29,300 - 29,300 Other, net (7) 398 498 (535) --------------- -------------- --------------- -------------- Total operating costs and expenses 99,724 176,814 194,275 308,713 --------------- -------------- --------------- -------------- Operating loss (35,509) (59,160) (71,573) (86,728) Other income (expense): Interest expense (note 7) (41,482) (51,308) (75,904) (98,746) Interest income 8,490 3,793 13,985 7,897 Other expense, net, including realized and unrealized gains and losses on marketable trading securities (note 4) (320) (1,843) (612) (2,343) --------------- -------------- --------------- -------------- (33,312) (49,358) (62,531) (93,192) --------------- -------------- --------------- -------------- Loss from continuing operations before preferred dividends and extraordinary gain (68,821) (108,518) (134,104) (179,920) Accretion and preferred dividends on preferred securities of subsidiaries (13,595) (15,241) (26,787) (30,045) --------------- -------------- --------------- -------------- Loss from continuing operations before extraordinary gain (82,416) (123,759) (160,891) (209,965) Discontinued operations (note 3): Net loss from discontinued operations (18,420) (692) (41,700) (803) Loss on disposal of discontinued operations, including provision of $0.3 million for operating losses during phase out period - (7,959) - (7,959) --------------- -------------- --------------- -------------- (18,420) (8,651) (41,700) (8,762) --------------- -------------- --------------- -------------- Extraordinary gain on sales of operations of NETCOM, net of income taxes of $6.4 million (note 3) - - - 193,029 --------------- -------------- --------------- -------------- Net loss $ (100,836) (132,410) (202,591) (25,698) =============== ============== =============== ============== Other comprehensive income - foreign currency translation adjustment (181) - (76) - --------------- -------------- --------------- -------------- Comprehensive loss $ (101,017) (132,410) (202,667) (25,698) =============== ============== =============== ============== (Continued)
5 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statements of Operations (unaudited), Continued
Three months ended June 30, Six months ended June 30, ------------------------------- ------------------------------- 1998 1999 1998 1999 --------------- -------------- --------------- -------------- (in thousands, except per share data) Net loss per share - basic and diluted: Loss from continuing operations $ (1.84) (2.63) (3.61) (4.49) Net loss from discontinued operations (0.41) (0.19) (0.93) (0.19) Extraordinary gain on sales of operations of NETCOM - - - 4.13 --------------- -------------- --------------- -------------- Net loss per share - basic and diluted $ (2.25) (2.82) (4.54) (0.55) =============== ============== =============== ============== Weighted average number of shares outstanding - basic and diluted 44,865 46,988 44,588 46,763 =============== ============== =============== ==============
See accompanying notes to consolidated financial statements. 6 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statement of Stockholders' Deficit (unaudited) Six Months Ended June 30, 1999
Accumulated Common stock Additional other Total ----------------------- paid-in Accumulated comprehensive stockholders' Shares Amount capital deficit loss deficit ----------- ----------- ------------- ------------- -------------- -------------- (in thousands) Balances at January 1, 1999 46,360 $ 464 577,940 (1,209,462) (119) (631,177) Shares issued for cash in connection with the exercise of options and warrants 525 5 7,090 - - 7,095 Shares issued for cash in connection with the employee stock purchase plan 127 1 2,133 - - 2,134 Shares issued as contribution to 401(k) plan 98 1 2,076 - - 2,077 Reversal of cumulative foreign currency translation adjustment (note 3) - - - - 119 119 Net loss - - - (25,698) - (25,698) =========== =========== ============= ============== ============= ============== Balances at June 30, 1999 47,110 $ 471 589,239 (1,235,160) - (645,450) =========== =========== ============= ============== ============= ==============
See accompanying notes to consolidated financial statements. 7 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) Six Months Ended June 30, 1998 and 1999
Six months ended June 30, ----------------------------------- 1998 1999 -------------- --------------- (in thousands) Cash flows from operating activities: Net loss $ (202,591) (25,698) Loss from discontinued operations 41,700 8,762 Extraordinary gain on sales of discontinued operations - (193,029) Adjustments to reconcile net loss to net cash used by operating activities: Recognition of deferred gain - (10,498) Accretion and preferred dividends on preferred securities of subsidiaries 26,787 30,045 Depreciation and amortization 31,595 81,058 Provision for impairment of long-lived assets - 29,300 Deferred compensation - 431 Net loss (gain) on disposal of long-lived assets 498 (966) Gain on marketable trading securities - (439) Provision for uncollectible accounts 3,645 8,103 Interest expense deferred and included in long-term debt 73,164 94,473 Interest expense deferred and included in capital lease obligations 2,831 2,672 Amortization of deferred financing costs included in interest expense 1,820 2,283 Interest expense capitalized on assets under construction (5,469) (6,708) Contribution to 401(k) plan through issuance of common stock 1,509 2,077 Change in operating assets and liabilities, excluding the effects of dispositions and non-cash transactions: Receivables (25,103) (60,100) Inventory - 139 Prepaid expenses and deposits 555 3,104 Deferred advertising costs (1,361) - Accounts payable and accrued liabilities 18,780 (21,095) Deferred revenue 787 34,090 -------------- --------------- Net cash used by operating activities (30,853) (21,996) -------------- --------------- Cash flows from investing activities: Increase in long-term notes receivable from affiliates and others (4,910) - Acquisition of property, equipment and other assets (150,044) (229,747) Payments for construction of corporate headquarters (4,944) - Proceeds from sales of operations of NETCOM, net of cash included in sale - 252,881 Proceeds from disposition of property, equipment and other assets 145 4,302 Proceeds from sale of corporate headquarters, net of selling and other costs 29,094 - Proceeds from sales of short-term investments available for sale 96,281 21,354 Proceeds from sale of marketable securities - 30,439 Decrease in restricted cash 3,813 3,540 Purchase of investments - (27,686) Purchase of minority interest in subsidiary - (4,189) -------------- --------------- Net cash (used) provided by investing activities (30,565) 50,894 -------------- --------------- (Continued)
8 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited), Continued
Six months ended June 30, ------------------------------------- 1998 1999 ------------------- --------------- (in thousands) Cash flows from financing activities: Proceeds from issuance of common stock: Sale by subsidiary $ 3,385 - Exercise of options and warrants 11,668 7,095 Employee stock purchase plan 884 2,134 Proceeds from issuance of long-term debt 550,574 - Deferred long-term debt issuance costs (17,205) - Principal payments on capital lease obligations (8,952) (9,589) Principal payments on long-term debt (2,350) (23) Payments of preferred dividends (4,463) (4,463) ------------------- --------------- Net cash provided (used) by financing activities 533,541 (4,846) ------------------- --------------- Net increase in cash and cash equivalents 472,123 24,052 Net cash (used) provided by discontinued operations (14,484) 354 Cash and cash equivalents, beginning of period 120,574 210,307 =================== =============== Cash and cash equivalents, end of period $ 578,213 234,713 =================== =============== Supplemental disclosure of cash flows information of continuing operations: Cash paid for interest $ 3,558 6,026 =================== ================ Cash paid for income taxes $ - 931 =================== ================ Supplemental schedule of non-cash investing and activities of continuing operations: Acquisition of corporate headquarters assets through the issuance of long-term debt and conversion of security deposit (note 5) $ - 33,077 =================== ================ Assets acquired under capital leases $ - 6,190 =================== ================
See accompanying notes to consolidated financial statements. 9 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 1998 and June 30, 1999 (unaudited) (1) Organization and Basis of Presentation ICG Communications, Inc., a Delaware corporation ("ICG"), was incorporated on April 11, 1996 and is the publicly-traded U.S. parent company of ICG Funding, LLC, a special purpose Delaware limited liability company ("ICG Funding"), ICG Holdings (Canada) Co., a Nova Scotia unlimited liability company ("Holdings-Canada"), ICG Holdings, Inc., a Colorado corporation ("Holdings"), and ICG Services, Inc., a Delaware corporation ("ICG Services"), and their subsidiaries. ICG and its subsidiaries are collectively referred to as the "Company." The Company's principal business activity is telecommunications services, including Telecom Services, and until the completion of the sales of such operations, Network Services and Satellite Services. Telecom Services consists primarily of the Company's competitive local exchange carrier operations which provide local, long distance and data services to business end users, Internet service providers ("ISPs") and long distance carriers and resellers. Additionally, in February 1999, the Company began marketing Internet access and enhanced network services to ISPs and other telecommunications providers. Network Services 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. Satellite Services consists of satellite voice, data and video services provided to major cruise ship lines, the U.S. Navy, the offshore oil and gas industry and integrated communications providers. On January 21, 1998, the Company completed a merger with NETCOM On-Line Communication Services, Inc. ("NETCOM"). At the effective time of the merger, each outstanding share of NETCOM common stock, $.01 par value, was automatically converted into shares of ICG common stock, $.01 par value ("ICG Common Stock"), at an exchange ratio of 0.8628 shares of ICG Common Stock per NETCOM common share. The Company issued approximately 10.2 million shares of ICG Common Stock in connection with the merger, valued at approximately $284.9 million on the date of the merger. The business combination was accounted for as a pooling of interests. On February 17 and March 16, 1999, the Company completed the sales of the operations of NETCOM (see note 3) and, accordingly, the Company's consolidated financial statements prior to March 16, 1999 reflect the operations and net assets of NETCOM as discontinued. In conjunction with the sales, the legal name of the NETCOM subsidiary was changed to ICG NetAhead, Inc. ("NetAhead") (see note 3). On July 15, 1999, the Company's board of directors adopted a formal plan to dispose of the Company's investments in Network Services and Satellite Services (see note 3) and, accordingly, the Company's consolidated financial statements reflect the operations and net assets of Network Services and Satellite Services as discontinued for all periods presented. (2) Significant Accounting Policies (a) Basis of Presentation The Company's financial statements should be read in conjunction with ICG's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, as certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the United States Securities and Exchange Commission. The interim financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of financial position, results of operations and cash flows as of and for the interim periods presented. Such adjustments are of a normal recurring nature. 10 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (2) Significant Accounting Policies (continued) Operating results for the six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. All significant intercompany accounts and transactions have been eliminated in consolidation. (b) Net Loss Per Share Basic and diluted net loss per share is calculated by dividing net loss by the weighted average number of shares of common stock outstanding. Weighted average number of shares outstanding represents ICG Common Stock outstanding for the six months ended June 30, 1999 and combined ICG Common Stock and Holdings-Canada Class A common shares outstanding for the six months ended June 30, 1998. Potential common stock, which includes options, warrants and convertible subordinated notes and preferred securities, are not included in the net loss per share calculation as their effect is anti-dilutive. The Company has presented net loss per share from discontinued operations and extraordinary gain on sales of operations of NETCOM in the consolidated statement of operations for all periods presented. (c) Reclassifications Certain 1998 amounts have been reclassified to conform with the 1999 presentation. (3) Discontinued Operations Net loss from discontinued operations consists of the following:
Three months ended Six months ended June 30, June 30, ------------------------------- ------------------------------- 1998 1999 1998 1999 ------------- ------------- -------------- ------------- (in thousands) Network Services (a) $ (2,355) (703) (6,180) (1,115) Satellite Services (b) (4,664) 11 (3,927) 312 Zycom (c) (801) - (3,199) - NETCOM (d) (10,600) - (28,394) - ------------- ------------- -------------- ------------- Net loss from discontinued operations $ (18,420) (692) (41,700) (803) ============= ============= ============== =============
(a) Network Services On July 15, 1999, the Company's board of directors adopted a formal plan to dispose of the Company's investments in its wholly-owned subsidiaries, ICG Fiber Optic Technologies, Inc. and Fiber Optic Technologies of the Northwest, Inc. (collectively, "Network Services"). The Company's plan of disposal consists of a sale for cash proceeds of the business of Network Services. On July 19, 1999, the Company signed a letter of intent to sell all of the capital stock of Network Services to a third party for cash proceeds of approximately $24.0 million. The Company anticipates the sale of Network Services will be completed within the next 12 months. The Company's consolidated financial statements reflect the operations of Network Services as discontinued for all periods presented. Additionally, during the three months ended June 30, 11 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (3) Discontinued Operations (continued) 1999, the Company accrued approximately $8.0 million for estimated losses on disposal of Network Services, including approximately $0.3 million for estimated operating losses of Network Services during the phase out period. Included in net current assets and net non-current assets of discontinued operations in the Company's consolidated balance sheets are the following accounts of Network Services:
December 31, June 30, 1998 1999 ------------------- ------------------ (in thousands) Cash and cash equivalents $ 846 1,519 Receivables, net 21,237 21,849 Inventory, prepaid expenses and deposits 1,888 2,812 Accounts payable, accrued liabilities and other current liabilities (5,752) (16,106) ------------------- ------------------ Net current assets of Network Services $ 18,219 10,074 =================== ================== Property and equipment, net $ 3,686 3,103 Goodwill, net 9,865 9,275 Other assets 93 79 Capital lease obligations, less current portion (413) (329) ------------------- ------------------ Net non-current assets of Network Services $ 13,231 12,128 =================== ==================
(b) Satellite Services On July 15, 1999, the Company's board of directors adopted a formal plan to dispose of the Company's investments in ICG Satellite Services, Inc. and Maritime Telecommunications Network, Inc. (collectively, "Satellite Services"). The Company's plan of disposal consists of a sale for cash proceeds of the business of Satellite Services. On August 11, 1999, the Company entered into a definitive agreement to sell all of the capital stock of Satellite Services to a third party for cash proceeds of approximately $100.0 million. The company expects to record a gain on the sale of Satellite Services, which gain will be included in the Company's consolidated financial statements in the period of disposal. The Company anticipates the sale of Satellite Services will be completed within the next 12 months. The Company's consolidated financial statements reflect the operations of Satellite Services as discontinued for all periods presented. Included in net current assets and net non-current assets of discontinued operations in the Company's consolidated balance sheets are the following accounts of Satellite Services: 12 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (3) Discontinued Operations (continued)
December 31, June 30, 1998 1999 ------------------- ------------------ (in thousands) Receivables, net $ 10,342 5,266 Inventory, prepaid expenses and deposits 1,440 2,212 Accounts payable and accrued liabilities (6,664) (5,753) ------------------- ------------------ Net current assets of Satellite Services $ 5,118 1,725 =================== ================== Property and equipment, net $ 22,390 24,416 Goodwill, net 10,125 9,300 Other assets, net 2,785 2,631 ------------------- ------------------ Net non-current assets of Satellite Services $ 35,300 36,347 =================== ==================
(c) Zycom The Company owns a 70% interest in Zycom Corporation ("Zycom") which, through its wholly owned subsidiary, Zycom Network Services, Inc. ("ZNSI"), operated an 800/888/900 number services bureau and a switch platform in the United States and supplied information providers and commercial accounts with audiotext and customer support services. In June 1998, Zycom was notified by its largest customer of the customer's intent to transfer its call traffic to another service bureau. In order to minimize the obligation that this loss in call traffic would generate under Zycom's volume discount agreements with AT&T Corp. ("AT&T"), its call transport provider, ZNSI entered into an agreement on July 1, 1998 with an unaffiliated entity, ICN Limited ("ICN"), whereby ZNSI assigned the traffic of its largest audiotext customer and its other 900-number customers to ICN, effective October 1, 1998. As part of this agreement, ICN assumed all minimum call traffic volume obligations to AT&T. The call traffic assigned to ICN represented approximately 86% of Zycom's revenue for the year ended December 31, 1998. The loss of this significant portion of Zycom's business, despite management's best efforts to secure other sources of revenue, raised substantial doubt as to Zycom's ability to operate in a manner which would benefit Zycom's or the Company's shareholders. Accordingly, on August 25, 1998, Zycom's board of directors approved a plan to wind down and ultimately discontinue Zycom's operations. On October 22, 1998, Zycom completed the transfer of all customer traffic to other providers. On January 4, 1999, the Company completed the sale of the remainder of Zycom's long-lived operating assets to an unrelated third party for total proceeds of $0.2 million. As Zycom's assets were recorded at estimated fair market value at December 31, 1998, no gain or loss was recorded on the sale during the six months ended June 30, 1999. Zycom anticipates the disposition of its remaining assets and the discharge of its remaining operating liabilities will be completed in 1999. The Company's consolidated financial statements reflect the operations of Zycom as discontinued for all periods presented. Zycom reported net losses from operations of approximately $1.2 million for the period from August 25, 1998 to December 31, 1998 and reported no income or losses from operations for the six months ended June 30, 1999. The Company has accrued for all expected future net losses of Zycom. Included in net current 13 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (3) Discontinued Operations (continued) liabilities and net non-current assets of discontinued operations in the Company's consolidated balance sheets are the following accounts of Zycom:
December 31, June 30, 1998 1999 ------------------- -------------------- (in thousands) Cash and cash equivalents $ 47 - Receivables, net 90 - Prepaid expenses and deposits 11 1 Accounts payable and accrued liabilities (1,092) (820) ------------------- -------------------- Net current liabilities of Zycom $ (944) (819) =================== ==================== Net non-current assets of Zycom - property and equipment, net $ 220 - =================== ====================
(d) NETCOM On February 17, 1999, the Company sold certain of the operating assets and liabilities of NETCOM to MindSpring Enterprises, Inc., an ISP located in Atlanta, Georgia ("MindSpring"). Total proceeds from the sale were $245.0 million, consisting of $215.0 million in cash and 376,116 shares of common stock of MindSpring, valued at approximately $79.76 per share at the time of the transaction. Assets and liabilities sold to MindSpring include those directly related to the domestic operations of NETCOM's Internet dial-up, dedicated access and Web site hosting services. In conjunction with the sale to MindSpring, the Company entered into an agreement to lease to MindSpring for a one-year period the capacity of certain network operating assets formerly owned by NETCOM and retained by the Company. MindSpring is utilizing the Company's network capacity to provide Internet access to the dial-up services customers formerly owned by NETCOM. Over the term of the one-year agreement, MindSpring is required to pay the Company a minimum of $27.0 million for the Company's network capacity, although such minimum is subject to increase dependent upon network usage. In addition, the Company is receiving for a one-year period 50% of the gross revenue earned by MindSpring from the dedicated access customers formerly owned by NETCOM, estimated to be approximately $10.0 million for the term of the agreement. The Company, through NetAhead, is currently utilizing the retained network operating assets to provide wholesale capacity and other enhanced network services to MindSpring and intends to provide similar services to other ISPs and telecommunications providers in the future. The carrying value of the assets retained by the Company was approximately $21.7 million, including approximately $17.5 million of network equipment, on February 17, 1999. The Company also retained approximately $11.3 million of accrued liabilities and capital lease obligations. On March 16, 1999, the Company sold all of the capital stock of NETCOM's international operations for total proceeds of approximately $41.1 million. MetroNET Communications Corp., a Canadian entity, and Providence Equity Partners, located in Providence, Rhode Island ("Providence"), together purchased the 80% interest in NETCOM Canada Inc. owned by NETCOM for approximately $28.9 million in cash. Additionally, Providence purchased all of the capital stock of NETCOM Internet Access Services Limited, NETCOM's operations in the United Kingdom, for approximately $12.2 million in cash. 14 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (3) Discontinued Operations (continued) During the six months ended June 30, 1999, the Company recorded a combined gain on the sales of the operations of NETCOM of approximately $193.0 million, net of income taxes of approximately $6.4 million. Offsetting the gain on the sales is approximately $16.6 million of net losses from operations of NETCOM from November 3, 1998 (the date on which the Company's board of directors adopted the formal plan to dispose of the operations of NETCOM) through the dates of the sales. Additionally, since the Company expects to generate operating costs in excess of revenue under its network capacity agreement with MindSpring and the terms of the sale agreement were dependent upon and negotiated in conjunction with the terms of the network capacity agreement, the Company deferred approximately $26.0 million of the proceeds from the sale agreement to be applied on a periodic basis to the network capacity agreement. The deferred proceeds are recognized in the Company's statement of operations as the Company incurs cash operating losses under the network capacity agreement. Accordingly, the Company does not expect to recognize any revenue, operating costs or selling, general and administrative expenses from services provided to MindSpring for the term of the agreement. Any incremental revenue or costs generated by other customers, or by other services provided to MindSpring, are recognized in the Company's consolidated statement of operations as incurred. During the three months and six months ended June 30, 1999, the Company applied $3.8 million and $10.5 million, respectively, of deferred proceeds from the sale of the operating assets and liabilities of NETCOM to the network capacity agreement with MindSpring, which entirely offset the costs of the Company's operations under the agreement. Since the operations sold were acquired by ICG in a transaction accounted for as a pooling of interests, the gain on the sales of the operations of NETCOM is classified as an extraordinary item in the Company's consolidated statement of operations. (4) Investments As discussed in note 3, the Company received 376,116 shares of common stock of MindSpring, valued at $79.76 per share, or $30.0 million, at the time of the transaction, as partial consideration for the sale of the domestic operations of NETCOM. In April 1999, the Company sold its investment in MindSpring for net proceeds of approximately $30.4 million. The Company has recorded a gain of approximately $0.4 million in its statement of operations for the six months ended June 30, 1999. On March 30, 1999, the Company purchased, for approximately $10.0 million in cash, 454,545 shares of restricted Series D-1 Preferred Stock (the "NorthPoint Preferred Stock") of NorthPoint Communications Holdings, Inc., a Delaware corporation and competitive local exchange carrier ("CLEC") based in San Francisco, California ("NorthPoint"). The NorthPoint Preferred Stock has no voting rights and is ultimately convertible into a voting class of common stock of NorthPoint, at an exchange price which represents a discount, as provided in the relevant documentation, to the initial public offering price of NorthPoint's common stock. The Company is restricted from selling the NorthPoint Preferred Stock or securities obtained upon conversion of the NorthPoint Preferred Stock until March 23, 2000. On May 5, 1999, NorthPoint completed the initial public offering of its common stock, at which time the NorthPoint Preferred Stock, and additional shares of NorthPoint Preferred Stock obtained as a result of stock splits, were automatically converted into shares of Class B common stock, a nonvoting class of common stock of NorthPoint (the "NorthPoint Class B Shares"), which are convertible on or after March 23, 2000 on a one-for-one basis into a voting class of common stock of NorthPoint. The Company will account for its investment in NorthPoint under the cost method of accounting until the NorthPoint Class B Shares are converted into voting and tradable common stock of NorthPoint, after which the investment will be classified as a trading security. 15 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (5) Long-term Debt and Redeemable Preferred Stock of Subsidiary Long-term debt is summarized as follows:
December 31, June 30, 1998 1999 ------------------- ----------------- (in thousands) 9 7/8% Senior discount notes of ICG Services, net of discount $ 266,918 280,096 10% Senior discount notes of ICG Services, net of discount 327,699 344,087 11 5/8% Senior discount notes of Holdings, net of discount 122,528 129,650 12 1/2% Senior discount notes of Holdings, net of discount 414,864 440,794 13 1/2% Senior discount notes of Holdings, net of discount 465,886 497,741 Mortgage loan payable with interest at 8 1/2%, due monthly into 2009, secured by building 1,084 1,061 Mortgage loan payable with variable rate of interest (14.77% at June 30, 1999) due in full on January 31, 2013, secured by corporate headquarters (a) - 33,077 Other 65 65 ------------------- ----------------- 1,599,044 1,726,571 Less current portion (46) (46) ------------------- ----------------- $ 1,598,998 1,726,525 =================== =================
(a) Mortgage Loan Payable Effective January 1, 1999, the Company purchased its corporate headquarters building, land and improvements (collectively, the "Corporate Headquarters") for approximately $43.4 million, which amount represents historical cost and approximates fair value. The Company, through a newly formed subsidiary, financed the purchase primarily through a loan secured by a mortgage on the Corporate Headquarters, guaranteed by ICG Services, Inc. The amended loan agreement, dated May 1, 1999, requires monthly interest payments at an initial interest rate of 14.77% per annum which rate increases annually by 0.003%, with the mortgage balance due January 31, 2013. The seller of the Corporate Headquarters has retained an option to repurchase the Corporate Headquarters at the original sales price, which option is exercisable from January 1, 2004 through January 31, 2012. (b) Senior Facility On August 12, 1999, ICG Equipment and NetAhead entered into a $200.0 million senior secured financing facility (the "Senior Facility") consisting of a $75.0 million term loan, a $100.0 million term loan and a $25.0 million revolving line of credit. The Senior Facility is guaranteed by ICG Services and is secured by the assets of ICG Equipment and NetAhead. As required under the terms of the loan, the Company borrowed on August 12, 1999 the available $75.0 million on the $75.0 million term loan. The loan bears interest at an annual interest rate of LIBOR plus 3.5% or the base rate, as defined in the credit agreement, plus 2.5%, at the Company's option (10.5% on August 12, 1999). Quarterly repayments commence September 30, 1999 and require quarterly loan balance reductions of 0.25% through June 30, 2005 with the remaining outstanding balance to be repaid during the final three quarters of the loan term. The $75.0 million term loan matures on March 31, 2006. 16 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (5) Long-term Debt and Redeemable Preferred Stock of Subsidiary (continued) On August 12, 1999, the Company borrowed $5.0 million on the $100.0 million term loan, which is available through August 10, 2000 at an initial annual interest rate of LIBOR plus 3.5% or the base rate, as defined in the credit agreement, plus 2.125%, at the Company's option (10.125% on August 12, 1999). Quarterly repayments commence September 30, 2002 and require aggregate loan balance reductions of 25% through June 30, 2003, 35% through June 30, 2004 and 40% through June 30, 2005. The $100.0 million term loan matures on June 30, 2005. The $25.0 million revolving line of credit is available through the maturity date of June 30, 2005 at an initial annual interest rate of LIBOR plus 3.5% or the base rate, as defined in the credit agreement, plus 2.125%, at the Company's option. The terms of the Senior Facility provide certain limitations on the use of proceeds, additional indebtedness, dividends, prepayment of the Senior Facility and other indebtedness and certain other transactions. Additionally, the Company is subject to certain financial covenants based on its results and the results of ICG Services. The Company is required to pay commitment fees ranging from 0.625% to 1.375% for the unused portion of available borrowings under the Senior Facility. Redeemable preferred stock of subsidiary is summarized as follows:
December 31, June 30, 1998 1999 ---------------------- ------------------- (in thousands) 14% Exchangeable preferred stock of Holdings, mandatorily redeemable in 2008 $ 124,867 134,179 14 1/4% Exchangeable preferred stock of Holdings, mandatorily redeemable in 2007 213,443 229,521 ---------------------- ------------------- $ 338,310 363,700 ====================== ===================
(6) Commitments and Contingencies (a) Network Construction In March 1996, the Company and Southern California Edison Company ("SCE") entered into a 25-year agreement under which the Company will license 1,258 miles of fiber optic cable in Southern California, and can install up to 500 additional miles of fiber optic cable. This network, which will be maintained and operated primarily by the Company, stretches from Los Angeles to southern Orange County. Under the terms of this agreement, SCE is entitled to receive an annual fee for ten years, certain fixed quarterly payments, a quarterly payment equal to a percentage of certain network revenue, and certain other installation and fiber connection fees. The aggregate fixed payments remaining under the agreement totaled approximately $126.9 million at June 30, 1999. The agreement has been accounted for as a capital lease in the accompanying consolidated balance sheets. In June 1997, the Company entered into an indefeasible right of use ("IRU") agreement with Qwest Communications Corporation ("Qwest") for approximately 1,800 miles of fiber optic network and additional broadband capacity in California, Colorado, Ohio and the Southeast. Network construction is ongoing and is expected to be completed in 1999. The Company is responsible for payment on the construction as segments of the network are completed and has incurred approximately $24.9 million as of June 17 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (6) Commitments and Contingencies (continued) 30, 1999, with remaining costs anticipated to be approximately $10.1 million. As part of this agreement, the Company also committed to purchase $6.0 million in network capacity from Qwest prior to the end of 1999. The Company's capacity purchase commitment was cancelled by Qwest, without further obligation by the Company, in conjunction with the Company's additional IRU agreement with Qwest, signed on June 25, 1999. On June 25, 1999, the Company signed an agreement to lease fiber optic capacity to Qwest for a minimum 10-year term. The Company will account for the capacity agreement as a sales-type lease. Revenue will be recognized on a percentage-of-completion basis, as the network build-out is completed and is available for use by Qwest. The $32.0 million received by the Company on June 29, 1999 for Qwest's total payment on the capacity agreement is included in deferred revenue in the Company's consolidated balance sheet at June 30, 1999. (b) Network Capacity and Line Purchase Commitments In November 1998, the Company entered into two service agreements with WorldCom Network Services, Inc. ("WorldCom"). Both of the agreements have three-year terms and were effective in September 1998. Under the Telecom Services Agreement, WorldCom provides, at designated rates, switched telecommunications services and other related services to the Company, including termination services, toll-free origination, switched access, dedicated access and travel card services. Under the Carrier Digital Services Agreement, WorldCom provides the Company, at designated rates, with the installation and operation of dedicated digital telecommunications interexchange services, local access and other related services, which the Company believes expedites service availability to its customers. Both agreements require that the Company provide WorldCom with certain minimum monthly revenue, which if not met, would require payment by the Company for the difference between the minimum commitment and the actual monthly revenue. Additionally, both agreements limit the Company's ability to utilize vendors other than WorldCom for certain telecommunications services specified in the agreements. The Company's policy is to accrue and include in operating costs the effect of any shortfall in minimum revenue commitments under these agreements in the period in which the shortfall occurred. The Company has successfully achieved all minimum revenue commitments to WorldCom under these agreements through June 30, 1999. In March 1999, the Company entered into an agreement with NorthPoint, which designates NorthPoint as the Company's exclusive digital subscriber line ("DSL") provider through June 1, 2001. Under the agreement, the Company is required to purchase 49,000 digital subscriber lines before June 1, 2001 at designated intervals. In return, the Company receives substantial DSL service price discounts and enhanced market access from NorthPoint. Price discounts are determined pursuant to a graduated schedule based on the number of digital subscriber lines purchased by the Company, with maximum discounts achieved by purchasing 75,000 digital subscriber lines over the two-year term. The Company's policy is to accrue and include in operating costs the effect of any shortfall in DSL installations under its agreement with NorthPoint in the period in which the shortfall occurred. The 49,000 digital subscriber line purchase requirement and the price discounts are adjustable based on NorthPoint's compliance with a commitment schedule of DSL service availability for various U.S. locations. Additionally, the Company agreed to sell its existing DSL equipment to NorthPoint for total proceeds of approximately $2.7 million. 18 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (6) Commitments and Contingencies (continued) (c) Other Commitments The Company has entered into various equipment purchase agreements with certain of its vendors. Under these agreements, if the Company does not meet a minimum purchase level in any given year, the vendor may discontinue certain discounts, allowances and incentives otherwise provided to the Company. In addition, the agreements may be terminated by either the Company or the vendor upon prior written notice. Additionally, the Company has entered into certain commitments to purchase capital assets with an aggregate purchase price of approximately $117.1 million at June 30, 1999. (d) Transport and Termination Charges The Company has recorded revenue of approximately $4.9 million, $58.3 million and $70.9 million for fiscal 1997, fiscal 1998 and the six months ended June 30, 1999, respectively, for reciprocal compensation relating to the transport and termination of local traffic to ISPs from customers of incumbent local exchange carriers ("ILECs") pursuant to various interconnection agreements. Some of the ILECs have not paid most of the bills they have received from the Company and have disputed substantially all of these charges based on the belief that such calls are not local traffic as defined by the various agreements and not subject to payment of transport and termination charges under state and federal laws and public policies. As a result, the Company expects receivables from transport and termination charges will continue to increase until these disputes have been resolved. The resolution of these disputes will be based on rulings by state public utility commissions and/or by the Federal Communications Commission ("FCC"). To date, there have been favorable final rulings from 31 state public utility commissions that ISP traffic is subject to the payment of reciprocal compensation under current interconnection agreements. Many of these state commission decisions have been appealed by the ILECs. To date, four federal district court decisions, one federal circuit court of appeals decision and one state court decision have been issued upholding state commission decisions ordering the payment of reciprocal compensation for ISP traffic. On February 25, 1999, the FCC issued a decision that ISP-bound traffic is largely jurisdictionally interstate traffic. The decision relies on the long-standing federal policy that ISP traffic, although jurisdictionally interstate, is treated as though it is local traffic for pricing purposes. The decision also emphasizes that because there are currently no federal rules governing intercarrier compensation for ISP traffic, the determination as to whether such traffic is subject to reciprocal compensation under the terms of interconnection agreements is properly made by the state commissions and that carriers are bound by their interconnection agreements and state commission decisions regarding the payment of reciprocal compensation for ISP traffic. The FCC has initiated a rulemaking proceeding regarding the adoption of prospective federal rules for intercarrier compensation for ISP traffic. In its notice of rulemaking, the FCC expresses its preference that compensation rates for this traffic continue to be set by negotiations between carriers, with disputes resolved by arbitrations conducted by state commissions, pursuant to the Telecommunications Act of 1996 (the "Telecommunications Act"). Since the issuance of the FCC's decision on February 25, 1999, 15 state utility commissions, including four states in which the Company provides CLEC services, have either ruled or reaffirmed that ISP traffic is subject to reciprocal compensation under current interconnection agreements, and two state commissions have declined to apply reciprocal compensation for ISP traffic. 19 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (6) Commitments and Contingencies (continued) On May 5, 1999, the Public Utilities Commission of Ohio ("PUCO") issued a decision affirming its August 1998 decision that ISP traffic is subject to reciprocal compensation under the Company's current interconnection agreement with Ameritech Corporation ("Ameritech"). The PUCO also denied Ameritech's request for a stay of its obligation to remit payment to the Company. After the PUCO issued the May 5, 1999 ruling, the Company received $43.1 million during the three months ended June 30, 1999 for amounts owed by Ameritech for reciprocal compensation. Ameritech has filed for judicial review of the PUCO decision. The Company cannot predict the final outcome on the merits of the court appeal. Additionally, on June 4, 1999, Southwestern Bell Telephone Company ("SWBT") remitted payment to the Company of $1.8 million for reciprocal compensation owed to the Company for traffic from SWBT customers in Texas to ISPs served by the Company. On June 21, 1999, the Alabama Public Service Commission ("PSC") issued a decision that BellSouth Corporation ("BellSouth") is required to pay the Company reciprocal compensation for ISP traffic. The PSC's June 21, 1999 decision modified its March 1999 decision that had found that reciprocal compensation is owed for Internet traffic under certain CLEC interconnection agreements at issue in the proceeding. The June 21, 1999 PSC decision held that the Company should be treated the same as the other CLECs that participated in the proceeding and for which the Alabama PSC previously ordered the payment of reciprocal compensation. BellSouth has filed for judicial review of both the March 4, 1999 and June 21, 1999 PSC decisions. On July 26, 1999 the California Public Utilities Commission issued a decision affirming a previous decision, issued October 1998, that held that reciprocal compensation must be paid by Pacific Bell and GTE California for the termination of ISP traffic by CLECs under existing interconnection agreements. On July 28, 1999, the Colorado Public Utilities Commission approved a decision that orders US WEST Communications, Inc. ("US WEST") to pay the Company reciprocal compensation for calls from US WEST customers to ISPs served by the Company. The decision resolves in the Company's favor a complaint that was filed by the Company in June 1998. The Company has also recorded revenue of approximately $19.1 million and $7.6 million for fiscal 1998 and the six months ended June 30, 1999, respectively, related to other transport and termination charges to the ILECs, pursuant to the Company's interconnection agreements with these ILECs. Included in the Company's trade receivables at December 31, 1998 and June 30, 1999 are $72.8 million and $100.7 million, respectively, for all receivables related to reciprocal compensation and other transport and termination charges. The receivables balance at June 30, 1999 is net of an allowance of $9.6 million for disputed amounts. As the Company's interconnection agreements expire or are extended, rates for transport and termination charges are being and will continue to be renegotiated. Some of the Company's agreements are already being affected. Although the Company's interconnection agreement with BellSouth has expired, the Company has received written notification from BellSouth that the Company may continue operating under the expired interconnection agreement, until such agreement is renegotiated or arbitrated by the relevant state commissions. On May 27, 1999, the Company filed petitions with the state commissions of Alabama, Georgia, North Carolina, Kentucky, Tennessee and Florida for arbitration with BellSouth. The arbitration proceedings are ongoing in each of these states. Additionally, the Company's interconnection agreement with Ameritech recently was extended from June 15, 1999 to February 15, 2000. The Company's extension of its interconnection agreement with Ameritech includes reduced rates for transport and termination charges, and the Company expects that its negotiations and arbitrations with BellSouth will also affect the rates for transport and termination charges included 20 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (6) Commitments and Contingencies (continued) in its existing interconnection agreement with BellSouth. The Company's remaining interconnection agreements expire in 1999 and 2000, and the Company has commenced renegotiations with the ILECs. While the Company believes that all revenue recorded through June 30, 1999 is collectible and that future revenue from transport and termination charges billed under the Company's current interconnection agreements will be realized, there can be no assurance that future regulatory and judicial rulings will be favorable to the Company, or that different pricing plans for transport and termination charges between carriers will not be adopted when the Company's interconnection agreements are renegotiated or arbitrated, or as a result of the FCC's rulemaking proceeding on future compensation methods. In fact, the Company believes that different pricing plans will be considered and adopted, and although the Company expects that revenue from transport and termination charges likely will decrease as a percentage of total revenue from local services in periods after the expiration of current interconnection agreements, the Company's local termination services still will be required by the ILECs and must be provided under the Telecommunications Act, and likely will result in increasing volume in minutes due to the growth of the Internet and related services markets. The Company expects to negotiate reasonable compensation and collection terms for local termination services, although there is no assurance that such compensation will remain consistent with current levels. (e) Litigation On April 4, 1997, certain shareholders of Zycom filed a shareholder derivative suit and class action complaint for unspecified damages, purportedly on behalf of all of the minority shareholders of Zycom, in the District Court of Harris County, Texas (Cause No. 97-17777) against the Company, Zycom and certain of their subsidiaries. This complaint alleges that the Company and certain of its subsidiaries breached certain duties owed to the plaintiffs. The plaintiffs were denied class certification by the trial court and the Court of Appeals affirmed the trial court's decision. Trial has been tentatively set for October 1999. The Company is vigorously defending the claims. While it is not possible to predict the outcome of this litigation, management believes these proceedings will not have a material adverse effect on the Company's financial condition, results of operations or cash flows. The Company is a party to certain other litigation which has arisen in the ordinary course of business. In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the Company's financial condition, results of operations or cash flows. (7) Business Segments The Company conducts transactions with external customers through the operations of its Telecom Services business unit. Shared administrative services are provided to Telecom Services by Corporate Services. Corporate Services consists of the operating activities of ICG Communications, Inc., ICG Funding, LLC, ICG Canadian Acquisition, Inc., ICG Holdings (Canada) Co., ICG Holdings, Inc., ICG Services, Inc., ICG Corporate Headquarters, L.L.C. and ICG 161, L.P., which primarily hold securities and other nonoperating assets and provide certain legal, accounting and finance, personnel and other administrative support services to the business units. Direct and certain indirect costs incurred by Corporate Services on behalf of Telecom Services are allocated to Telecom Services based on the nature of the underlying costs. Transactions between Telecom Services and Corporate Services for services performed in the normal course of business are recorded at amounts which are intended to approximate fair value. 21 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (7) Business Segments (continued) Set forth below are revenue, EBITDA (before nonrecurring and noncash charges), which represents the measure of operating performance used by management to evaluate operating results, depreciation and amortization, interest expense, capital expenditures of continuing operations and total assets for Telecom Services and Corporate Services. As described in note 3, the operating results of the Company reflect the operations of Network Services, Satellite Services, Zycom and NETCOM as discontinued for all periods presented.
Three months ended June 30, Six months ended June 30, ------------------------------- ------------------------------ 1998 1999 1998 1999 -------------- -------------- -------------- --------------- (in thousands) Revenue: Telecom Services $ 64,215 117,654 122,702 221,985 Corporate Services - - - - -------------- -------------- -------------- --------------- Total revenue $ 64,215 117,654 122,702 221,985 ============== ============== ============== ============= EBITDA (before nonrecurring and noncash charges) (a): Telecom Services $ (11,085) 20,364 (29,220) 32,622 Corporate Services (5,842) (5,143) (10,260) (9,527) -------------- -------------- -------------- --------------- Total EBITDA (before nonrecurring and noncash charges) $ (16,927) 15,221 (39,480) 23,095 ============== ============== ============== ============= Depreciation and amortization (b): Telecom Services $ 17,151 43,910 28,953 79,139 Corporate Services 1,438 773 2,642 1,919 -------------- -------------- -------------- --------------- Total depreciation and amortization $ 18,589 44,683 31,595 81,058 ============== ============== ============== ============= Interest expense (b): Telecom Services $ 908 - 908 - Corporate Services 40,574 51,308 74,996 98,746 -------------- -------------- -------------- --------------- Total interest expense $ 41,482 51,308 75,904 98,746 ============== ============== ============== ============== Capital expenditures of continuing operations (c): Telecom Services $ 81,652 133,012 144,771 235,924 Corporate Services 2,973 13 5,273 13 -------------- -------------- -------------- --------------- Total capital expenditures of continuing operations $ 84,625 133,025 150,044 235,937 ============== ============== ============== ==============
22 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (7) Business Segments (continued)
December 31, June 30, 1998 1999 --------------------- -------------------- (in thousands) Total assets: Telecom Services (d) $ 1,135,937 1,379,567 Corporate Services (d) 371,157 389,242 Eliminations (20,287) (31,247) Net assets of discontinued operations 102,840 59,455 --------------------- -------------------- Total assets $ 1,589,647 1,797,017 ===================== ====================
(a) EBITDA (before nonrecurring and noncash charges) consists of loss from continuing operations before interest, income taxes, depreciation and amortization, provision for impairment of long-lived assets and other, net operating costs and expenses, including deferred compensation and net loss (gain) on disposal of long-lived assets, other expense, net and accretion and preferred dividends on preferred securities of subsidiaries, or simply, revenue less operating costs and selling, general and administrative expenses. EBITDA (before nonrecurring and noncash charges) is presented as the Company's measure of operating performance because it is a measure commonly used in the telecommunications industry. EBITDA (before nonrecurring and noncash charges) is presented to enhance an understanding of the Company's operating results and is not intended to represent cash flows or results of operations in accordance with generally accepted accounting principles for the periods indicated. EBITDA (before nonrecurring and noncash charges) is not a measurement under generally accepted accounting principles and is not necessarily comparable with similarly titled measures of other companies. (b) Although not included in EBITDA (before nonrecurring and noncash charges), which represents the measure of operating performance used by management to evaluate operating results, the Company has supplementally provided depreciation and amortization and interest expense for Telecom Services and Corporate Services. Interest expense excludes amounts charged for interest on outstanding cash advances and expense allocations between Telecom Services and Corporate Services. (c) Capital expenditures include assets acquired under capital leases and excludes payments for construction of the Company's corporate headquarters and corporate headquarters assets acquired through the issuance of long-term debt. (d) Total assets of Telecom Services and Corporate Services excludes investments in consolidated subsidiaries which eliminate in consolidation. (8) Provision for Impairment of Long-Lived Assets During the three months ended June 30, 1999, the Company recorded a provision for impairment of long-lived assets of $29.3 million, which relates to the impairment of software and other capitalized costs associated with Telecom Services' in-process billing and provisioning system development projects. The provision for impairment of long-lived assets was based on management's decision to select new vendors for each of these systems, which vendors are expected to provide the Company with billing and provisioning solutions with improved functionality and earlier delivery dates at significantly lower costs. The Company's in-process billing and provisioning systems were either not operational or were serving minimal customers at the time management determined the carrying value of the underlying assets was not recoverable. 23 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (9) Summarized Financial Information of ICG Holdings, Inc. The 11 5/8% Senior Discount Notes due 2007 (the "11 5/8% Notes") issued by Holdings during 1997 are guaranteed by ICG. The 12 1/2% Senior Discount Notes due 2006 (the "12 1/2% Notes") and the 13 1/2% Senior Discount Notes due 2005 (the "13 1/2% Notes") issued by Holdings during 1996 and 1995, respectively, are guaranteed by ICG and Holdings-Canada. The separate complete financial statements of Holdings have not been included herein because such disclosure is not considered to be material to the holders of the 11 5/8% Notes, the 12 1/2% Notes and the 13 1/2% Notes. However, summarized combined financial information for Holdings and its subsidiaries is as follows: Summarized Consolidated Balance Sheet Information
December 31, June 30, 1998 1999 -------------------- --------------------- (in thousands) Current assets $ 241,667 329,277 Net current assets of discontinued operations 22,392 10,980 Property and equipment, net 610,671 507,909 Other non-current assets, net 147,283 134,442 Net non-current assets of discontinued operations 48,751 48,475 Current liabilities 69,204 108,880 Capital lease obligations, less current portion 62,946 56,766 Long-term debt, less current portion 1,004,316 1,069,200 Due to parent 191,889 257,743 Due to ICG Services 137,762 113,420 Redeemable preferred stock 338,311 363,700 Stockholder's deficit (733,664) (938,626)
Summarized Consolidated Statement of Operations Information
Three months ended June 30, Six months ended June 30, ------------------------------ ------------------------------ 1998 1999 1998 1999 -------------- --------------- -------------- -------------- (in thousands) Total revenue $ 64,989 119,026 123,830 224,759 Total operating costs and expenses 99,458 181,509 192,530 319,614 Operating loss (34,469) (62,483) (68,700) (94,855) Loss from continuing operations (60,574) (101,381) (124,798) (168,751) Net loss (80,735) (122,712) (160,238) (204,962)
24 ICG COMMUNICATIONS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (10) Condensed Financial Information of ICG Holdings (Canada) Co. Condensed financial information for Holdings-Canada only is as follows: Condensed Balance Sheet Information
December 31, June 30, 1998 1999 ------------------- ------------------ (in thousands) Current assets $ 162 162 Advances to subsidiaries 191,889 257,743 Non-current assets, net 2,414 1,207 Current liabilities 73 73 Long-term debt, less current portion 65 65 Due to parent 182,101 247,954 Share of losses of subsidiaries 733,664 938,626 Shareholders' deficit (721,438) (927,606)
Condensed Statement of Operations Information
Three months ended June 30, Six months ended June 30, ------------------------------ ------------------------------ 1998 1999 1998 1999 -------------- -------------- -------------- -------------- (in thousands) Total revenue - - - - Total operating costs and expenses 48 603 81 1,206 Operating loss (48) (603) (81) (1,206) Losses of subsidiaries (80,735) (122,712) (160,238) (204,962) Net loss attributable to common shareholders (80,783) (123,315) (160,319) (206,168)
(11) Condensed Financial Information of ICG Communications, Inc. (Parent company) The primary assets of ICG are its investments in ICG Services, ICG Funding and Holdings-Canada, including advances to those subsidiaries. Certain corporate expenses of the parent company are included in ICG's statement of operations and were approximately $0.5 million and $1.0 million for the three months and six months ended June 30, 1998, respectively, and $0.4 million and $0.9 million for the three months and six months ended June 30, 1999, respectively. ICG has no operations other than those of ICG Services, ICG Funding and Holdings-Canada and their subsidiaries. 25 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion includes certain forward-looking statements which are affected by important factors including, but not limited to, dependence on increased traffic on the Company's facilities, the successful implementation of the Company's strategy of offering an integrated telecommunications package of local, long distance, data and enhanced telephony and network services, continued development of the Company's network infrastructure and actions of competitors and regulatory authorities that could cause actual results to differ materially from the forward-looking statements. The results of operations for the three months and six months ended June 30, 1998 and 1999 represent the consolidated operating results of the Company. See the unaudited condensed consolidated financial statements of the Company for the six months ended June 30, 1999 included elsewhere herein. The Company's consolidated financial statements reflect the operations of Network Services, Satellite Services, Zycom and NETCOM as discontinued for all periods presented. The Company changed its fiscal year end to December 31 from September 30, effective January 1, 1997. All dollar amounts are in U.S. dollars. Company Overview ICG Communications Inc. ("ICG" or the "Company") is one of the nation's leading competitive integrated communications providers ("ICPs") based on the industry's 1998 revenue. ICPs seek to provide an alternative to the incumbent local exchange carriers ("ILECs"), long distance carriers and other communications service providers for a full range of communications services in the increasingly deregulated telecommunications industry. The Company's Telecom Services primarily include its competitive local exchange carrier ("CLEC") operations, in which the Company operates fiber networks in regional clusters covering major metropolitan statistical areas in California, Colorado, Ohio, Texas and the Southeast, offering local, long distance, data and enhanced telephony services to business end users and ISPs. Additionally, in February 1999, the Company began providing wholesale network services over its nationwide data network. Until the completion of the sales of such operations, the Company also provides a wide range of network systems integration services and maritime and international satellite transmission services. Network Services consists of information technology services and selected networking products, focusing on network design, installation, maintenance and support. Satellite Services consists of satellite voice, data and video services provided to major cruise lines, the U.S. Navy, the offshore oil and gas industry and ICPs. As a leading participant in the rapidly growing competitive local telecommunications industry, the Company has experienced significant growth, with total revenue increasing from approximately $72.7 million for fiscal 1996 to approximately $402.6 million for the 12-month period ended June 30, 1999. The Company's rapid growth is the result of the initial installation, acquisition and subsequent expansion of its fiber optic networks and the expansion of its communications service offerings. The Federal Telecommunications Act of 1996 (the "Telecommunications Act") and pro-competitive state regulatory initiatives have substantially changed the telecommunications regulatory environment in the United States. Under the Telecommunications Act, the Company is permitted to offer all interstate and intrastate telephone services, including competitive local dial tone. In early 1997, the Company began marketing and selling local dial tone services in major metropolitan areas in California, Colorado, Ohio and the Southeast and, in December 1998, began offering services in Texas through an acquired business. During fiscal 1997, fiscal 1998 and the six months ended June 30, 1999, the Company sold 178,470, 206,458 and 132,122 local access lines, respectively, net of cancellations of which 494,405 were in service at June 30, 1999. In addition, the Company's regional fiber networks have grown from 2,143 fiber route miles at the end of fiscal 1996 to 4,406 fiber route miles at June 30, 1999. The Company had 29 operating high capacity digital circuit switches and 16 operational data communications switches at June 30, 1999, and plans to install additional switches as demand warrants. As a complement to its local exchange services offered to business end users, the Company markets bundled service offerings provided over its regional fiber network which include long distance, enhanced telecommunications services and data services. Additionally, the Company owns and operates a nationwide data network with 236 points of presence ("POPs") over which the Company recently began providing wholesale Internet access and enhanced network services to MindSpring Enterprises, Inc., an Internet service provider ("ISP") located in Atlanta, Georgia ("MindSpring") and certain other ISPs, and intends to offer similar services to more ISPs and telecommunications providers in the future. 26 To better focus its efforts on its core Telecom Services operations, the Company made further progress toward the disposal of certain assets which management believes do not complement its overall business strategy. On July 15, 1999, the Company's board of directors adopted a formal plan to dispose of the operations of the Company's wholly-owned subsidiaries, ICG Fiber Optic Technologies, Inc. and Fiber Optic Technologies of the Northwest, Inc. (collectively, "Network Services") and ICG Satellite Services, Inc. and Maritime Telecommunications Network, Inc. (collectively, "Satellite Services"), through the sales of such businesses for cash proceeds. The Company has signed a letter of intent to a third party to sell all of the capital stock of Network Services. On August 11, 1999, the Company entered into a definitive agreement to sell all of the capital stock of Satellite Services to a third party for cash proceeds of approximately $100.0 million. The Company anticipates the sales of Network Services and Satellite Services will be completed during the next 12 months. Due primarily to the loss of a major customer, which generated a significant obligation under a volume discount agreement with its call transport provider, the board of directors of Zycom Corporation ("Zycom") approved a plan on August 25, 1998 to wind down and ultimately discontinue Zycom's operations. On October 22, 1998, Zycom completed the transfer of all customer traffic to other providers and on January 4, 1999, the Company completed the sale of the remainder of Zycom's long-lived operating assets to an unrelated third party. On February 17, 1999, the Company sold certain of the operating assets and liabilities of NETCOM On-Line Communication Services, Inc. ("NETCOM") to MindSpring for total proceeds of $245.0 million, and on March 16, 1999, the Company sold all of the capital stock of NETCOM's international operations in Canada and the United Kingdom to other unrelated third parties for total proceeds of approximately $41.1 million. During the six months ended June 30, 1999, the Company recorded a combined gain on the sales of the operations of NETCOM of approximately $193.0 million, net of income taxes of approximately $6.4 million. Offsetting the gain on the sales is approximately $16.6 million of net losses from operations of NETCOM from November 3, 1998 (the date on which the Company's board of directors adopted the formal plan to dispose of the operations of NETCOM) through the dates of the sales. Since the operations sold were acquired by the Company in a transaction accounted for as a pooling of interests, the gain on the sales of the operations of NETCOM is classified as an extraordinary item in the Company's consolidated statement of operations. For fiscal 1996, 1997 and 1998, Network Services, Satellite Services, Zycom and NETCOM combined reported revenue of $216.8 million, $284.7 million and $275.9 million, respectively, and EBITDA losses (before nonrecurring and noncash charges) of $(36.0) million, $(13.4) million and $(16.7) million, respectively. The Company's consolidated financial statements reflect the operations of Network Services, Satellite Services, Zycom and NETCOM as discontinued for all periods presented. The Company will from time to time evaluate all of its assets as to their core need and, based on such analysis, may sell or otherwise dispose of assets which do not complement its overall business strategy. In conjunction with the sale to MindSpring, the legal name of the NETCOM subsidiary was changed to ICG NetAhead, Inc. ("NetAhead"). NetAhead has retained the domestic Internet backbone assets formerly owned by NETCOM which include 236 POPs serving approximately 700 cities nationwide. NetAhead is utilizing the retained network operating assets to provide wholesale Internet access and enhanced network services to MindSpring and other ISPs and telecommunications providers. On February 17, 1999, the Company entered into an agreement to lease to MindSpring for a one-year period the capacity of certain network operating assets formerly owned by NETCOM and retained by the Company. MindSpring is utilizing the Company's network capacity to provide Internet access to the dial-up services customers formerly owned by NETCOM. Over the term of the one-year agreement, MindSpring is required to pay the Company a minimum of $27.0 million, although such minimum is subject to increase dependent upon network usage. In addition, the Company is receiving for a one-year period 50% of the gross revenue earned by MindSpring from the dedicated access customers formerly owned by NETCOM, estimated to be approximately $10.0 million for the term of the agreement. Although the Company expects to generate cash operating losses under this agreement, any such losses will be offset by the periodic recognition of approximately $26.0 million of the proceeds from the sale of certain of NETCOM's domestic operating assets and liabilities to MindSpring, which the Company deferred on February 17, 1999. Accordingly, the Company does not expect to recognize any revenue, operating costs or selling, general and administrative expenses from services provided to MindSpring for the term of the agreement. Any incremental revenue or costs generated by other customers, or by other services provided to MindSpring, are recognized in the Company's consolidated statement of operations as incurred. Additionally, the Company intends to provide network capacity and enhanced data services to ISPs and other telecommunications providers, as required. In December 1998, the Company announced plans to offer several new network services to its business and ISP customers by utilizing its nationwide data network and 27 service capabilities to carry out-of-region traffic and enhance data services provided. One of the services currently being offered is modemless remote access service ("RAS"). RAS, also known as managed modem service, allows the Company to provide modem access at its own switch location, thereby eliminating the need for ISPs to deploy modems physically at each of their POPs. The benefits to ISPs, including reduced capital expenditures and the shift of network management responsibility from the ISPs to the Company, will allow the Company to act as an aggregator of ISP traffic. In offering RAS, the Company provides radius routing and proxy services at the modem bank connected to the Company's local switch, which services are the authentication services necessary to validate and accurately route incoming call traffic to the ISP. The Company also provides transport services to deliver all Internet protocol ("IP") data packets either directly to the ISP, if the ISP is not collocated at the Company's local switch, or directly to the Internet, bypassing the ISP. Additionally, through its network operations center, the Company monitors the usage of each port and is responsible for the administration of all network repair and maintenance. The Company is currently offering Internet RAS services, or expanded originating services, to MindSpring and expects to extend such services offerings to other ISPs in the future. In August 1998, the Company began offering enhanced telephony services via IP technology. The Company currently offers this service in 230 major cities in the United States, which cities account for more than 90% of the commercial long distance market. The Company carries the IP traffic over its nationwide data network and terminates a large portion of the traffic via its own POPs. The Company also began offering integrated access service ("IAS") which allows voice and data traffic to be carried on the same circuit. Through equipment installed by the Company at the customers' premises and in the Company's central offices, IAS provides expanded bandwidth for small to medium-sized business customers as an alternative to purchasing additional circuits. Data traffic, including Internet traffic, from IAS service offerings will be carried over the Company's nationwide network. The Company's nationwide network will also be utilized in offering peering services to its ISP customers, in which service offerings the Company will become the general backbone provider for its customers. Additionally, the Company intends to provide other enhanced network services as demand warrants. The Company will continue to expand its network and service offerings through construction, leased facilities, strategic alliances and mergers and acquisitions. For example, on December 31, 1998, the Company purchased from Central and South West Corporation ("CSW") 100% of the partnership interests in ICG ChoiceCom, L.P. ("ChoiceCom"), a strategic alliance with CSW formed for the purpose of developing and marketing telecommunications services in certain cities in Texas. ChoiceCom is based in Austin, Texas and currently provides local exchange and long distance services in Austin, Corpus Christi, Dallas, Houston and San Antonio, Texas. For fiscal 1997 and 1998, ChoiceCom reported revenue of $0.3 million and $5.8 million, respectively, and EBITDA losses (before nonrecurring and noncash charges) of $(5.5) million and $(13.6) million, respectively. Additionally, on the acquisition date, ChoiceCom had five operating high capacity digital circuit switches and two operational data communications switches and had 19,569 access lines in service, including 15,282 access lines previously sold by ICG on behalf of ChoiceCom. In March 1999, the Company entered into an agreement with NorthPoint Communications, Inc., a data CLEC based in San Francisco, California ("NorthPoint"), which designates NorthPoint as the Company's preferred digital subscriber line ("DSL") provider through June 1, 2001. A significant portion of the Company's DSL traffic will be routed by NorthPoint to the Company's asynchronous transfer mode ("ATM") switches and transported by the Company either to the ISP, via a point to point connection or via IP technology, or directly to the Internet, as required. The Company expects to purchase a minimum of 75,000 digital subscriber lines from NorthPoint during the term of the agreement. In August 1999, the Company signed a nonbinding letter of intent with a large national ISP which is currently a local exchange customer of the Company. If the agreement is finalized, the Company will provide Internet RAS to the ISP for a five-year period for a minimum of $160.0 million over the term of the agreement. The Company is currently converting the ISP's existing primary rate interface ("PRI") lines to accommodate RAS service and expects to convert a total of 100,000 PRI lines in conjunction with the agreement. In June 1999, the Company entered into a five-year agreement with Qwest Communications Corporation ("Qwest"), whereby Qwest has agreed to purchase 100,000 RAS circuits from the Company. The Company expects to install a minimum of 80,000 of Qwest's RAS circuits by September 30, 1999, with the remaining 20,000 RAS circuits to be installed prior to June 29, 2000. The Company also entered into two long-term fiber optic capacity agreements with Qwest in June 1999. Under the first agreement, the Company will lease more than 7,600 miles of fiber optic capacity from Qwest for a term of between 8 and 20 years, as determined by the Company. The Company believes that the additional capacity will increase the speed and national presence of the Company's fiber optic network. Under the second agreement, Qwest will lease certain fiber optic capacity from the Company, for a 10-year minimum term for 28 total proceeds of $32.0 million. In April 1999, the Company announced its intention to expand its RAS and other network service offerings during 1999 to the major U.S. markets of Boston, New York, Washington D.C., Miami, Chicago and Seattle. In conjunction with the increase in its service offerings, the Company has and will continue to need to spend significant amounts on sales, marketing, customer service, engineering and support personnel prior to the generation of corresponding revenue. EBITDA, EBITDA (before nonrecurring and noncash charges), and operating and net losses have generally increased immediately preceding and during periods of relatively rapid network expansion and development of new services. Since the quarter ended June 30, 1996, EBITDA losses (before nonrecurring and noncash charges) have improved for each consecutive quarter, through and including the quarter ended June 30, 1999 for which the Company reported positive EBITDA (before nonrecurring and noncash charges) of $15.2 million. As the Company provides a greater volume of higher margin services, principally local exchange services, carries more traffic on its own facilities rather than ILEC facilities and obtains the right to use unbundled ILEC facilities, while experiencing decelerating increases in personnel and other selling, general and administrative expenses supporting its operations, any or all of which may not occur, the Company anticipates that EBITDA performance will continue to improve in the near term. Results of Operations The following table provides a breakdown of revenue, operating costs and selling, general and administrative expenses for Telecom Services and certain other financial data for the Company for the periods indicated. The table also shows certain revenue, expenses, operating loss, EBITDA and EBITDA (before nonrecurring and noncash charges) as a percentage of the Company's total revenue.
Three months ended June 30, Six months ended June 30, ------------------------------------------------ ---------------------------------------------- 1998 1999 1998 1999 ----------------------- ------------------------ ----------------------- ---------------------- $ % $ % $ % $ % ------------- --------- ------------- ---------- ------------- --------- ------------- -------- (unaudited) (in thousands) Statement of Operations Data: Revenue 64,215 100 117,654 100 122,702 100 221,985 100 Operating costs 43,310 67 59,458 51 88,968 72 113,107 51 Selling, general and administrative: Telecom services 31,990 37,832 62,954 76,256 Corporate services (1) 5,842 5,143 10,260 9,527 ------------- --------- ------------- ---------- ------------- ---------- ------------- ------- Total selling, general and administrative 37,832 59 42,975 36 73,214 60 85,783 39 Depreciation and amortization 18,589 29 44,683 38 31,595 26 81,058 36 Provision for impairment of long-lived assets - - 29,300 25 - - 29,300 13 Other, net (7) - 398 - 498 - (535) - ------------- --------- ------------- ---------- ------------- ----------- ------------ ------- Operating loss (35,509) (55) (59,160) (50) (71,573) (58) (86,728) (39) Other Data: Net cash (used) provided by operating activities (25,568) 25,910 (30,853) (21,996) Net cash used by investing activities (67,411) (82,206) (30,565) 50,894 Net cash provided (used) by financing activities 238,725 (4,390) 533,541 (4,846) EBITDA (2) (16,920) (26) (14,477) (12) (39,978) (33) (5,670) (3) EBITDA (before nonrecurring and noncash charges) (2) (16,927) (26) 15,221 13 (39,480) (32) 23,095 10 Capital expenditures of continuing operations (3) 84,625 133,025 150,044 235,937 Capital expenditures of discontinued operations (3) 11,237 3,354 18,077 6,159
29
June 30, September 30, December 31, March 31, June 30, 1998 1998 1998 1999 1999 --------------- --------------- ---------------- -------------- -------------- (unaudited) Statistical Data (4): Full time employees 3,089 3,251 3,415 2,665 2,753 Telecom services: Access lines in service (5) 237,458 290,983 354,482 418,610 494,405 Buildings connected: On-net 665 684 777 789 874 Hybrid (6) 3,733 4,217 4,620 5,337 5,915 --------------- -------------- ------------- ------------- -------------- Total buildings connected 4,398 4,901 5,397 6,126 6,789 Operational switches: Circuit 20 21 29 29 29 Data 15 15 16 17 16 --------------- -------------- ------------- ------------- -------------- Total operational switches 35 36 45 46 45 Fiber route miles (7): Operational 3,812 3,995 4,255 4,351 4,406 Under construction - - - - 526 Fiber strand miles (8): Operational 124,642 127,756 134,152 155,788 164,416 Under construction - - - - 17,363 Collocations with ILECs 45 47 59 111 126 Satellite services: C-Band installations (9) 66 69 76 78 81
(1) Corporate Services consists of the operating activities of ICG Communications, Inc., ICG Funding, LLC, ICG Canadian Acquisition, Inc., ICG Holdings (Canada) Co., ICG Holdings, Inc., ICG Services, Inc., ICG Corporate Headquarters, L.L.C. and ICG 161, L.P., which primarily hold securities and other nonoperating assets and provide certain legal, accounting and finance, personnel and other administrative support services to the business units. (2) EBITDA consists of loss from continuing operations before interest, income taxes, depreciation and amortization, other expense, net and accretion and preferred dividends on preferred securities of subsidiaries, or simply, operating loss plus depreciation and amortization. EBITDA (before nonrecurring and noncash charges) represents EBITDA before certain nonrecurring and noncash charges such as the provision for impairment of long-lived assets and other, net operating costs and expenses, including deferred compensation and net loss (gain) on disposal of long-lived assets. EBITDA and EBITDA (before nonrecurring and noncash charges) are provided because they are measures commonly used in the telecommunications industry. EBITDA and EBITDA (before nonrecurring and noncash charges) are presented to enhance an understanding of the Company's operating results and are not intended to represent cash flows or results of operations in accordance with generally accepted accounting principles ("GAAP") for the periods indicated. EBITDA and EBITDA (before nonrecurring and noncash charges) are not measurements under GAAP and are 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. (3) Capital expenditures include assets acquired under capital leases and excludes payments for construction of the Company's corporate headquarters and corporate headquarters assets acquired through the issuance of long-term debt. Capital expenditures of discontinued operations includes the capital expenditures of Network Services, Satellite Services, Zycom and NETCOM combined for all periods presented. (4) Amounts presented are for three-month periods ended, or as of the end of the period presented. (5) Access lines in service at June 30, 1999 includes 413,715 lines which are provisioned through the Company's switch and 80,690 lines which are provisioned through resale and other agreements with various local exchange carriers. Resale lines typically generate lower margins and are used primarily to obtain customers. Although the Company plans to migrate lines from resale to higher margin on-switch lines, there is no assurance that it will be successful in executing this strategy. 30 (6) Hybrid buildings connected represent buildings connected to the Company's network via another carrier's facilities. (7) Fiber route miles refers to the number of miles of fiber optic cable, including leased fiber. As of June 30, 1999, the Company had 4,406 fiber route miles, of which 48 fiber route miles were leased under operating leases. Fiber route miles under construction represents fiber under construction which is expected to be operational within six months. (8) Fiber strand miles refers to the number of fiber route miles, including leased fiber, along a telecommunications path multiplied by the number of fiber strands along that path. As of June 30, 1999, the Company had 164,416 fiber strand miles, of which 856 fiber strand miles were leased under operating leases. Fiber strand miles under construction represents fiber under construction which is expected to be operational within six months. (9) The Company's C-Band installations are provided by Satellite Services. C-Band installations service cruise ships, U.S. Navy vessels and offshore oil platform installations. The Company's consolidated financial statements reflect the operations of Satellite Services as discontinued for all periods presented. Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998 Revenue. Revenue, which consists solely of revenue from Telecom Services, increased $53.5 million, or 83%, from $64.2 million for the three months ended June 30, 1998 to $117.7 million for the three months ended June 30, 1999. Local services revenue increased from $29.5 million, or 46% of revenue, for the three months ended June 30, 1998 to $76.8 million, or 65% of revenue, for the three months ended June 30, 1999, primarily due to an increase in local access lines from 237,458 lines in service at June 30, 1998 to 494,405 lines in service at June 30, 1999. In addition, local access revenue includes revenue of approximately $6.6 million and $40.1 million for the three months ended June 30, 1998 and 1999, respectively, for reciprocal compensation relating to the transport and termination of local traffic to ISPs from customers of ILECs pursuant to various interconnection agreements. These agreements are subject to renegotiation over the next several months. While management believes that these agreements will be replaced by agreements offering the Company some form of compensation for ISP traffic, the renegotiated agreements may reflect rates for reciprocal compensation which are lower than the rates under the current contracts. See "Liquidity - Transport and Termination Charges." Special access revenue increased from $17.5 million, or 27% of revenue, for the three months ended June 30, 1998 to $23.4 million, or 20% of revenue, for the three months ended June 30, 1999. Switched access (terminating long distance) revenue increased to $12.4 million for the three months ended June 30, 1999, compared to $11.4 million for the three months ended June 30, 1998. The Company has raised prices on its wholesale switched services product in order to improve margins. Revenue from long distance services decreased from $5.8 million for the three months ended June 30, 1998 to $5.1 million for the three months ended June 30, 1999. The decrease in long distance revenue is primarily attributable to the Company's planned attrition of resale access lines which had high long distance service penetration rates. Revenue from data services did not generate a material portion of total revenue during either period. Operating costs. Operating costs, which consists solely of operating costs from Telecom Services, increased $16.1 million, or 37%, from $43.3 million for the three months ended June 30, 1998 to $59.5 million for the three months ended June 30, 1999. Additionally, operating costs decreased as a percentage of revenue from 67% for the three months ended June 30, 1998 to 51% for the three months ended June 30, 1999. Operating costs consist of payments to ILECs for the use of network facilities to support special and switched access services, network operating costs, right of way fees and other costs. The increase in operating costs in absolute dollars is attributable to the increase in volume of local and special access services and the increase in network operating costs which include engineering and operations personnel dedicated to the development and launch of local exchange services. The decrease in operating costs as a percentage of revenue is due primarily to a greater volume of higher margin services, principally local exchange services. The Company expects the ratio of operating costs to revenue will further improve as the Company provides a greater volume of higher margin services, principally local exchange services, carries more traffic on its own facilities rather than the ILEC facilities and obtains the right to use unbundled ILEC facilities on satisfactory terms, any or all of which may not occur. Selling, general and administrative expenses. Total selling, general and administrative ("SG&A") expenses increased $5.1 million, or 14%, from $37.8 31 million for the three months ended June 30, 1998 to $43.0 million for the three months ended June 30, 1999. Total SG&A expenses decreased as a percentage of revenue from 59% for the three months ended June 30, 1998 to 36% for the three months ended June 30, 1999. Telecom Services SG&A expenses increased from $32.0 million, or 50% of revenue, for the three months ended June 30, 1998 to $37.8 million, or 32% of revenue, for the three months ended June 30, 1999. The increase in absolute dollars is principally due to the continued rapid expansion of the Company's Telecom Services networks and related significant additions to the Company's management information systems, customer service, marketing and sales staffs dedicated to the expansion of the Company's networks and implementation of the Company's expanded services strategy, primarily the development of local and long distance telephone services. As the Company begins to benefit from the revenue generated by newly developed services requiring substantial administrative, selling and marketing expense prior to initial service offerings, Telecom Services has experienced declining SG&A expenses as a percentage of revenue. From time to time, the Company will experience increases in SG&A expenses as the Company prepares for offerings of newly developed services. Corporate Services SG&A expenses decreased $0.7 million, from $5.8 million for the three months ended June 30, 1998 to $5.1 million for the three months ended June 30, 1999, primarily due to the Company's purchase of the corporate headquarters, effective January 1, 1999, which was leased under an operating lease during 1998. Depreciation and amortization. Depreciation and amortization increased $26.1 million, or 140%, for the three months ended June 30, 1999, compared to the three months ended June 30, 1998, primarily due to increased investment in depreciable assets resulting from the continued expansion of the Company's networks and services, in addition to increased amortization arising from goodwill recorded in conjunction with three purchase business combinations completed during the second half of fiscal 1998. The Company expects that depreciation and amortization will continue to increase as the Company continues to invest in the expansion and upgrade of its regional fiber and nationwide data networks. Provision for impairment of long-lived assets. For the three months ended June 30, 1999, provision for impairment of long-lived assets of $29.3 million relates to the impairment of software and other capitalized costs associated with Telecom Services' in-process billing and provisioning system development projects. The provision for impairment of long-lived assets was based on management's decision to select new vendors for these systems, which vendors are expected to provide the Company with billing and provisioning solutions with improved functionality and earlier delivery dates at significantly lower costs. The Company's in-process billing and provisioning systems were either not operational or were serving minimal customers at the time management determined the carrying value of the underlying assets was not recoverable. Other, net. Other, net operating costs and expenses increased $0.4 million for the three months ended June 30, 1999, compared to the three months ended June 30, 1998. For the three months ended June 30, 1999, other, net operating costs and expenses primarily includes deferred compensation expense of $0.4 million related to the Company's deferred compensation arrangement with its chief executive officer. Other amounts included in other, net operating costs and expenses for the three months ended June 30, 1998 and 1999 include net gains and losses on disposal of miscellaneous long-lived assets. Interest expense. Interest expense increased $9.8 million, from $41.5 million for the three months ended June 30, 1998, to $51.3 million for the three months ended June 30, 1999, which includes $47.1 million of noncash interest. The Company's interest expense increases, and will continue to increase, because the principal amount of its indebtedness increases until the Company's senior indebtedness begins to pay interest in cash, beginning in 2001. Additionally, interest expense increased due to the increase in long-term debt associated with the Company's purchase of the corporate headquarters, effective January 1, 1999. Interest income. Interest income decreased $4.7 million, from $8.5 million for the three months ended June 30, 1998 to $3.8 million for the three months ended June 30, 1999. The decrease is attributable to the decrease in cash, cash equivalents and short-term investments as the Company funds operating losses and continues to invest available cash balances in telecommunications equipment and other assets. Other expense, net. Other expense, net increased from $0.3 million for the three months ended June 30, 1998 to $1.8 million for the three months ended June 30, 1999. Other expense, net recorded during both the three months ended June 30, 1998 and 1999 primarily consists of litigation settlement costs. 32 Accretion and preferred dividends on preferred securities of subsidiaries. Accretion and preferred dividends on preferred securities of subsidiaries increased $1.6 million, from $13.6 million for the three months ended June 30, 1998 to $15.2 million for the three months ended June 30, 1999. The increase is due primarily to the periodic payment of dividends on the 14% Exchangeable Preferred Stock Mandatorily Redeemable 2008 (the "14% Preferred Stock") and the 14 1/4% Exchangeable Preferred Stock Mandatorily Redeemable 2009 (the "14 1/4% Preferred Stock") in additional shares of 14% Preferred Stock and 14 1/4% of Preferred Stock. Accretion and preferred dividends on preferred securities of subsidiaries recorded during the three months ended June 30, 1999 consists of the accretion of issuance costs ($0.3 million) and the accrual of the preferred securities dividends ($14.9 million) associated with the 6 3/4% Exchangeable Limited Liability Company Preferred Securities Mandatorily Redeemable 2009 (the "6 3/4% Preferred Securities"), the 14% Preferred Stock and the 14 1/4% Preferred Stock. Loss from continuing operations. Loss from continuing operations increased $41.4 million, or 50%, from $82.4 million for the three months ended June 30, 1998 to $123.8 million for the three months ended June 30, 1999 due to the increases in operating costs, SG&A expenses, depreciation and amortization and provision for impairment of long-lived assets, offset by an increase in revenue, as noted above. Net loss from discontinued operations. Net loss from discontinued operations decreased $9.7 million or 53%, from $18.4 million for the three months ended June 30, 1998 to $8.7 million for the three months ended June 30, 1999. Net loss from discontinued operations for the three months ended June 30, 1998 consists of the combined net losses of Network Services, Satellite Services, Zycom and NETCOM. Net loss from discontinued operations for the three months ended June 30, 1999 consists of the combined net losses of Network Services and Satellite Services. Zycom terminated its normal operations on October 22, 1998 and, accordingly, the Company reported no loss from discontinued operations of Zycom for the three months ended June 30, 1999. The Company sold the operations of NETCOM in February and March 1999. Net loss from discontinued operations for the three months ended June 30, 1999 includes an estimated loss on the disposal of Network Services of $8.0 million. Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998 Revenue. Revenue, which consists solely of revenue from Telecom Services, increased $99.3 million, or 81%, from $122.7 million for the six months ended June 30, 1998 to $222.0 million for the six months ended June 30, 1999. Local services revenue increased from $52.6 million, or 43% of revenue, for the six months ended June 30, 1998 to $144.2 million, or 65% of revenue, for the six months ended June 30, 1999. In addition, local access revenue includes revenue of approximately $15.1 million and $70.9 million for the six months ended June 30, 1998 and 1999, respectively, for reciprocal compensation relating to the transport and termination of local traffic to ISPs from customers of ILECs pursuant to various interconnection agreements. Special access revenue increased from $33.7 million, or 27% of revenue, for the six months ended June 30, 1998 to $46.0 million, or 21% of revenue, for the six months ended June 30, 1999. Switched access (terminating long distance) revenue decreased to $21.6 million for the six months ended June 30, 1999, compared to $25.6 million for the six months ended June 30, 1998. The Company has raised prices on its wholesale switched services product in order to improve margins and to de-emphasize its wholesale switched services. Revenue from long distance decreased to $10.2 million for the six months ended June 30, 1999, compared to $10.9 million for the six months ended June 30, 1998. The decrease in long distance revenue is primarily attributable to the Company's planned attrition of resale access lines which had high long distance service penetration rates. Revenue from data services did not generate a material portion of total revenue during either period. Operating costs. Operating costs, which consists solely of operating costs from Telecom Services, increased $24.1 million, or 27%, from $89.0 million for the six months ended June 30, 1998 to $113.1 million for the six months ended June 30, 1999. Additionally, operating costs decreased as a percentage of revenue from 73% for the six months ended June 30, 1998 to 51% for the six months ended June 30, 1999. The increase in operating costs in absolute dollars is attributable to the increase in volume of local and special access services and the increase in network operating costs which include engineering and operations personnel dedicated to the development and launch of local exchange services. The decrease in operating costs as a percentage of revenue is due primarily to a greater volume of higher margin services, principally local exchange services. 33 Selling, general and administrative expenses. Total SG&A expenses increased $12.6 million, or 17%, from $73.2 million for the six months ended June 30, 1998 to $85.8 million for the six months ended June 30, 1999. Total SG&A expenses decreased as a percentage of revenue from 60% for the six months ended June 30, 1998 to 39% for the six months ended June 30, 1999. Telecom Services SG&A expenses increased from $63.0 million, or 51% of revenue, for the six months ended June 30, 1998 to $76.3 million, or 34% of revenue, for the six months ended June 30, 1999. The increase in absolute dollars is principally due to the continued rapid expansion of the Company's Telecom Services networks and related significant additions to the Company's management information systems, customer service, marketing and sales staffs dedicated to the expansion of the Company's networks and implementation of the Company's expanded services strategy, primarily the development of local and long distance telephone services. As the Company begins to benefit from the revenue generated by newly developed services requiring substantial administrative, selling and marketing expense prior to initial service offerings, Telecom Services has experienced declining SG&A expenses as a percentage of revenue. Corporate Services SG&A expenses decreased $0.7 million, from $10.3 million for the six months ended June 30, 1998 to $9.5 million for the six months ended June 30, 1999, primarily due to the Company's purchase of the corporate headquarters, effective January 1, 1999, which was leased under an operating lease during 1998. Depreciation and amortization. Depreciation and amortization increased $49.5 million, or 157%, for the six months ended June 30, 1999, compared to the six months ended June 30, 1998, primarily due to increased investment in depreciable assets resulting from the continued expansion of the Company's networks and services, in addition to increased amortization arising from goodwill recorded in conjunction with three purchase business combinations completed during the second half of fiscal 1998. Provision for impairment of long-lived assets. For the six months ended June 30, 1999, provision for impairment of long-lived assets of $29.3 million relates to the impairment of software and other capitalized costs associated with Telecom Services' in-process billing and provisioning system development projects. The provision for impairment of long-lived assets was based on management's decision to select new vendors for these systems, which vendors are expected to provide the Company with billing and provisioning solutions with improved functionality and earlier delivery dates at significantly lower costs. The Company's in-process billing and provisioning systems were either not operational or were serving minimal customers at the time management determined the carrying value of the underlying assets was not recoverable. Other, net. Other, net operating costs and expenses fluctuated from $0.5 million net expense to $0.5 million net income. Other, net operating costs and expenses for the six months ended June 30, 1999 includes deferred compensation expenses of $0.4 million, offset primarily by a net gain on disposal of long-lived assets of $0.9 million relating primarily to the sale of certain of the Company's Federal Communications Commission ("FCC") licenses. Other, net operating costs and expenses for the six months ended June 30, 1998 consists primarily of a net loss on disposal of long-lived assets related to the write-off of certain installation costs of disconnected special access customers. Interest expense. Interest expense increased $22.8 million, from $75.9 million for the six months ended June 30, 1998, to $98.7 million for the six months ended June 30, 1999, which includes $92.7 million of noncash interest. The Company's interest expense increases, and will continue to increase, because the principal amount of its indebtedness increases until the Company's senior indebtedness begins to pay interest in cash, beginning in 2001. Additionally, interest expense increased due to the increase in long-term debt associated with the Company's purchase of the corporate headquarters, effective January 1, 1998. Interest income. Interest income decreased $6.1 million, from $14.0 million for the six months ended June 30, 1998 to $7.9 million for the six months ended June 30, 1999. The decrease is attributable to the decrease in cash, cash equivalents and short-term investments as the Company funds operating losses and continues to invest available cash balances in telecommunications equipment and other assets. Other expense, net. Other expense, net increased from $0.6 million for the six months ended June 30, 1998 to $2.3 million for the six months ended June 30, 1999 and primarily consists of litigation settlement costs. For the six months ended June 30, 1999, other expense, net is offset by the gain on the common stock of MindSpring which the Company received as partial consideration for the sale of the domestic operations of NETCOM. The Company sold its investment in MindSpring in April 1999. 34 Accretion and preferred dividends on preferred securities of subsidiaries. Accretion and preferred dividends on preferred securities of subsidiaries increased $3.2 million, from $26.8 million for the six months ended June 30, 1998 to $30.0 million for the six months ended June 30, 1999. The increase is due primarily to the periodic payment of dividends on the 14% Preferred Stock and the 14 1/4% Preferred Stock in additional shares of 14% Preferred Stock and 14 1/4% of Preferred Stock. Accretion and preferred dividends on preferred securities of subsidiaries recorded during the six months ended June 30, 1999 consists of the accretion of issuance costs ($0.6 million) and the accrual of the preferred securities dividends ($29.4 million) associated with the 6 3/4% Preferred Securities, the 14% Preferred Stock and the 14 1/4% Preferred Stock. Loss from continuing operations. Loss from continuing operations increased $49.1 million, or 31%, from $160.9 million for the six months ended June 30, 1998 to $210.0 million for the six months ended June 30, 1999 due to the increases in operating costs, SG&A expenses, depreciation and amortization, provision for impairment of long-lived assets and interest expense, offset by an increase in revenue, as noted above. Net loss from discontinued operations. Net loss from discontinued operations decreased $32.9 million or 79%, from $41.7 million for the six months ended June 30, 1998 to $8.8 million for the six months ended June 30, 1999. Net loss from discontinued operations for the six months ended June 30, 1998 consists of the combined net losses of Network Services, Satellite Services, Zycom and NETCOM. Net loss from discontinued operations for the six months ended June 30, 1999 consists of the combined net losses of Network Services and Satellite Services. Zycom terminated its normal operations on October 22, 1998 and, accordingly, the Company reported no loss from discontinued operations of Zycom for the six months ended June 30, 1999. Since the Company expected to report a gain on the disposition of NETCOM, the Company deferred the net losses from operations of NETCOM from November 3, 1998 (the date on which the Company's board of directors adopted the formal plan to dispose of the operations of NETCOM) through the dates of the sales and, accordingly, the Company reported no loss from discontinued operations of NETCOM for the six months ended June 30, 1999. Net loss from discontinued operations for the six months ended June 30, 1999 includes an estimated loss on the disposal of Network Services of $8.0 million. Extraordinary gain on sales of operations of NETCOM. The Company reported an extraordinary gain on the sales of the operations of NETCOM during the six months ended June 30, 1999 of $193.0 million, net of income taxes of $6.4 million. Offsetting the gain on the sales is approximately $16.6 million of net losses of operations of NETCOM from November 3, 1998 through the dates of the sales and $26.0 million of deferred sales proceeds from the sale of certain of the domestic operating assets and liabilities of NETCOM to MindSpring. The deferred proceeds are recognized on a periodic basis over the term of the Company's network capacity agreement with MindSpring. Liquidity and Capital Resources The Company's growth has been funded through a combination of equity, debt and lease financing. As of June 30, 1999, the Company had current assets of $449.5 million, including $265.4 million of cash, cash equivalents and short-term investments available for sale, which exceeded current liabilities of $160.3 million, providing working capital of $289.2 million. The Company invests excess funds primarily in short-term, interest-bearing investment-grade securities until such funds are used to fund the capital investments and operating needs of the Company's business. The Company's short term investment objectives are safety, liquidity and yield, in that order. Net Cash Used By Operating Activities The Company's operating activities used $30.9 million and $22.0 million for the six months ended June 30, 1998 and 1999, respectively. Net cash used by operating activities is primarily due to losses from continuing operations and increases in receivables, which are partially offset by changes in working capital items and noncash expenses, such as depreciation and amortization, deferred interest expense and accretion and preferred dividends on subsidiary preferred securities. The Company does not anticipate that cash provided by operations will be sufficient to fund operating activities, the future expansion of existing networks or the construction and acquisition of new networks in the near term. As the Company provides a greater volume of higher margin services, principally local exchange services, carries more traffic on its own facilities rather than ILEC facilities and obtains the right to use unbundled ILEC facilities, while experiencing decelerating increases in personnel and other SG&A expenses 35 supporting its operations, any or all of which may not occur, the Company anticipates that net cash used by operating activities will improve in the near term. Net Cash (Used) Provided By Investing Activities Investing activities used $30.6 million and provided $50.9 million in the six months ended June 30, 1998 and 1999, respectively. Net cash used by investing activities for the six months ended June 30, 1998 primarily includes cash expended for the acquisition of property, equipment and other assets of $150.0 million, offset by the proceeds from the sale of corporate headquarters of $29.1 million and proceeds from the sale of short-term investments available for sale of $96.3 million. Net cash provided by investing activities for the six months ended June 30, 1999 includes proceeds from the sales of the operations of NETCOM of $252.9 million and proceeds from the sales of short-term investments available for sale and marketable securities of $51.8 million, offset by cash expended for the acquisition of property, equipment and other assets of $229.7 million. The Company will continue to use cash in 1999 and subsequent periods for the construction of new networks, the expansion of existing networks and, potentially, for acquisitions. The Company acquired assets under capital leases of $6.2 million during the six months ended June 30, 1999. Net Cash Provided (Used) By Financing Activities Financing activities provided $533.5 million and used $4.8 million in the six months ended June 30, 1998 and 1999, respectively. Net cash provided by financing activities for the six months ended June 30, 1998 includes the net proceeds from the private placement of the 10% Notes and 9 7/8% Notes in February and April 1998, respectively. Historically, the funds to finance the Company's business acquisitions, capital expenditures, working capital requirements and operating losses have been obtained through public and private offerings of ICG and ICG Holdings (Canada) Co. ("Holdings-Canada") common shares, convertible subordinated notes, convertible preferred shares of Holdings-Canada, capital lease financings and various working capital sources, including credit facilities, in addition to the private placement of the securities previously mentioned and other securities offerings. Net cash provided (used) by financing activities for the six months ended June 30, 1998 and 1999 also include proceeds from the issuance of common stock in conjunction with the exercise of options and warrants and the Company's employee stock purchase plan, offset by principal payments on long-term debt and capital leases and payments of preferred dividends on preferred securities of subsidiaries. On August 12, 1999, ICG Equipment and NetAhead entered into a $200.0 million senior secured financing facility (the "Senior Facility") consisting of a $75.0 million term loan, a $100.0 million term loan and a $25.0 million revolving line of credit. As required under the terms of the loan, the Company borrowed on August 12, 1999 the available $75.0 million on the $75.0 million term loan. The loan bears interest at an annual interest rate of LIBOR plus 3.5% or the base rate, as defined in the credit agreement, plus 2.5%, at the Company's option (10.5% on August 12, 1999). Quarterly repayments commence September 30, 1999 and require quarterly loan balance reductions of 0.25% through June 30, 2005 with the remaining outstanding balance to be repaid during the final three quarters of the loan term. The $75.0 million term loan matures on March 31, 2006. On August 12, 1999, the Company borrowed $5.0 million on the $100.0 million term loan, which is available for borrowing through August 10, 2000 at an initial annual interest rate of LIBOR plus 3.125% or the base rate, as defined in the credit agreement, plus 2.125%, at the Company's option (10.125% on August 12, 1999). Quarterly repayments commence September 30, 2002 and require aggregate loan balance reductions of 25% through June 30, 2003, 35% through June 30, 2004 and 40% through June 30, 2005. The $100.0 million term loan matures on June 30, 2005. The $25.0 million revolving line of credit is available through the maturity date of June 30, 2005 at an initial annual interest rate of LIBOR plus 3.125% or the base rate, as defined in the credit agreement, plus 2.125%, at the Company's option. As of June 30, 1999, the Company had an aggregate of approximately $71.8 million of capital lease obligations and an aggregate accreted value of approximately $1.7 billion was outstanding under the 13 1/2% Senior Discount Notes due 2005 (the "13 1/2 % Notes"), the 12 1/2% Senior Discount Notes due 2006 (the "12 1/2 % Notes"), the 11 5/8% Senior Discount Notes due 2007 (the "11 5/8 % Notes"), the 10% Notes and the 9 7/8% Notes. The 13 1/2% Notes require payments of interest to be made in cash commencing March 15, 2001 and mature on September 15, 2005. The 12 1/2% Notes require payments of interest to be made in cash commencing November 1, 2001 and mature on May 1, 2006. The 11 5/8% Notes require payments of interest to be made in cash commencing September 15, 2002 36 and mature on March 15, 2007. The 10% Notes require payments of interest in cash commencing August 15, 2003 and mature on February 15, 2008. The 9 7/8% Notes require payments of interest in cash commencing November 1, 2003 and mature on May 1, 2008. The 6 3/4% Preferred Securities require payments of dividends to be made in cash through November 15, 2000. In addition, the 14% Preferred Stock and 14 1/4% Preferred Stock require payments of dividends to be made in cash commencing June 15, 2002 and August 1, 2001, respectively. As of June 30, 1999, the Company had $34.6 million of other indebtedness outstanding. With respect to senior indebtedness outstanding on June 30, 1999, the Company has cash interest payment obligations of approximately $113.3 million in 2001, $158.0 million in 2002, $212.6 million in 2003 and $257.2 million in 2004. With respect to preferred securities currently outstanding, the Company has cash dividend obligations of approximately $4.5 million remaining in 1999 and $8.9 million in 2000, for which the Company has restricted cash balances available for such dividend payments, $10.7 million in 2001 and $35.4 million in 2002 and each year thereafter through 2007. Accordingly, the Company may have to refinance a substantial amount of indebtedness and obtain substantial additional funds prior to March 2001. The Company's ability to do so will depend on, among other things, its financial condition at the time, restrictions in the instruments governing its indebtedness, and other factors, including market conditions, beyond the control of the Company. There can be no assurance that the Company will be able to refinance such indebtedness, including such capital leases, or obtain such additional funds, and if the Company is unable to effect such refinancings or obtain additional funds, the Company's ability to make principal and interest payments on its indebtedness or make payments of cash dividends on, or the mandatory redemption of, its preferred securities, would be adversely affected. Capital Expenditures The Company's capital expenditures of continuing operations (including assets acquired under capital leases and excluding payments for construction of the Company's corporate headquarters) were $150.0 million and $235.9 million for the six months ended June 30, 1998 and 1999, respectively. The Company anticipates that the expansion of existing networks, construction of new networks and further development of the Company's products and services will require capital expenditures of approximately $284.0 million during the remainder of 1999. To facilitate the expansion of its services and networks, the Company has entered into equipment purchase agreements with various vendors under which the Company has committed to purchase a substantial amount of equipment and other assets, including a full range of switching systems, fiber optic cable, network electronics, software and services. If the Company fails to meet the minimum purchase level in any given year, the vendor may discontinue certain discounts, allowances and incentives otherwise provided to the Company. Actual capital expenditures will depend on numerous factors, including certain factors beyond the Company's control. These factors include the nature of future expansion and acquisition opportunities, economic conditions, competition, regulatory developments and the availability of equity, debt and lease financing. Other Cash Commitments and Capital Requirements The Company's operations have required and will continue to require significant capital expenditures for development, construction, expansion and acquisition of telecommunications assets. Significant amounts of capital are required to be invested before revenue is generated, which results in initial negative cash flows. In addition to the Company's planned capital expenditures, it has other cash commitments as described in the footnotes to the Company's unaudited consolidated financial statements for the six months ended June 30, 1999 included elsewhere herein. In view of the continuing development of the Company's products and services, the expansion of existing networks and the construction, leasing and licensing of new networks, the Company will require additional amounts of cash in the future from outside sources. Management believes that the Company's cash on hand and amounts expected to be available through asset sales, cash flows from operations, including the collection of receivables from transport and termination charges, vendor financing arrangements and credit facilities will provide sufficient funds necessary for the Company to expand its business as currently planned and to fund its operations through 2000. Additional sources of cash may include public and private equity and debt financings, sales of non-strategic assets, capital leases and other financing arrangements. In the past, the Company has been able to secure sufficient amounts of financing to meet its capital needs. There can be no assurance that additional financing will be available to the Company or, if available, that it can be obtained on terms acceptable to the Company. 37 The failure to obtain sufficient amounts of financing could result in the delay or abandonment of some or all of the Company's development and expansion plans, which could have a material adverse effect on the Company's business. In addition, the inability to fund operating deficits with the proceeds of financings and sales of non-strategic assets until the Company establishes a sufficient revenue-generating customer base could have a material adverse effect on the Company's liquidity. Transport and Termination Charges The Company has recorded revenue of approximately $4.9 million, $58.3 million and $70.9 million for fiscal 1997, fiscal 1998 and the six months ended June 30, 1999, respectively, for reciprocal compensation relating to the transport and termination of local traffic to ISPs from customers of ILECs pursuant to various interconnection agreements. Some of the ILECs have not paid most of the bills they have received from the Company and have disputed substantially all of these charges based on the belief that such calls are not local traffic as defined by the various agreements and not subject to payment of transport and termination charges under state and federal laws and public policies. As a result, the Company expects receivables from transport and termination charges will continue to increase until these disputes have been resolved. The resolution of these disputes will be based on rulings by state public utility commissions and/or by the FCC. To date, there have been favorable final rulings from 31 state public utility commissions that ISP traffic is subject to the payment of reciprocal compensation under current interconnection agreements. Many of these state commission decisions have been appealed by the ILECs. To date, four federal district court decisions, one federal circuit court of appeals decision and one state court decision have been issued upholding state commission decisions ordering the payment of reciprocal compensation for ISP traffic. On February 25, 1999, the FCC issued a decision that ISP-bound traffic is largely jurisdictionally interstate traffic. The decision relies on the long-standing federal policy that ISP traffic, although jurisdictionally interstate, is treated as though it is local traffic for pricing purposes. The decision also emphasizes that because there are currently no federal rules governing intercarrier compensation for ISP traffic, the determination as to whether such traffic is subject to reciprocal compensation under the terms of interconnection agreements is properly made by the state commissions and that carriers are bound by their interconnection agreements and state commission decisions regarding the payment of reciprocal compensation for ISP traffic. The FCC has initiated a rulemaking proceeding regarding the adoption of prospective federal rules for intercarrier compensation for ISP traffic. In its notice of rulemaking, the FCC expresses its preference that compensation rates for this traffic continue to be set by negotiations between carriers, with disputes resolved by arbitrations conducted by state commissions, pursuant to the Telecommunications Act. Since the issuance of the FCC's decision on February 25, 1999, 15 state utility commissions, including four states in which the Company provides CLEC services, have either ruled or reaffirmed that ISP traffic is subject to reciprocal compensation under current interconnection agreements, and two state commissions have declined to apply reciprocal compensation for ISP traffic. On May 5, 1999, the Public Utilities Commission of Ohio ("PUCO") issued a decision affirming its August 1998 decision that ISP traffic is subject to reciprocal compensation under the Company's current interconnection agreement with Ameritech Corporation ("Ameritech"). The PUCO also denied Ameritech's request for a stay of its obligation to remit payment to the Company. After the PUCO issued the May 5, 1999 ruling, the Company received $43.1 million during the three months ended June 30, 1999 for amounts owed by Ameritech for reciprocal compensation. Ameritech has filed for judicial review of the PUCO decision. The Company cannot predict the final outcome on the merits of the court appeal. Additionally, on June 4, 1999, Southwestern Bell Telephone Company ("SWBT") remitted payment to the Company of $1.8 million for reciprocal compensation owed to the Company for traffic from SWBT customers in Texas to ISPs served by the Company. On June 21, 1999, the Alabama Public Service Commission ("PSC") issued a decision that BellSouth Corporation ("BellSouth") is required to pay the Company reciprocal compensation for ISP traffic. The PSC's June 21, 1999 decision modified its March 1999 decision that had found that reciprocal compensation is owed for Internet traffic under certain CLEC interconnection agreements at issue in the proceeding. The June 21, 1999 PSC decision held that the Company should be treated the same as the other CLECs that participated in the proceeding and for which the Alabama PSC previously ordered the payment of reciprocal compensation. BellSouth has filed for judicial review of both the March 4, 1999 and June 21, 1999 PSC decisions. On July 26, 1999 the California Public Utilities Commission issued a decision affirming a previous decision, issued October 1998, that held that reciprocal compensation 38 must be paid by Pacific Bell and GTE California for the termination of ISP traffic by CLECs under existing interconnection agreements. On July 28, 1999, the Colorado Public Utilities Commission approved a decision that orders US WEST Communications, Inc. ("US WEST") to pay the Company reciprocal compensation for calls from US WEST customers to ISPs served by the Company. The decision resolves in the Company's favor a complaint that was filed by the Company in June 1998. The Company has also recorded revenue of approximately $19.1 million and $7.6 million for fiscal 1998 and the six months ended June 30, 1999, respectively, related to other transport and termination charges to the ILECs, pursuant to the Company's interconnection agreements with these ILECs. Included in the Company's trade receivables at December 31, 1998 and June 30, 1999 are $72.8 million and $100.7 million, respectively, for all receivables related to reciprocal compensation and other transport and termination charges. The receivables balance at June 30, 1999 is net of an allowance of $9.6 million for disputed amounts. As the Company's interconnection agreements expire or are extended, rates for transport and termination charges are being and will continue to be renegotiated. Some of the Company's agreements are already being affected. Although the Company's interconnection agreement with BellSouth has expired, the Company has received written notification from BellSouth that the Company may continue operating under the expired interconnection agreement, until such agreement is renegotiated or arbitrated by the relevant state commissions. On May 27, 1999, the Company filed petitions with the state commissions of Alabama, Georgia, North Carolina, Kentucky, Tennessee and Florida for arbitration with BellSouth. The arbitration proceedings are ongoing in each of these states. Additionally, the Company's interconnection agreement with Ameritech recently was extended from June 15, 1999 to February 15, 2000. The Company's extension of its interconnection agreement with Ameritech includes reduced rates for transport and termination charges, and the Company expects that its negotiations and arbitrations with BellSouth will also affect the rates for transport and termination charges included in its existing interconnection agreement with BellSouth. The Company's remaining interconnection agreements expire in 1999 and 2000, and the Company has commenced renegotiations with the ILECs. While the Company believes that all revenue recorded through June 30, 1999 is collectible and that future revenue from transport and termination charges billed under the Company's current interconnection agreements will be realized, there can be no assurance that future regulatory and judicial rulings will be favorable to the Company, or that different pricing plans for transport and termination charges between carriers will not be adopted when the Company's interconnection agreements are renegotiated or arbitrated, or as a result of the FCC's rulemaking proceeding on future compensation methods. In fact, the Company believes that different pricing plans will be considered and adopted, and although the Company expects that revenue from transport and termination charges likely will decrease as a percentage of total revenue from local services in periods after the expiration of current interconnection agreements, the Company's local termination services still will be required by the ILECs and must be provided under the Telecommunications Act, and likely will result in increasing volume in minutes due to the growth of the Internet and related services markets. The Company expects to negotiate reasonable compensation and collection terms for local termination services, although there is no assurance that such compensation will remain consistent with current levels. Additionally, the Company expects to supplement its current operations with revenue, and ultimately EBITDA, from new services offerings such as RAS and DSL services, however, the Company may or may not be successful in its efforts to deploy such services profitably. Year 2000 Compliance Importance Many computer systems, software applications and other electronics currently in use worldwide are programmed to accept only two digits in the portion of the date field which designates the year. The "Year 2000 problem" arises because these systems and products cannot properly distinguish between a year that begins with "20" and the familiar "19." If these systems and products are not modified or replaced, many will fail, create erroneous results and/or may cause interfacing systems to fail. Year 2000 compliance issues are of particular importance to the Company since its operations rely heavily upon computer systems, software applications and other electronics containing date-sensitive embedded technology. Some of these technologies were internally developed and others are standard purchased systems which may or may not have been customized for the Company's particular application. The Company also relies heavily upon various vendors and suppliers 39 that are themselves very reliant on computer systems, software applications and other electronics containing date-sensitive embedded technology. These vendors and suppliers include: (i) ILECs and other local and long distance carriers with which the Company has interconnection or resale agreements; (ii) manufacturers of the hardware and related operating systems that the Company uses directly in its operations; (iii) providers that create custom software applications that the Company uses directly in its operations; and (iv) providers that sell standard or custom equipment or software which allow the Company to provide administrative support to its operations. Strategy The Company's approach to addressing the potential impact of Year 2000 compliance issues is focused upon ensuring, to the extent reasonably possible, the continued, normal operation of its business and supporting systems. Accordingly, the Company has developed a four-phase plan which it is applying to each functional category of the Company's computer systems and components. Each of the Company's computer systems, software applications and other electronics containing date-sensitive embedded technology is included within one of the following four functional categories: o Networks and Products, which consists of all components whether hardware, software or embedded technology used directly in the Company's operations, including components used by the Company's circuit and data switches and collocation and telecommunications products; o IT Systems, which consists of all components used to support the Company's operations, including provisioning and billing systems; o Building and Facilities, which consists of all components with embedded technology used at the Company's corporate headquarters building and other leased facilities, including security systems, elevators and internal use telephone systems; o Office Equipment, which consists of all office equipment with date-sensitive embedded technology. For each of the categories described above, the Company is applying the following four-phase approach to identifying and addressing the potential impact of Year 2000 compliance issues: o Phase I - Assessment During this phase, the Company's technology staff performed an inventory of all components currently in use by the Company. Based upon this inventory, the Company's business executives and technology staff jointly classified each component as a "high," "medium" or "low" priority item, determined primarily by the relative importance that the particular component has to the Company's normal business operations, the number of people internally and externally which would be affected by any failure of such component and the interdependence of such component with other components used by the Company that may be of higher or lower priority. Based upon such classifications, the Company's business executives and information technology staff jointly set desired levels of Year 2000 readiness for each component inventoried, using the following criteria, as defined by the Company: - Capable, meaning that such computer system or component will be capable of managing and expressing calendar years in four digits; - Compliant, meaning that the Company will be able to use such component for the purpose for which the Company intended it by adapting to its ability to manage and express calendar years in only two digits; - Certified, meaning that the Company has received testing results to demonstrate, or the vendor or supplier is subject to contractual terms which requires, that such component requires no Year 2000 modifications to manage and express calendar years in four digits; or 40 - Non-critical, meaning that the Company expects to be able to continue to use such component unmodified or has determined that the estimated costs of modification exceed the estimated costs associated with its failure. The Company has completed all areas of Phase I. o Phase II - Remediation During this phase, the Company is developing and executing a remediation plan for each component based upon the priorities set in Phase I. Remediation may include component upgrade, reprogramming, replacement, receipt of vendor and supplier certification or other actions as deemed necessary or appropriate. o Phase III - Testing During this phase, the Company is performing testing sufficient to confirm that the component meets the desired state of Year 2000 readiness. This phase consists of: (i) testing the component in isolation, or unit testing; (ii) testing the component jointly with other components, or system testing; and (iii) testing interdependent systems, or environment testing. o Phase IV - Implementation During the last phase, the Company is implementing each act of remediation developed and tested for each component, as well as implementing adequate controls to ensure that future upgrades and changes to the Company's computer systems, for operational reasons other than Year 2000 compliance, do not alter the Company's Year 2000 state of readiness. Current State of Readiness The Company has either already completed or has commenced all of the phases within its Year 2000 compliance strategy for each of its functional system categories, as shown by the table set forth below. Since the Company has not waited until the completion of a phase for all functional category components together before commencing the next phase, the information set forth below represents only a general description of the phase status for each functional category. For systems and products which the Company intends to abandon or replace prior to January 1, 2000, the Company has currently terminated all Year 2000 compliance efforts. 41
- - ------------------------------- ---------------------------------------------------------------------------------------------- Phase - - ------------------------------- ---------------------------------------------------------------------------------------------- I II III IV System and Level of Priority Assessment Remediation Testing Implementation - - ------------------------------- ---------------------------------------------------------------------------------------------- Networks and Products - - ------------------------------- ---------------------------------------------------------------------------------------------- High Complete Complete In progress In progress To complete Q3 1999 To complete Q3 1999 - - ------------------------------- ---------------------- ----------------------- ----------------------- ----------------------- Medium Complete Complete In progress In progress To complete Q3 1999 To complete Q3 1999 - - ------------------------------- ---------------------- ----------------------- ----------------------- ----------------------- Low Complete Complete Complete Complete - - ------------------------------- ---------------------------------------------------------------------------------------------- IT Systems - - ------------------------------- ---------------------------------------------------------------------------------------------- High Complete In progress In progress In progress To complete Q3 1999 To complete Q3 1999 To complete Q3 1999 - - ------------------------------- ---------------------- ----------------------- ----------------------- ----------------------- Medium Complete In progress In progress In progress To complete Q3 1999 To complete Q3 1999 To complete Q3 1999 - - ------------------------------- ---------------------- ----------------------- ----------------------- ----------------------- Low Complete Complete In progress In progress To complete Q3 1999 To complete Q3 1999 - - ------------------------------- ---------------------------------------------------------------------------------------------- Building and Facilities - - ------------------------------- ---------------------------------------------------------------------------------------------- High Complete Complete In progress In progress To complete Q3 1999 To complete Q3 1999 - - ------------------------------- ---------------------- ----------------------------------------------------------------------- Medium Complete Based on the results of Phase I, further remediation not considered necessary - - ------------------------------- ---------------------- ----------------------------------------------------------------------- Low Complete Based on the results of Phase I, further remediation not considered necessary - - ------------------------------- ---------------------------------------------------------------------------------------------- Office Equipment - - ------------------------------- ---------------------------------------------------------------------------------------------- High Complete Complete Complete Complete - - ------------------------------- ---------------------- ----------------------- ----------------------- ----------------------- Medium Complete Complete Complete Complete - - ------------------------------- ---------------------- ----------------------- ----------------------- ----------------------- Low Complete Complete Complete Complete - - ------------------------------- ---------------------- ----------------------- ----------------------- -----------------------
41 (continued) Costs The Company expenses all incremental costs to the Company associated with Year 2000 compliance issues as incurred. Through June 30, 1999, such costs incurred were approximately $1.1 million, consisting of approximately $0.6 million of replacement hardware and software and approximately $0.5 million of consulting fees and other miscellaneous costs of Year 2000 compliance reference and planning materials. The Company has also incurred certain internal costs, including salaries and benefits for employees dedicating various portions of their time to Year 2000 compliance issues, of which costs the Company believes has not exceeded $0.5 million through June 30, 1999. The Company expects that total future incremental costs of Year 2000 compliance efforts will be approximately $3.8 million, consisting of $2.3 million in consulting fees, $1.5 million in replacement hardware and software and other miscellaneous costs. These anticipated costs have been included in the Company's fiscal 1999 budget and represent approximately 4% of the Company's budgeted expenses for information technology through fiscal 1999. Such cost estimates are based upon presently available information and may change as the Company continues with its Year 2000 compliance plan. The Company intends to use cash on hand for Year 2000 compliance costs, as necessary. Risk, Contingency Planning and Reasonably Likely Worst Case Scenario While the Company is heavily reliant upon its computer systems, software applications and other electronics containing date-sensitive embedded technology as part of its business operations, such components upon which the Company primarily relies were developed with current state-of-the-art technology and, accordingly, the Company's four-phase approach has demonstrated that many of its high-priority systems do not present material Year 2000 compliance issues. For computer systems, software applications and other electronics containing date-sensitive embedded technology that have met the Company's desired level of Year 2000 readiness, the Company is using its existing contingency plans to mitigate or eliminate problems it may experience if an unanticipated system failure were to occur. For components that have not met the Company's desired level of readiness, the Company will develop a specific contingency plan to determine the actions the Company would take if such component failed. The Company believes that a reasonably likely worst case scenario of a Year 2000 compliance failure could include the temporary failure of a minimal number of operating systems, despite the Company's execution and satisfactory completion of its comprehensive Year 2000 compliance plan. However, under this scenario, the Company also believes that any such failed systems or components would be fully recovered within a short period subsequent to failure and, accordingly, the Company does not expect to experience any significant or long term operational disruption as a result of the failure of any systems or components directly within the Company's control. The Company acknowledges the possibility that the Company may become subject to potential claims by customers if the Company's operations are interrupted for an extended period of time. However, it is not possible to predict either the probability of such potential litigation, the amount that could be in controversy or upon which party a court would place ultimate responsibility for any such interruption. The Company views Year 2000 compliance as a process that is inherently dynamic and will change in response to changing circumstances. While the Company believes that through execution and satisfactory completion of its Year 2000 compliance strategy its computer systems, software applications and electronics will be Year 2000 compliant, there can be no assurance until the Year 2000 occurs that all systems and all interfacing technology when running jointly will function adequately. Additionally, there can be no assurance that the assumptions made by the Company within its Year 2000 compliance strategy will prove to be correct, that the strategy will succeed or that the remedial actions being implemented will be able to be completed by the time necessary to avoid system or component failures. In addition, disruptions with respect to the computer systems of vendors or customers, which systems are outside the control of the Company, could impair the Company's ability to obtain necessary products or services to sell to its customers. Disruptions of the Company's computer systems, or the computer systems of the Company's vendors or customers, as well as the cost of avoiding such disruption, could have a material adverse effect on the Company's financial condition and results of operations. 42 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's financial position and cash flows are subject to a variety of risks in the normal course of business, which include market risks associated with movements in interest rates and equity prices. The Company routinely assesses these risks and has established policies and business practices to protect against the adverse effects of these and other potential exposures. The Company does not, in the normal course of business, use derivative financial instruments for trading or speculative purposes. Interest Rate Risk The Company's exposure to market risk associated with changes in interest rates relates primarily to the Company's investments in marketable securities and its senior indebtedness. The Company invests primarily in high grade short-term investments which consist of money market instruments, commercial paper, certificates of deposit, government obligations and corporate bonds, all of which are considered to be available for sale and generally have maturities of one year or less. The Company's short term investment objectives are safety, liquidity and yield, in that order. As of June 30, 1999, the Company had approximately $265.3 million in cash, cash equivalents and short-term investments available for sale, at a weighted average fixed interest rate of 4.83% for the six months ended June 30, 1999. A hypothetical 10% fluctuation in market rates of interest would cause a change in the fair value of the Company's investment in marketable securities at June 30, 1999 of approximately $0.7 million and, accordingly, would not cause a material impact on the Company's financial position, results of operations or cash flows. At June 30, 1999, the Company's indebtedness included $1.7 billion under the 13 1/2% Notes, 12 1/2% Notes, 11 5/8% Notes, 10% Notes and 9 7/8% Notes and $491.9 million under the 14 1/4% Preferred Stock, 14% Preferred Stock and 6 3/4% Preferred Securities. These instruments contain fixed annual interest and dividend rates, respectively, and, accordingly, any change in market interest rates would have no impact on the Company's financial position, results of operations or cash flows. Future increases in interest rates could increase the cost of any new borrowings by the Company. The Company does not hedge against future changes in market rates of interest. On August 12, 1999, the Company entered into the Senior Facility, consisting of two term loans and a revolving line of credit. All components of the Senior Facility bear variable annual rates of interest, based on changes in LIBOR, the Royal Bank of Canada prime rate and the federal funds rate. Consequently, additional borrowings under the Senior Facility and increases in LIBOR, the Royal Bank of Canada prime rate and the federal funds rate will increase the Company's indebtedness and may increase the Company's interest expense in future periods. Additionally, under the terms of the Senior Facility, the Company is required to hedge the interest rate risk on $100.0 million of the Senior Facility if LIBOR exceeds 9.0% for 15 consecutive days. As of August 13, 1999, the Company had $80.0 million outstanding under the Senior Facility. Equity Price Risk On February 17, 1999, the Company completed the sale of the domestic operations of NETCOM to MindSpring, in exchange for a combination of cash and 376,116 shares of common stock of MindSpring, valued at approximately $79.76 per share, or $30.0 million, at the time of the transaction. Through April 16, 1999, the Company bore some risk of market price fluctuations in its investment in MindSpring. In order to mitigate the risk associated with a decrease in the market value of the Company's investment in MindSpring, the Company entered into a hedging contract. In April 1999, the Company sold its investment in MindSpring for net proceeds of approximately $30.4 million. The Company recorded a gain on its investment in MindSpring of approximately $0.4 million in its statement of operations for the six months ended June 30, 1999. The hedging contract was terminated upon the sale of the common stock of MindSpring. On March 30, 1999, the Company purchased, for approximately $10.0 million in cash, 454,545 shares of NorthPoint Preferred Stock. The NorthPoint Preferred Stock has no voting rights and is ultimately convertible into a voting class of common stock of NorthPoint, at an exchange price which represents a discount, as provided in the relevant documentation, to the initial public offering price of NorthPoint's common stock. The Company is restricted from selling the NorthPoint 43 Preferred Stock or securities obtained upon conversion of the NorthPoint Preferred Stock until March 23, 2000. Accordingly, the Company will be subject to the effects of fluctuations in the fair value of the common stock of NorthPoint until such time when the Company is permitted to liquidate its investment in NorthPoint. Although changes in the fair market value of the common stock of NorthPoint may affect the fair market value of the Company's investment in NorthPoint and cause unrealized gains or losses, such gains or losses will not be realized until the securities are sold. 44 PART II ITEM 1. LEGAL PROCEEDINGS See Note 6 (e) to the Company's unaudited condensed consolidated financial statements for the six months ended June 30, 1999 contained elsewhere in this Quarterly Report. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS The Annual Meeting of stockholders of ICG Communications, Inc. was held on June 9, 1999 (the "Annual Meeting"). At the Annual Meeting, two matters were considered and acted upon: (1) the election of two directors to serve until the 2002 Annual Meeting of Stockholders and until their successors have been duly elected and qualified; (2) the ratification of the appointment of KPMG LLP as independent auditors of ICG Communications, Inc. and its subsidiaries for the fiscal year ending December 31, 1999. Indicated below are the total votes in favor of each director nominee and the total votes withheld:
Votes ---------------------------------------- For Withheld ----------------- ------------------- William J. Laggett 38,003,699 209,760 J. Shelby Bryan 38,003,599 209,860
In connection with the vote on the ratification of the appointment of the independent auditors, 38,138,209 votes were cast in favor of the appointment and 35,841 votes were cast in opposition thereto. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORT ON FORM 8-K (A) Exhibits. (10) Material Contracts. 10.1: Amended and Restated Loan Agreement, dated as of May 1, 1999, by and among TriNet Realty Capital, Inc. and ICG 161, L.P. 10.2: Assumption and Modification Agreement, dated as of May 1, 1999, by and among ICG Services, Inc., ICG 161, L.P. and TriNet Realty Capital, Inc. 10.3: Employment Agreement, dated as of May 19, 1999, between ICG Communications, Inc. and Harry R. Herbst. 10.4: Employment Agreement, dated as of May 19, 1999, between ICG Communications, Inc. and H. Don Teague. 45 10.5: Employment Agreement, dated as of May 19, 1999, between ICG Communications, Inc. and John Kane. 10.6: Employment Agreement, dated as of June 1, 1999, between ICG Communications, Inc. and Douglas I. Falk. 10.7: Amendment to Employment Agreement, dated as of June 9, 1999, between ICG Communications, Inc. and John Kane. 10.8: Employment Agreement, dated as of June 28, 1999, between ICG Communications, Inc. and William S. Beans, Jr. 10.9: Share Price Appreciation Vesting Non-Qualified Stock Option Agreement, dated as of June 28, 1999, between ICG Communications, Inc. and William S. Beans, Jr. 10.10: Employment Agreement, dated as of July 1, 1999, between ICG Communications, Inc. and Michael D. Kallet. 10.11: Credit Agreement, dated as of August 12, 1999, among ICG Equipment, Inc. and ICG NetAhead, Inc., as Borrowers, ICG Services, Inc., as Parent, the Initial Lenders and the Initial Issuing Bank, as Initial Lenders and Initial Issuing Bank, Royal Bank of Canada, as Administrative Agent and Collateral Agent, Morgan Stanley Senior Funding, Inc., as Sole Book-Runner and Lead Arranger and Bank of America, N.A. and Barclays Bank PLC, as Co-Documentation Agents. 10.12: Security Agreement, dated August 12, 1999, from ICG Equipment, Inc. and ICG NetAhead, Inc., as Grantors to Royal Bank of Canada, as Collateral Agent. (27) Financial Data Schedule. 27.1: Financial Data Schedule of ICG Communications, Inc. for the Six Months Ended June 30, 1999. (B) Report on Form 8-K. The following report on Form 8-K was filed by the registrants during the six months ended June 30, 1999: (i) Current Report on Form 8-K dated April 30, 1999, regarding the announcement of the Company's earnings information and results of operations for the quarter ended March 31, 1999. 46 INDEX TO EXHIBITS SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 INDEX TO EXHIBITS 10.1: Amended and Restated Loan Agreement, dated as of May 1, 1999, by and among TriNet Realty Capital, Inc. and ICG 161, L.P. 10.2: Assumption and Modification Agreement, dated as of May 1, 1999, by and among ICG Services, Inc., ICG 161, L.P. and TriNet Realty Capital, Inc. 10.3: Employment Agreement, dated as of May 19, 1999, between ICG Communications, Inc. and Harry R. Herbst. 10.4: Employment Agreement, dated as of May 19, 1999, between ICG Communications, Inc. and H. Don Teague. 10.5: Employment Agreement, dated as of May 19, 1999, between ICG Communications, Inc. and John Kane. 10.6: Employment Agreement, dated as of June 1, 1999, between ICG Communications, Inc. and Douglas I. Falk. 10.7: Amendment to Employment Agreement, dated as of June 9, 1999, between ICG Communications, Inc. and John Kane. 10.8: Employment Agreement, dated as of June 28, 1999, between ICG Communications, Inc. and William S. Beans, Jr. 10.9: Share Price Appreciation Vesting Non-Qualified Stock Option Agreement, dated as of June 28, 1999, between ICG Communications, Inc. and William S. Beans, Jr. 10.10: Employment Agreement, dated as of July 1, 1999, between ICG Communications, Inc. and Michael D. Kallet. 10.11: Credit Agreement, dated as of August 12, 1999, among ICG Equipment, Inc. and ICG NetAhead, Inc., as Borrowers, ICG Services, Inc., as Parent, the Initial Lenders and the Initial Issuing Bank, as Initial Lenders and Initial Issuing Bank, Royal Bank of Canada, as Administrative Agent and Collateral Agent, Morgan Stanley Senior Funding, Inc., as Sole Book-Runner and Lead Arranger and Bank of America, N.A. and Barclays Bank PLC, as Co-Documentation Agents. 10.12: Security Agreement, dated August 12, 1999, from ICG Equipment, Inc. and ICG NetAhead, Inc., as Grantors to Royal Bank of Canada, as Collateral Agent. 27.1: Financial Data Schedule of ICG Communications, Inc. for the Six Months Ended June 30, 1999. EXHIBIT 10.1 Amended and Restated Loan Agreement, dated as of May 1, 1999, by and among TriNet Realty Capital, Inc. and ICG 161, L.P. EXHIBIT 10.2 Assumption and Modification Agreement, dated as of May 1, 1999, by and among ICG Services, Inc., ICG 161, L.P. and TriNet Realty Capital, Inc. EXHIBIT 10.3 Employment Agreement, dated as of May 19, 1999, between ICG Communications, Inc. and Harry R. Herbst. EXHIBIT 10.4 Employment Agreement, dated as of May 19, 1999, between ICG Communications, Inc. and H. Don Teague. EXHIBIT 10.5 Employment Agreement, dated as of May 19, 1999, between ICG Communications, Inc. and John Kane. EXHIBIT 10.6 Employment Agreement, dated as of June 1, 1999, between ICG Communications, Inc. and Douglas I. Falk. EXHIBIT 10.7 Amendment to Employment Agreement, dated as of June 9, 1999, between ICG Communications, Inc. and John Kane. EXHIBIT 10.8 Employment Agreement, dated as of June 28, 1999, between ICG Communications, Inc. and William S. Beans, Jr. EXHIBIT 10.9 Share Price Appreciation Vesting Non-Qualified Stock Option Agreement, dated as of June 28, 1999, between ICG Communications, Inc. and William S. Beans, Jr. EXHIBIT 10.10 Employment Agreement, dated as of July 1, 1999, between ICG Communications, Inc. and Michael D. Kallet. EXHIBIT 10.11 Credit Agreement, dated as of August 12, 1999, among ICG Equipment, Inc. and ICG NetAhead, Inc., as Borrowers, ICG Services, Inc., as Parent, the Initial Lenders and the Initial Issuing Bank, as Initial Lenders and Initial Issuing Bank, Royal Bank of Canada, as Administrative Agent and Collateral Agent, Morgan Stanley Senior Funding, Inc., as Sole Book-Runner and Lead Arranger and Bank of America, N.A. and Barclays Bank PLC, as Co-Documentation Agents. EXHIBIT 10.12 Security Agreement, dated August 12, 1999, from ICG Equipment, Inc. and ICG NetAhead, Inc., as Grantors to Royal Bank of Canada, as Collateral Agent. EXHIBIT 27.1 Financial Data Schedule of ICG Communications, Inc. for the Six Months Ended June 30, 1999. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 13, 1999. ICG COMMUNICATIONS, INC. Date: August 13, 1999 By: /s/ Harry R. Herbst ---------------------------------------------- Harry R. Herbst, Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 13, 1999 By: /s/ John V. Colgan ---------------------------------------------- John V. Colgan, Vice President of Finance and Controller (Principal Accounting Officer) SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 13, 1999. ICG HOLDINGS (CANADA) CO. Date: August 13, 1999 By: /s/ Harry R. Herbst ---------------------------------------------- Harry R. Herbst, Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 13, 1999 By: /s/ John V. Colgan --------------------------------------------- John V. Colgan, Vice President of Finance and Controller (Principal Accounting Officer) SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 13, 1999. ICG HOLDINGS, INC. Date: August 13, 1999 By: /s/ Harry R. Herbst ---------------------------------------------- Harry R. Herbst, Executive Vice President and Chief Financial Officer (Principal Financial Officer) Date: August 13, 1999 By: /s/ John V. Colgan ---------------------------------------------- John V. Colgan, Vice President of Finance and Controller (Principal Accounting Officer) EX-10 2 EXHIBIT 10.1 AMENDED AND RESTATED LOAN AGREEMENT Dated as of May 1, 1999, by and among TRINET REALTY CAPITAL, INC., as Lender, and ICG 161, L.P., as Borrower TABLE OF CONTENTS 1. Definitions; Certain Terms................................................ 1 1.1 Definitions..................................................... 1 1.2 Certain Terms................................................... 9 1.3 Replacement of Prior Loan Agreement............................. 9 2. The Loan; Payment Due on Maturity Date.................................... 9 2.1 Execution of Loan Documents..................................... 9 2.2 Payment on Maturity............................................. 9 3. Interest Rate Provisions; Payments........................................ 9 3.1 Applicable Interest Rate........................................ 9 3.2 Payments....................................................... 10 3.3 Computations................................................... 10 4. Late Charges; Prepayment................................................. 10 4.1 Late Charges................................................... 10 4.2 Prepayment..................................................... 10 5. Manner of Payment........................................................ 11 6. Conditions............................................................... 11 6.1 Documents...................................................... 11 6.2 Other Actions.................................................. 13 6.3 Opinions and Assurances........................................ 13 6.4 Representations................................................ 13 6.5 Closing Expenses............................................... 13 7. Representations and Warranties........................................... 13 7.1 Due Authorization.............................................. 14 7.2 Enforceability................................................. 14 7.3 Restricted Activities.......................................... 14 7.4 Borrower Obligations........................................... 14 7.5 General Partner................................................ 15 7.6 Transactions with Affiliates................................... 15 7.7 Employees...................................................... 15 7.8 No Violation................................................... 15 7.9 Consents....................................................... 15 7.10 Solvency...................................................... 16 7.11 Delinquent Property Liens..................................... 16 7.12 Defenses...................................................... 16 7.13 Lien Priority................................................. 16 7.14 Improvements.................................................. 17 7.15 Casualty; Condemnation........................................ 17 7.16 Zoning and Other Laws......................................... 17 7.17 Leases........................................................ 17 7.18 Tenant Estoppels.............................................. 17 7.19 Litigation.................................................... 17 7.20 Brokerage and Other Fees...................................... 17 7.21 Investment Company............................................ 17 7.22 Other Agreements.............................................. 17 -i- 8. Affirmative Covenants.................................................... 18 8.1 Financial Statements; Other Information........................ 18 8.2 Maintenance of Existence and Property.......................... 18 8.3 Inspection of Property; Books and Records; Discussions; Bank Accounts and Funds............................................. 18 8.4 Notices........................................................ 18 8.5 Expenses....................................................... 19 8.6 Loan Documents................................................. 19 8.7 Indemnification................................................ 19 8.8 Property Management............................................ 20 8.9 Impositions.................................................... 20 8.10 Insurance..................................................... 20 9. Negative Covenants....................................................... 20 9.1 Indebtedness................................................... 20 9.2 Consolidation and Merger....................................... 21 9.3 Sale of Assets-Encumbrances.................................... 21 9.4 Transactions with Affiliates................................... 21 9.5 Restricted Activities.......................................... 21 9.6 Fiscal Year.................................................... 21 9.7 Manager........................................................ 22 9.8 Leases......................................................... 22 10. Events of Default....................................................... 22 10.1 Payment Default............................................... 22 10.2 Misrepresentation............................................. 22 10.3 Negative Covenant Default..................................... 22 10.4 Other Loan Defaults........................................... 22 10.5 Bankruptcy, etc............................................... 23 10.6 Judgments..................................................... 23 10.7 Defaults Under Other Agreements............................... 23 10.8 Net Worth..................................................... 23 10.9 Tenant Defaults............................................... 24 10.10 Additional Borrower Cure Right............................... 24 10.11 Remedies..................................................... 24 11. Miscellaneous Provisions................................................ 24 11.1 Assignment.................................................... 24 11.2 Agents........................................................ 24 11.3 Cumulative Rights; No Waiver.................................. 24 11.4 Entire Agreement.............................................. 25 11.5 Survival...................................................... 25 11.6 Notices....................................................... 25 11.7 Headings...................................................... 26 11.8 Modifications in Writing...................................... 26 11.9 Execution in Counterparts..................................... 26 11.10 Severability of Provisions................................... 26 11.11 WAIVER OF JURY TRIAL......................................... 26 11.12 Reinstatement; Recapture..................................... 26 11.13 Governing Law................................................ 26 11.14 Cross Collateralization; Marshalling, etc.................... 27 -ii- Table of Schedules Schedule 6.1(iv) UCC Filings Schedule 7.6 Transactions with Affiliates Schedule 7.14 Encroachments Schedule 7.19 Litigation Table of Exhibits Exhibit A Form of Environmental Indemnity Exhibit B Form of Guaranty Exhibit C Form of Assumption Agreement -iii- AMENDED AND RESTATED LOAN AGREEMENT AMENDED AND RESTATED LOAN AGREEMENT, dated as of May 1, 1999, by and between TRINET REALTY CAPITAL, INC., a Maryland corporation ("Lender"), as lender, and ICG 161, L.P., a Delaware limited partnership ("Borrower"), as borrower. RECITALS A. Lender made a Loan to ICG Services, Inc., a Delaware corporation ("Guarantor"), the proceeds of which Guarantor used to purchase the Property. B. Guarantor intends to sell the Property to Borrower, and Borrower wishes to acquire the Property subject to the Deed of Trust and to assume Guarantor's obligations under the Loan Documents. C. Lender is willing to allow Borrower to assume the Loan and Guarantor's obligations under the Loan Documents, on the terms and conditions set forth herein and in the other Loan Documents. AGREEMENT In consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. Definitions; Certain Terms. 1.1 Definitions. For purposes of this Agreement, the terms set forth below shall have the following meanings: "Affiliate" shall mean, with respect to any specified Person, any other Person controlling or controlled by or under common control with such specified Person. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. The terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agreement" shall mean this Amended and Restated Loan Agreement, as it may be amended from time to time in accordance with its terms. "Assumption Agreement" shall mean the Assumption and Modification Agreement dated as of May 1, 1999, among Borrower, Guarantor and Lender. 1 "Borrower" shall have the meaning given such term in the introductory paragraph of this Agreement. "Borrower Partnership Agreement" shall mean the Limited Partnership Agreement of ICG 161, L.P., dated as of May 1, 1999, between General Partner, as general partner, and Limited Partner, as limited partner, as such agreement may be amended or otherwise modified from time to time in accordance with the terms thereof and hereof. "Business Day" means any day other than Saturdays, Sundays and days on which national banks are permitted to be closed in accordance with Federal banking laws and regulations. "Closing Date" shall mean the date on which all of the conditions precedent set forth in Section 6 below shall all have been satisfied or waived. "Code" shall mean the Internal Revenue Code of 1986, as amended, or any successor statute(s). "Collateral" shall mean the Property and the other "Mortgaged Property," as defined in the Deed of Trust. "Deed of Trust" shall mean the Deed of Trust, Assignment of Rents and Security Agreement dated as of January 1, 1999, among Guarantor, as trustor, the Public Trustee of Arapahoe County, Colorado, as trustee, and Lender, as beneficiary, as modified by the Assumption Agreement. "Default Rate" shall mean a rate of interest equal to five hundred (500) basis points in excess of the Interest Rate in effect from time to time. "Effective Date" shall mean May 1, 1999. "Environmental Indemnity" shall mean a Secured Environmental Indemnity, dated as of the Effective Date, in the form attached hereto as Exhibit A. "Environmental Laws" shall mean all laws, ordinances, rules, regulations, orders and other requirements of any government or public authority now in force or that may hereafter be in force relating to protection of human health or the environment, including all requirements pertaining to reporting, licensing, permitting, investigation and remediation of emissions, discharges, storage, disposal or releases of Hazardous Substances and all requirements pertaining to the protection of the health and safety of employees or the public. "Escrow Company" shall mean Land Title Guarantee Company. "Event of Default" shall have the meaning given such term in Section 10. 2 "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect on the applicable date. "General Partner" shall mean ICG Corporate Headquarters, L.L.C., a Colorado limited liability company, in its capacity as general partner of Borrower, and any successor general partner of Borrower. "Governmental Authority" shall mean any federal, state, local or foreign court, agency, authority, board, bureau, commission, department, office or instrumentality of any nature whatsoever or any governmental or quasi-governmental unit, whether now or hereafter in existence, or any officer or official thereof, having jurisdiction over Borrower or the Property. "Guarantor" shall have the meaning given such term in Recital A of this Agreement. "Guaranty" shall mean the Guaranty executed by Guarantor in the form of Exhibit B attached hereto. "Hazardous Substance" shall mean any hazardous or toxic substance, material or waste, or any pollutant or contaminant, or words of similar import, that is or becomes regulated by any Governmental Authority, and includes, but is not limited to, any material or substance that is, (i) designated as a "hazardous substance" pursuant to section 311 of the Federal Water Pollution Control Act (33 U.S.C. section 1317), (ii) defined as a "hazardous waste" pursuant to section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C. section 6901 et seq. (42 U.S.C. section 6903), (iii) defined as a "hazardous substance" pursuant to section 101 of the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. section 9601 et seq.), (iv) asbestos, (v) petroleum (including crude oil or any fraction thereof, natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel, or any mixture thereof), (vi) petroleum products, (vii) polychlorinated biphenyls, (viii) urea formaldehyde, (ix) radon gas, (x) radioactive matter, (xi) medical waste, and (xii) chemicals that may cause cancer or reproductive toxicity. "ICGC" shall mean ICG Communications, Inc., a Delaware corporation. "ICGC Financial Statements" shall have the meaning set forth in Section 1.19 of the Deed of Trust. "ICG Lease" shall mean that certain Lease dated as of January 15, 1998, between TEFX, as landlord, and Tenant, as tenant, as amended by that certain First Amendment to Lease dated as of January 1, 1999 and by that Second Amendment to Lease dated as of May 1, 1999. 3 "ICG Parties" shall mean, collectively, Borrower, Guarantor, ICGC and all Significant Subsidiaries of Borrower, Guarantor and ICGC. "Impositions" shall have the meaning set forth in Section 1.8 of the Deed of Trust. "Improvements" shall mean all buildings and improvements now or hereafter located or placed in or on the Land, including the existing office building that has a gross area of approximately 239,749 square feet, together with any additions thereto or alterations or replacements thereof. "Indebtedness" of any Person shall mean, without duplication, (i) any liability of such Person, to the extent it would appear as a liability on a balance sheet of such Person prepared in accordance with GAAP, (a) for borrowed money, (b) evidenced by a bond, note, debenture or similar instrument (including a purchase money obligation) given in connection with the acquisition of any businesses, properties or assets of any kind (other than a trade payable or a current liability arising in the ordinary course of business), (c) for the payment of money relating to a capitalized lease obligation or (d) evidenced by a currency agreement or an interest rate agreement; (ii) any liability of such Person under any reimbursement obligation relating to a letter of credit, statutory obligation, performance or surety bond; (iii) any liability of others described in the preceding clauses (i) and (ii) that such Person has guaranteed or that is otherwise its legal liability or that is secured by a Lien on property of such Person; and (iv) any amendment, supplement, modification, deferral, renewal, extension or refunding of any liability of the types referred to in clauses (i), (ii) and (iii) above. "Indemnified Parties" shall have the meaning given such term in Section 8.7. "Insurance Requirements" shall mean all provisions of the insurance policies covering or applicable to all or any part of the Property or the ownership, occupancy, right to possession, use, improvement, operation or maintenance thereof, all requirements of the issuer of any of such insurance policies and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions, including any local board of fire underwriters) that, pursuant to an insurance policy, are binding upon Borrower and applicable to the Property. "Interest Rate" shall have the meaning set forth in Section 3.1. "Land" shall mean the real property described in Exhibit A to the Deed of Trust. 4 "Leases" shall mean all leases, licenses, rental agreements, subleases, occupancy agreements, licenses and other agreements respecting the occupancy or use of any part of the Real Property, in effect at any time during the term of this Agreement. "Lender" shall have the meaning set forth in the introductory paragraph to this Agreement. "Lien" shall mean any lien, mortgage, pledge, security interest or other encumbrance of any nature upon any property of any Person, including any mechanic's lien, materialmen's lien, conditional sale or other title retention agreement or lease in the nature thereof. "Limited Partner" shall mean TriNet Realty Investors V, Inc., a Maryland corporation. "Loan" shall mean the loan evidenced by the Note. "Loan Assumption" shall mean Borrower's assumption of the Loan and the obligations of the borrower under the Loan Documents. "Loan Documents" shall mean, collectively, this Agreement, the Assumption Agreement, the Note, the Deed of Trust, the Guaranty, the Environmental Indemnity, any certificates delivered by Guarantor, General Partner or Borrower in connection with the closing of the Loan or the Loan Assumption and any other document, instrument or agreement executed by Guarantor, General Partner or Borrower and delivered to Lender and evidencing, securing or relating to the Note, as any of the same may from time to time be amended in accordance with their terms and the terms hereof. "Loan Year" shall mean each twelve-month period during the term of the Loan, with the first Loan Year commencing on February 1, 1999 and terminating January 31, 2000, and each subsequent Loan Year commencing on the next day, February 1, and ending the following January 31. "Losses" shall have the meaning given such term in Section 8.7. "Management Agreement" shall mean that certain Agreement, dated as of January 1, 1999, between Borrower's predecessor in interest, as owner, and TriNet Property Management, Inc., a Maryland corporation, as manager, pursuant to which property management services are being provided for the Real Property, as it may be amended from time to time in accordance with its terms and the terms hereof. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations, prospects or financial condition of Borrower, (b) 5 the ability of Borrower to pay the Obligations in accordance with their terms, (c) the Property or its value or utility, or (d) the Liens of Lender in the Collateral or the priority of such Liens; provided, however, that a subdivision of the Property pursuant to the Subdivision Agreement shall not constitute a Material Adverse Effect. "Maturity Date" shall mean January 31, 2013. "Note" shall mean the $33,076,754 Promissory Note dated as of January 1, 1999, executed by Guarantor in favor of Lender and assumed by Borrower. "Obligations" shall mean all loans, advances, debts, liabilities, obligations, covenants and duties owing to Lender by Borrower of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under this Agreement, the Note or any of the other Loan Documents, whether or not for the payment of money, arising by reason of an extension of credit, absolute or contingent, due or to become due, now existing or hereafter arising, including all principal, interest, charges, expenses, fees, attorneys' fees and disbursements and any other sum chargeable to Borrower under this Agreement or any other Loan Document. "Officer's Certificate" shall mean a certificate of an authorized officer of General Partner. "Permitted Exceptions" shall mean (i) the Liens created by the Deed of Trust, the Memorandum of Right of First Refusal and the Option and Option Agreement (as each are defined in the Borrower Partnership Agreement), (ii) the ICG Lease, (iii) any future Leases, to the extent permitted hereunder, that are or can be, without any action other than notice by Borrower, subordinate to the Deed of Trust, (iv) any covenants, conditions, Liens, restrictions, rights of way, easements and other matters, whether or not of public record or identified in the Title Policy approved in writing by Lender and (v) other covenants, conditions, restrictions, rights of way, easements and other matters, excluding mortgages and other similar monetary encumbrances, to which like properties are commonly subject and that do not impose any material affirmative obligations on the owner of the Property or require the removal of any improvements from the Property and that individually and in the aggregate do not and will not either (a) materially interfere with the benefits of the security intended to be provided by the Deed of Trust or the current use of the Property or (b) materially impair the value or marketability of the Property. "Person" shall mean any individual, corporation, limited liability company, partnership, joint venture, association, joint stock company, trust, unincorporated organization, or Governmental Authority. 6 "Personal Property" shall mean all tangible personal property of Borrower now or at any time hereafter located on or at the Real Property or used or usable in connection with the intended use of the Real Property or any other future occupancy or use of the Real Property and any replacements thereof, including, but without limiting the generality of the foregoing, landscaping, water treatment, garage and power equipment and supplies, engines, lifting, cleaning, fire prevention, fire extinguishing, and communications apparatus, incinerating equipment, shades, awnings, screens, storm doors and windows, partitions, carpets, rugs, furnishings, televisions, radios, lamps, mirrors, paintings and other works of art, wall hangings, decorations, and maintenance equipment; excluding, however, any Personal Property owned by Tenant, any tenant under any other Lease or by the Property Manager. "Potential Default" shall mean an event or condition which, but for the lapse of time or the giving of notice, or both, would, unless cured or waived, constitute an Event of Default. "Property" shall mean, collectively, the Real Property and the Personal Property. "Property Manager" shall mean the manager under the Management Agreement and its successors and assigns. "Real Property" shall mean, collectively, the Land and the Improvements. "Requirements of Law" shall mean, as to any Person, (i) the corporate charter and by-laws (in the case of a corporation), partnership agreement and certificate or statement of partnership (in the case of a partnership) or other organizational or governing documents of such Person, (ii) any legal requirement including any local, state, federal or foreign statute, law, ordinance, code, treaty, rule or regulation now or hereafter in effect (including Environmental Laws and the Americans with Disabilities Act of 1991), or final and binding determination of an arbitrator, or order, judgment, decree, injunction, permit, license, authorization, certificate, franchise, approval, notice, demand letter, direction or determination of any Governmental Authority applicable to or binding upon such Person or any of its property (or the operation, management, use or condition of its property) or to which such Person or any of its property (or the operation, management, use or condition of its property) is subject or (iii) any recorded deed of restriction, declaration, covenant running with the land or otherwise, now or hereafter in force (including any such deed, declaration or covenant that constitutes a Permitted Exception) other than any such deed, declaration or covenant (a) the noncompliance with which will not have a material adverse effect on the value, utility or legal compliance of the Property or (b) as to which the Title Policy contains affirmative insurance 7 against any failure or reversion or title and against loss of priority of the Lien of the Deed of Trust as a result of noncompliance therewith. "Significant Subsidiaries" shall mean, as to any Person at any date of determination, any Subsidiary of such Person that, together with its Subsidiaries, (i) for the most recent fiscal year of such Person, accounted for more than ten percent (10%) of the consolidated revenues of such Person and its Subsidiaries, or (ii) as of the end of such fiscal year, was the owner of more than ten percent (10%) of the consolidated assets of such Person and its Subsidiaries, all as set forth on the most recently available consolidated financial statements of such Person for such fiscal year. "Subdivision Agreement" shall have the meaning given such term in Section 5.14 of the Deed of Trust. "Subsidiary" shall mean, with respect to any Person, (i) any corporation, association, or other business entity (other than a partnership) of which more than fifty percent (50%) of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time of determination owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof, and (ii) any partnership, joint venture, limited liability company or similar entity of which (a) more than fifty percent (50%) of the capital accounts, distribution rights, total equity and voting interests or general or limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof whether in the form of membership, general, special or limited partnership or otherwise, and (b) such Person or any Subsidiary of such Person is a general partner or otherwise controls such entity. "Taking" shall mean a governmental taking described in Section 1.13 of the Deed of Trust. "Tangible Net Worth" shall mean the book value of the consolidated assets of Guarantor and its Subsidiaries (exclusive of goodwill, patents, trademarks, trade names, deferred organization costs, treasury stock, deferred charges and other like intangibles, and exclusive of any receivable where the receivable debtor is a direct or indirect Subsidiary of Guarantor or is an officer of Guarantor or an officer of a direct or indirect Subsidiary of Guarantor) less (a) reserves applicable thereto, and (b) all liabilities net of unamortized debt discounts (including accrued and deferred income taxes). "TEFX" shall mean TriNet Essential Facilities X, Inc., a Maryland corporation. 8 "Tenant" shall mean ICG Holdings, Inc., a Colorado corporation. "Title Company" shall mean Chicago Title Insurance Company. "Title Policy" shall have the meaning given such term in Section 6.1(x). "Transactions" shall mean the transactions contemplated by the Loan Documents. 1.2 Certain Terms. Unless the context indicates otherwise, all accounting terms are used herein as defined under GAAP. All references to Sections, Schedules, Exhibits, etc. are to Sections, Schedules or Exhibits of or to this Agreement unless otherwise specified. Any of the terms defined in Section 1.1 may, unless the context otherwise requires, be used in the singular or plural depending on the reference. "Herein," "hereunder" and words of similar import refer to this Agreement as an entirety and not to particular Sections of this Agreement. The word "including" shall be construed to be followed by the words "without limitation." 1.3 Replacement of Prior Loan Agreement. As of the Closing Date, this Agreement replaces and supercedes in its entirety that certain Loan Agreement dated as of January 1, 1999, between Guarantor, as borrower, and Lender, as lender. Section 2. The Loan; Payment Due on Maturity Date. 2.1 Execution of Loan Documents. On the terms and subject to the conditions set forth herein, on the Closing Date, Borrower shall execute this Agreement, and Borrower and Guarantor shall execute the Assumption Agreement and the Environmental Indemnity, and Guarantor shall execute the Guaranty. 2.2 Payment on Maturity. On the Maturity Date, Borrower shall pay to Lender an amount equal to the then outstanding principal balance of the Note, plus interest accrued and unpaid thereon and any other amounts due and unpaid under the Loan Documents. Upon payment in full of all amounts described in the preceding sentence, Lender, at the request of Borrower, shall execute and deliver or cause to be executed and delivered such documents as may be required to release the Lien of the Deed of Trust, including a "Request for Release of Deed of Trust," and tender to Borrower the original Note marked "canceled and paid in full." Section 3. Interest Rate Provisions; Payments. 3.1 Applicable Interest Rate. Except when the Default Rate is in effect as provided in Section 4.1, the principal amount outstanding under the Note shall bear interest from and after the Effective Date to and including the date 9 of payment in full at the following rates of interest (the "Interest Rate"): during the first Loan Year, at the rate of fourteen and seven thousand six hundred eighty-six ten thousandths percent (14.7686%) per annum; and during the second Loan Year and each Loan Year thereafter, at a rate of interest equal to one hundred three percent (103%) of the Interest Rate in effect for the immediately preceding Loan Year. For example, the Interest Rate during the second Loan Year shall be fifteen and two thousand one hundred seventeen ten thousandths percent (15.2117%) per annum, and the Interest Rate during the third Loan Year shall be fifteen and six thousand six hundred eighty-one ten thousandths percent (15.6681%) per annum. 3.2 Payments. On the first day of each calendar month during the term of the Loan, Borrower shall pay, in advance, all interest, at the Interest Rate, that will accrue during such month against the principal sum of the Loan, as provided in the Note. So long as no Event of Default has occurred, each monthly installment paid under the Note shall be applied to accrued interest accruing during the applicable month. 3.3 Computations. All computations of interest payable hereunder shall be on the basis of a 360-day year of twelve 30-day months and, for partial months, the actual days elapsed. Section 4. Late Charges; Prepayment. 4.1 Late Charges. If any installment under the Note is not paid on the date due, such installment shall bear interest at the lesser of five hundred basis points (500) in excess of the prime or reference rate announced from time to time by Bank of America NT&SA or twelve percent (12%) per annum, from the due date until such installment is paid. In addition, Borrower shall pay to Lender a late charge equal to six percent (6%) of the amount of any installment under the Note that is not paid within five (5) Business Days of the date due. As long as an Event of Default under this Agreement, the Note or any other Loan Document exists, and from and after maturity of the Loan, whether or not resulting from acceleration, the entire unpaid balance of the principal sum of the Note shall bear interest at the Default Rate. 4.2 Prepayment. Except as expressly provided to the contrary in this Agreement, Borrower shall have no right, at any time, to prepay the Note in whole or in part. Borrower agrees that every payment of any portion of the unpaid balance of the principal sum of the Note before the Maturity Date shall constitute a prepayment under the Note, whether such payment occurs voluntarily, involuntarily, or by acceleration of the maturity of the indebtedness evidenced by the Note by Lender. Borrower further agrees that, upon any such payment of the Note before the Maturity Date, Borrower shall, with such payment, pay to Lender a prepayment charge determined in accordance with this Section 4.2. Without limiting the foregoing, following any acceleration of the maturity of the indebtedness evidenced by the Note, such prepayment charge shall be included 10 in the total amount due to Lender at any foreclosure sale under the Deed of Trust and any tender of payment of the indebtedness evidenced by the Note before, at or after any foreclosure sale under the Deed of Trust shall include such prepayment charge. The prepayment charge shall be equal to five percent (5%) of the entire unpaid balance of the principal sum of the Note as of the prepayment date. Borrower agrees that material individual weight to the consideration in this transaction has been given for the foregoing waiver and agreement, and Borrower shall be estopped from claiming hereafter that Borrower's agreement to pay such prepayment charge in accordance with this Agreement is invalid or unenforceable in any respect for any reason. 4.3 Permitted Prepayment. Notwithstanding anything to the contrary contained herein, Borrower may prepay all, but not less than all, of the principal and interest outstanding under the Note prior to the Maturity Date without paying the prepayment charge upon the occurrence of either one or both of the following events: (a) the closing of the option to purchase the partnership interests of General Partner or the option to purchase the Real Property pursuant to Articles X and XI of the Borrower Partnership Agreement; or (b) the occurrence of a lease termination pursuant to Section 16.1 of the Lease dated January 15, 1998, between Tenant and Borrower's predecessor, following a condemnation or exercise of eminent domain power. Any prepayment that occurs pursuant to subsection 4.3 (a) shall be effective as of the first day of the month in which the prepayment is made, unless the purchase option is exercised as a result of the Put Option (as defined in the Borrower Partnership Agreement), in which case the prepayment shall be effective on the date paid. Section 5. Manner of Payment. All payments made hereunder shall be made in accordance with the provisions hereof without setoff or counterclaim as against Lender, in lawful money of the United States of America, free and clear of and without deduction for any taxes, fees or other charges of any nature whatsoever imposed by any taxing authority. Section 6. Conditions. Lender's obligation to consent to the Loan Assumption and to perform any other obligation of Lender herein contemplated to be performed on or after the Closing Date is subject to the following conditions: 6.1 Documents. Borrower shall have delivered or shall have caused to be delivered as of the Closing Date to Lender each of the following, in form and substance satisfactory to Lender: (i) A duly executed original of this Agreement; 11 (ii) An original Assumption Agreement, duly executed and acknowledged by Borrower and Guarantor, in the form of Exhibit C to this Agreement; (iii) An original Guaranty, executed by Guarantor; (iv) A duly executed original of each of the UCC financing statements and fixture filings described in Schedule 6.1(iv); (v) An original Environmental Indemnity, executed by Guarantor and Borrower; (vi) Appropriate organizational and authorization documents for Borrower and Guarantor authorizing the execution and delivery of all Loan Documents required to be delivered by such party on the Closing Date, which documents shall include (a) Borrower's certificate of limited partnership, certified by the appropriate Governmental Authority, (b) the articles of organization or certificates of incorporation of Guarantor and General Partner, certified by the appropriate Governmental Authority, (c) the operating agreement for Borrower, (d) the by-laws of General Partner and of Guarantor, and (e) authorizing resolutions of each of Borrower, General Partner and Guarantor, with respect to the Loan Documents to which it is a party; (vii) Good-standing certificates or other evidence of qualification to do business for each of Borrower, General Partner and Guarantor, in each case certifying that such entity is duly qualified to do business and is in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification; (viii) A legal opinion or opinions of counsel to Borrower and Guarantor dated as of the Closing Date, covering such matters as Lender may reasonably request, including without limitation, the enforceability of the Loan Documents; (ix) Certificates evidencing insurance for the Real Property in amount and scope and with loss payment provisions as required by the Deed of Trust; (x) An ALTA extended coverage lender's policy of title insurance Form 1992-B (the "Title Policy") (including all coverages, endorsements and reinsurance reasonably requested by Lender) or an irrevocable and unconditional commitment to issue such Title Policy from the Title Company, dated as of the Closing Date, in an amount of $33,076,754, showing fee simple title to the Real Property vested in Borrower, and insuring the Deed of Trust as a valid first Lien on the Real Property subject only to the Permitted Exceptions; (xi) An Officer's Certificate dated the Closing Date, to the effect that on and as of the Closing Date: (i) the representations and warranties of Borrower 12 contained in the Loan Documents shall be accurate and complete in all material respects and (ii) there shall not exist an Event of Default or Potential Default; (xii) An original Subdivision Agreement duly executed by Borrower and Tenant; (xiii) An original Subordination, Non-Disturbance and Attornment Agreement, in form acceptable to Lender, executed by Borrower and Tenant; and (xiv) An estoppel certificate from Tenant in the form attached as Exhibit A to the Lease. 6.2 Other Actions. All acts and conditions and things (including the obtaining of any necessary approvals of Governmental Authorities and the making of any required filings, recordings or registrations) required to be done and performed by Borrower and to have happened prior to or simultaneously with the execution, delivery and performance of the Loan Documents and to constitute the same legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, shall have been done and performed and shall have happened in compliance with all applicable Requirements of Law. 6.3 Opinions and Assurances. All opinions, certificates and other instruments required hereunder or by any other Loan Document, and all proceedings in connection with the Transactions shall be reasonably satisfactory in form and substance to Lender. Lender shall have received copies of all instruments and other evidence as Lender may reasonably require, in form and substance reasonably satisfactory to it, with respect to the Transactions and the taking of all corporate proceedings in connection therewith. 6.4 Representations. On and as of the Closing Date: (i) the representations and warranties of Borrower and Guarantor contained in the Loan Documents shall be accurate and complete in all material respects and (ii) there shall not exist, after giving effect to the execution and delivery of the Loan Documents, an Event of Default or Potential Default. 6.5 Closing Expenses. Borrower shall have paid or caused to be paid to the Escrow Company amounts sufficient to pay all transfer taxes and recording charges required to be paid in connection with the Transactions as well as all title premiums for the Title Policy and other reasonable title and escrow charges. Borrower shall have paid the attorneys' fees and expenses of Lender's counsel incurred in connection with the preparation and negotiation of the Loan Documents. Section 7. Representations and Warranties. As an inducement to Lender to allow Borrower to assume the obligations of the borrower under the Loan 13 Documents as provided herein, Borrower represents and warrants to Lender that as of the Closing Date each of the following statements shall be true and correct: 7.1 Due Authorization. Borrower is a limited partnership duly formed and validly existing under the laws of the State of Colorado, with the requisite partnership power and authority to own its properties, enter into the Loan Documents and consummate the Transactions; and Borrower is qualified to do business in Colorado and each other jurisdiction in which its properties are located or where its ownership, leasing or operation of its property or the conduct of its business requires such qualification. 7.2 Enforceability. The Loan Documents to which it is a party executed on or before the Closing Date by Borrower have been duly authorized, executed and delivered on behalf of Borrower and constitute the legal, valid and binding obligations of Borrower enforceable against it in accordance with their respective terms, subject to the effect of applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws affecting the rights of creditors generally. 7.3 Restricted Activities. The Borrower Partnership Agreement provides that the only purposes of Borrower are to (i) purchase, hold title to and operate, lease and otherwise deal directly or indirectly, with the Property, (ii) borrow the Indebtedness evidenced by the Note and other Indebtedness that is not prohibited under Section 9.1 hereof, (iii) give security for the Note and other Indebtedness that is not prohibited under Section 9.1 hereof, (iv) enter into contractual arrangements for the management and operation of the Property and otherwise in furtherance of the purposes of Borrower, (v) sell, exchange and refinance the Property and (vi) engage in such activities and exercise such other powers permitted to limited partnerships under the laws of Delaware that are necessarily incident to the foregoing purposes or necessary to accomplish the foregoing purposes. The Borrower Partnership Agreement also provides that only General Partner and Limited Partner acting together may commence or file a bankruptcy petition or reorganization proceeding or similar proceeding by or on behalf of Borrower under any federal or state law or any informal reorganization or liquidation, including any arrangement for the benefit of creditors, or any similar proceeding by or on behalf of Borrower. 7.4 Borrower Obligations. Borrower (i) believes it will be able to fund from its own assets (including its initial working capital reserve) all of its activities, expenses and liabilities, (ii) intends to pay its own operating expenses and liabilities from its own funds, and (iii) has at all times since its formation identified itself, in all dealings with the public, under its own name and as a separate and distinct entity, and has not identified itself as 14 being a division or a part of any other Person, or identified any other Person as being a division or a part of Borrower or General Partner. 7.5 General Partner. General Partner is a limited liability company, duly organized and validly existing under the laws of Colorado, with the requisite corporate power and authority to enter into the Loan Documents and consummate the Transactions and to own its properties and conduct its business; and General Partner is qualified to do business in Colorado and each other jurisdiction in which its properties are located or where its ownership, leasing or operation of its property or the conduct of its business requires such qualification. General Partner is the sole General Partner of Borrower. 7.6 Transactions with Affiliates. Except as disclosed in Schedule 7.6, Borrower has not purchased, acquired or leased any property from, or sold, transferred or leased any property to, or loaned or advanced any money to, or borrowed any money from, or guaranteed any obligation of, or acquired any stock, obligations, or securities of, or entered into any merger or consolidation agreement, or any management or similar agreement with, any Affiliate of General Partner, or entered into any other transaction or arrangement or made any payment to (including on account of any management fees, services fees, office charges, consulting fees, technical services charges or tax sharing charges) or otherwise dealt with, in the ordinary course of business or otherwise, any Affiliate of General Partner on terms other than arm's-length commercially reasonable terms. 7.7 Employees. Borrower has no employees. 7.8 No Violation. Neither the execution, delivery or performance of any Loan Document nor the consummation of any of the Transactions violates or will violate the Borrower Partnership Agreement or the charter or by-laws of General Partner or Guarantor or violates, conflicts with or constitutes a default under any agreement to which any of them is a party or by which any or them or the Property is bound, violates any Requirements of Law to which Borrower or the Property is subject or will result in the imposition of a Lien on the Property other than Permitted Exceptions. None of the Transactions will result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including Regulations G, T, U, and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. 7.9 Consents. No consents, approvals, filings, permits or notices of, from, with or to any Person are required on the part of Borrower or Guarantor that have not been duly obtained, made or given, as the case may be (a) for the due execution and delivery of each of the Loan Documents to which it is a party or (b) for the performance of the Loan Documents in accordance with their terms (except for obtaining approvals or permits from any Governmental Authority to 15 construct tenant improvements or other construction work at or about the Real Property or for other future actions consent to which are contemplated or required by the Loan Documents) and consummation of, or otherwise in connection with, any of the Transactions. 7.10 Solvency. None of the Transactions will be or have been made with an actual intent to hinder, delay or defraud any present or future creditors of Borrower or Guarantor, and neither Borrower, Guarantor nor General Partner is, nor will be, rendered insolvent by the Transactions, and Borrower has received fair consideration and reasonably equivalent value in good faith for the grant of the Lien created by the Deed of Trust. Each of Borrower, Guarantor and General Partner is able to pay its debts as they become due, including contingent obligations likely to become due. 7.11 Delinquent Property Liens. Except for claims that are being contested in accordance with the Deed of Trust or that are not material in amount or that constitute or will constitute Permitted Exceptions, to the best of Borrower's knowledge there is no delinquent Imposition, sewer rent, water charge, assessment or other outstanding charge against the Real Property; and, except as shown in the Title Policy, to the best of Borrower's knowledge there are no mechanics' or similar Liens or, to the best of Borrower's knowledge, claims for overdue payment for labor or material affecting the Real Property that are or could become Liens prior to, or equal with, the Lien of the Deed of Trust and there are no mechanics' or similar Liens or, to the best of Borrower's knowledge, claims affecting the Real Property that have not been insured or endorsed over by the Title Policy. 7.12 Defenses. Except for the effect of applicable bankruptcy, insolvency, reorganization, arrangement, moratorium or similar laws affecting the rights of creditors generally, the Loan Documents are not subject to any valid right of rescission, setoff, abatement, diminution, counterclaim or defense as against Lender and its successors and assigns in interest, including the defense of usury, and the operation of any of the terms of the Loan Documents, or the proper exercise of any right thereunder, will not render the Loan unenforceable, in whole or in part, or subject to any right of rescission, setoff, abatement, diminution, counterclaim or defense, including the defense of usury, and neither Borrower nor Guarantor has taken any action that would give rise to the assertion of any of the foregoing and no such right of rescission, setoff, abatement, diminution, counterclaim or defense, including the defense of usury, has been asserted with respect thereto. 7.13 Lien Priority. Upon recording, the Deed of Trust shall constitute a valid and enforceable first Lien and perfected security interest on the Property granted by Borrower in favor of Lender, including all buildings and fixtures that constitute part of the Property under applicable law, and all additions, 16 alterations and replacements made at any time with respect to the foregoing, subject only to Permitted Exceptions. 7.14 Improvements. To the best of Borrower's knowledge, except as disclosed in the Title Policy, all improvements comprising a portion of the Real Property lie wholly within the boundary and building restriction lines of the Land and no improvements on adjoining properties encroach upon any of the Land in any respect except as shown in the Title Policy, on the survey or in Schedule 7.14. 7.15 Casualty; Condemnation. The Real Property is free of waste and of any damage involving loss or destruction with a repair cost in excess of two hundred fifty thousand dollars ($250,000), and there is no proceeding pending or, to the best of Borrower's knowledge, threatened, for the Taking of any of the Real Property. 7.16 Zoning and Other Laws. To the best of Borrower's knowledge, the use and operation of the Real Property, separate and apart from any other properties, constitutes a legal use under applicable zoning regulations and complies in all material respects with all applicable Requirements of Law and all applicable Insurance Requirements. 7.17 Leases. The ICG Lease is in full force and the landlord is not in default thereunder. The ICG Lease is the only lease, sublease or other occupancy agreement encumbering the Property, and Tenant is the only tenant, subtenant or occupant of the Property. To the best of Borrower's knowledge, Tenant is not in default under the ICG Lease. 7.18 Tenant Estoppels. Borrower has delivered to Lender an original tenant estoppel certificate executed by Tenant with respect to the ICG Lease. 7.19 Litigation. Except as set forth on Schedule 7.19, no material litigation, investigation or proceeding before any court, arbitrator or Governmental Authority, agency or subdivision is pending or, to Borrower's best knowledge, threatened, against Borrower or Guarantor or, to the best of Borrower's knowledge, relating to any of the Real Property. 7.20 Brokerage and Other Fees. No brokerage or other fee, commission or compensation is or will become due and payable by Borrower or Guarantor in connection with the Transactions. 7.21 Investment Company. Neither Borrower nor Guarantor is now required nor will it (by reason of this Agreement) be required to register under the Investment Company Act of 1940, as amended. 7.22 Other Agreements. To the best of Borrower's knowledge, no party to any deed, restriction, covenant or similar instrument that constitutes a Permitted Exception in respect of the Real Property is in default of its obligations 17 thereunder except for such defaults that in the aggregate (if such defaults remained uncured) do not or will not have a Material Adverse Effect. Section 8. Affirmative Covenants. Borrower hereby covenants and agrees that, so long as the Loan remains unpaid or any other amount is owing to Lender under any of the Loan Documents or the Real Property remains subject to the Lien of the Deed of Trust: 8.1 Financial Statements; Other Information. Borrower shall furnish or cause to be furnished to Lender: (a) As and when required to be delivered pursuant to the Deed of Trust, the financial reports and statements described in Section 1.19 of the Deed of Trust; and (b) promptly, such additional financial and other information, including information regarding the Property and the occupancy thereof (including an updated rent roll), as Lender may from time to time reasonably request. 8.2 Maintenance of Existence and Property. Borrower shall preserve and maintain its existence and all rights, privileges and franchises necessary in the normal conduct of its business. In all dealings with the public, Borrower shall identify itself under its own name and as a separate and distinct entity. 8.3 Inspection of Property; Books and Records; Discussions; Bank Accounts and Funds. Borrower shall (i) keep its own separate and proper books of record and account in which full, true and correct entries in conformity with GAAP or as otherwise required under any Loan Document and under all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities, and (ii) upon reasonable notice, permit representatives of Lender and its agents and regulatory authorities to visit and inspect the Real Property and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired by Lender and to discuss the business, operations, properties and financial and other conditions of Borrower, Guarantor and ICGC with any of their officers. Borrower shall maintain its own bank accounts and keep its funds or other assets separate from the funds or other assets of all other Persons. 8.4 Notices. Borrower shall give prompt written notice to Lender of (i) any claims, proceedings or disputes (whether or not purportedly on behalf of Borrower) against, or to Borrower's knowledge, threatened or affecting, Borrower or the Property that, if adversely determined, could reasonably be expected to have a Material Adverse Effect or that involve in the aggregate monetary amounts in excess of one million dollars ($1,000,000), (ii) any proposal of which Borrower has knowledge or has received notification by any Governmental Authority to acquire any of the Real Property or any portion thereof or as to 18 any notice or the discovery of any material violation or material alleged violation of any Requirement of Law, (iii) the occurrence of any Potential Default or Event of Default hereunder or (iv) any Material Adverse Effect. Such notice shall be in the form of an Officer's Certificate specifying the nature and details of any of the foregoing matters and the actions taken and proposed to be taken by Borrower in response thereto. 8.5 Expenses. Borrower shall pay, indemnify and save harmless Lender with respect to all Impositions (other than income or franchise taxes of Lender or taxes caused by actions or elections of Lender) and all reasonable charges, fees and out-of-pocket expenses (including reasonable fees and disbursements of counsel of Lender) incident to the enforcement (including any foreclosure of the Liens held by Lender) and administration (out-of-pocket expenses only) of the Loan Documents and the preparation, negotiation, enforcement and administration (out-of-pocket expenses only) of any amendments, waivers and renewals relating to any thereof and the protection of the rights of Lender under the Loan Documents whether by judicial proceedings or otherwise, including in connection with bankruptcy, insolvency, liquidation, reorganization, moratorium or other similar proceedings involving Borrower or a "workout" of the Loan. The Loan shall not be considered to have been paid in full unless all obligations under this Section 8.5 shall have been fully performed, are fully covered by insurance or security satisfactory to Lender has been provided therefor (except for contingent indemnification obligations for which no claim has actually been made in good faith pursuant to this Agreement). 8.6 Loan Documents. Borrower and Guarantor shall comply with and observe all terms and conditions of the Loan Documents to which they are a party. Until released in accordance with this Agreement, Borrower warrants that the Deed of Trust will at all times constitute a valid, subsisting and enforceable first Lien and perfected security interest on the Property granted by Borrower in favor of Lender, including all buildings and fixtures that constitute part of the Property under applicable law, and all additions, alterations and replacements made at any time with respect to the foregoing, subject only to Permitted Exceptions. 8.7 Indemnification. Borrower shall indemnify and hold harmless Lender and its directors, officers, shareholders, partners, employees, attorneys, agents, representatives, successors and assigns (the "Indemnified Parties"), from and against all damages as a result of liabilities, claims, actions, penalties and fines (collectively and severally, "Losses") assessed against any of them resulting from the claims of any party relating to the matters set forth in Section 1.22 of the Deed of Trust, except for Losses otherwise covered under the provisions of Section 8.5 and Losses directly caused by the gross negligence or willful misconduct of the Indemnified Party seeking recovery hereunder; and Borrower shall reimburse each Indemnified Party for any expenses (including the 19 fees and disbursements of legal counsel) incurred in connection with the investigation of, preparation for or defense of any actual or threatened claim, action or proceeding arising therefrom (including any such costs of responding to discovery requests or subpoenas), regardless of whether Lender or such other Indemnified Person is a party thereto. The provisions of Section 1.22 the Deed of Trust are incorporated herein by reference. The Loan shall not be considered to have been paid in full unless all obligations of Borrower under this Section 8.7 shall have been fully performed, are fully covered by insurance or security satisfactory to Lender has been provided therefor (except for contingent indemnification obligations for which no claim has actually been made in good faith pursuant to this Agreement). 8.8 Property Management. Borrower shall cause the Property to be managed on terms substantially similar to the terms and conditions of the Management Agreement by the Property Manager; provided, however, that if the Management Agreement is terminated pursuant to its terms, Borrower may replace Property Manager with another property manager reasonably acceptable to Lender. 8.9 Impositions. Borrower shall promptly pay or cause to be paid all Impositions pursuant to the provisions of Section 1.8 of the Deed of Trust, subject to Borrower's right to contest such Impositions as provided in Section 1.8 of the Deed of Trust. 8.10 Insurance. Borrower shall maintain insurance with respect to the Property as required under the Deed of Trust. Section 9. Negative Covenants. Borrower hereby agrees that, so long as the Loan remains unpaid or any other amount is owing to Lender under any of the Loan Documents and any Property remains subject to the Lien of the Deed of Trust, Borrower shall not, directly or indirectly: 9.1 Indebtedness. Create, incur or assume any Indebtedness except for: (i) the Loan and other obligations to Lender under the Loan Documents or in connection with the Transactions, and (ii) Indebtedness incurred in the ordinary course of business on a basis and upon terms consistent with customary practices of owners of office buildings, including indebtedness arising from obligations in respect of performance or surety bonds and letters of credit required to be posted by Borrower in connection with statutory obligations, tenant improvements or similar work, but excluding indebtedness for borrowed money (other than payments made in installments for goods and services obtained in the ordinary course of business) and (iii) Indebtedness in respect of Impositions, assessments, governmental charges or Liens and claims for labor, materials and supplies, in each case, in respect of the Collateral to the extent the validity or amount thereof is being currently contested in good faith by appropriate proceedings in accordance with Section 1.8(d) or 1.15 of the Deed of Trust. 20 9.2 Consolidation and Merger. Liquidate or dissolve or enter into any consolidation, merger, partnership, joint venture, syndicate or other combination. 9.3 Sale of Assets-Encumbrances. Subject to Borrower's rights under section 1.15 of the Deed of Trust, suffer to exist any Lien with respect to any Collateral other than Permitted Exceptions or sell, transfer, lease, assign, exchange, contribute, encumber, abandon or create any Lien with respect to, or otherwise dispose of, directly or indirectly, any Collateral or any interest therein, except as permitted by the Subdivision Agreement. 9.4 Transactions with Affiliates. Purchase, acquire or lease any property from, or sell, transfer or lease any property to, or lend or advance any money to, or borrow any money from, or guarantee any obligation of, or acquire any stock, obligations or securities of, or enter into any merger or consolidation agreement, or any management or similar agreement with, any Affiliate of Borrower, or enter into any other transaction or arrangement or make any payment to (including on account of any management fees, service fees, office charges, consulting fees, technical services charges or tax sharing charges) or otherwise deal with, in the ordinary course of business or otherwise, any Affiliate of Borrower on terms other than arm's-length commercially reasonable terms, except for any of the following: (i) transactions relating to the sharing of facilities, equipment, office space and actual overhead expenses, including managerial, payroll and accounting and legal expenses, for which charges assessed against Borrower is not greater than would be incurred by Borrower in similar arm's-length transactions with non-Affiliates, and (ii) the ICG Lease. 9.5 Restricted Activities. Purchase or acquire any interest in any real properties other than the Real Property, conduct any business other than that permitted under the Borrower Partnership Agreement, have any assets or liabilities other than assets or liabilities derived from or related to the Property or otherwise related to a business that is permitted under the Borrower Partnership Agreement, violate any of the provisions of the Borrower Partnership Agreement or amend the Borrower Partnership Agreement. Borrower shall not allow General Partner to purchase, acquire or own any assets other than its general partnership interest in Borrower, conduct any business unrelated to acting as general partner of Borrower or incur any Indebtedness. Borrower shall not identify itself, in any dealings with the public, as being a division or a part of any other Person, and shall not identify any other Person as being a division or a part of Borrower or General Partner; provided, however, identifying General Partner or Limited Partner as a partner in Borrower shall not be prohibited by this Section 9.5. 9.6 Fiscal Year. Change its fiscal year. 21 9.7 Manager. Replace the Property Manager without Lender's prior written consent, which shall not be unreasonably withheld, or terminate or amend the Management Agreement. 9.8 Leases. Except as specifically permitted in Section 1.16 of the Deed of Trust, Borrower shall not: (a) enter into any Lease; (b) amend, modify or revise the ICG Lease or any other Lease; or (c) cancel, terminate or permit the termination of, accept the surrender of any or all of the space demised under, or waive any right or remedy under, the ICG Lease or any other Lease. Section 10. Events of Default. The occurrence of any of the following events shall constitute an "Event of Default" hereunder: 10.1 Payment Default. Borrower shall fail to make or cause to be made (i) any payment of principal or interest under the Note or this Agreement within five (5) days after the date due, or (ii) any other payment due hereunder or under any other Loan Document within ten (10) days after demand therefor shall have been made; or 10.2 Misrepresentation. Any representation, warranty or certification made by Borrower or Guarantor under any Loan Document, or in any Officer's Certificate or financial statement furnished by Borrower or Guarantor in connection with any Loan Document, shall be materially inaccurate or incomplete as of the date made; provided, however, if such inaccuracy or incompleteness is susceptible to cure, no Event of Default shall occur if Borrower cures or causes to be cured the same within thirty (30) days after written notice thereof from Lender, or if such matter is susceptible of cure but cannot, with due diligence, be cured within thirty (30) days, then no Event of Default shall occur if such cure is commenced within that thirty (30) day period and diligently prosecuted to completion within such longer period of time (but in no event to exceed ninety (90) days from the date Borrower received notice of such breach); or 10.3 Negative Covenant Default. Borrower shall fail to perform or observe the terms, provisions, covenants, obligations or agreements contained in any of Sections 9.1 through 9.8; or 10.4 Other Loan Defaults. Borrower or Guarantor shall fail to perform or observe in any material respect any of the covenants, obligations or agreements contained in the Loan Documents (other than those referred to in Section 10.1, 10.2 or 10.3 above) and such failure shall, in each such case, continue for thirty (30) days after written notice thereof from Lender, or if such cure cannot, with due diligence, occur within thirty (30) days, such longer period of time (not to exceed ninety (90) days from the date Borrower received notice of such breach) as is reasonably required for such cure, provided Borrower is diligently attempting to cure such failure; or 22 10.5 Bankruptcy, etc. (i) Any ICG Party shall commence any case, proceeding or other action (a) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (b) seeking appointment of a receiver, trustee, custodian or other similar official for it or for all or substantially all of its assets, or any ICG Party shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against any ICG Party any case, proceeding or other action of a nature referred to in clause (i) above that (a) results in the entry of any order for relief or any such adjudication or appointment, and (b) remains undismissed, undischarged or unbonded for a period of ninety (90) days; or (iii) there shall be commenced against any ICG Party any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or substantially all of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, stayed, satisfied or bonded pending appeal within ninety (90) days from the entry thereof; or (iv) any ICG Party shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; 10.6 Judgments. (a) One or more judgments or decrees (not covered by insurance) in an aggregate amount exceeding five million dollars ($5,000,000) shall be entered against Borrower or any Significant Subsidiary of Borrower and all such judgments or decrees shall not have been vacated, discharged, stayed, satisfied or bonded pending appeal within sixty (60) days from the entry thereof. (b) Any adverse judgment in an amount greater than ten million dollars ($10,000,000) is entered against Guarantor or any Significant Subsidiary of Guarantor that is not covered by insurance and is not stayed, satisfied or bonded pending appeal within sixty (60) days from entry thereof. 10.7 Defaults Under Other Agreements. The occurrence of any monetary default or other default resulting in acceleration of the obligation by Guarantor or any Significant Subsidiary of Guarantor under any loan agreement, note or other debt instrument where such obligation or liability exceeds ten million dollars ($10,000,000). 10.8 Net Worth. The Tangible Net Worth of Guarantor and its Subsidiaries shall be less than fifty million dollars ($50,000,000) at the end of any fiscal quarter during the term of the Loan, as evidenced by the financial statements delivered to Lender by Borrower pursuant to Section 8.1 of this Agreement. 23 10.9 Tenant Defaults. Any "Event of Default" (as defined in the ICG Lease) occurs and is not waived by Borrower or cured by Tenant within thirty (30) days after the occurrence of the breach giving rise to such "Event of Default." 10.10 Additional Borrower Cure Right. Borrower shall have the right to effectuate a cure of an Event of Default described in Sections 10.6, 10.7 and 10.8 of this Agreement by posting a clean, irrevocable and unconditional letter of credit in the full, outstanding principal amount of the Loan for the benefit of Lender in form and substance reasonably satisfactory to Lender. 10.11 Remedies. Automatically upon the occurrence of an Event of Default under Section 10.5, or at the option of Lender upon the occurrence of any other Event of Default, the principal balance of the Loan and interest and other charges accrued but unpaid thereon shall become immediately due and payable and the Maturity Date shall be deemed to have occurred; and Lender may exercise all rights and remedies available to it hereunder, under the other Loan Documents, at law or in equity. Notwithstanding the foregoing, Lender agrees that Borrower shall not be liable to Lender for compensatory money damages as a result of Borrower's unknowing breach of any representation, warranty or certification referred to in Section 10.2 (but Lender shall have all other remedies hereunder and at law or in equity, including acceleration of the principal balance of the Loan and accrued but unpaid interest and other charges, and collection of interest on unpaid amounts at the Default Rate). Section 11. Miscellaneous Provisions. 11.1 Assignment. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Nothing expressed herein is intended or shall be construed to give any Person other than the Persons referred to in the preceding sentence any legal or equitable right, remedy or claim under or in respect of this Agreement. Lender, in its sole and absolute discretion and without notice to Borrower, may sell participations, assign its rights or interest, or both, in all or any part of this Agreement or the other Loan Documents. Borrower may not assign its rights or interest or delegate its duties hereunder or under the other Loan Documents, except that if Lender or an Affiliate of Lender acquires the Property, such Person shall be entitled to assume the Loan and the borrower's obligations under the Loan Documents. 11.2 Agents. Lender may use one or more agents or mortgage servicers to administer the Loan Documents or perform its obligations hereunder or under the other Loan Documents. 11.3 Cumulative Rights; No Waiver. The rights, powers and remedies of Lender hereunder are cumulative and in addition to all rights, powers and remedies provided under any and all agreements by Borrower or any ICG Party with or for the benefit of Lender under the Loan Documents or incident to the Transactions, at law, in equity or otherwise. Any delay or failure by Lender to 24 exercise any right, power or remedy shall not constitute a waiver thereof by Lender, and no single or partial exercise by Lender of any right, power or remedy shall preclude other or further exercise thereof or any exercise of any other rights, powers or remedies. No delay or omission of Lender to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Agreement or the other Loan Documents or by law to Lender may be exercised from time to time, and as often as may be deemed expedient by Lender. 11.4 Entire Agreement. This Agreement and the other Loan Documents embody the entire agreement and understanding between the parties hereto with respect to the Loan and supersede all prior agreements and understandings relating to the subject matter hereof and thereof. 11.5 Survival. All representations and warranties, covenants and agreements herein contained on the part of Borrower shall survive the closing and funding of the Loan. 11.6 Notices. All approvals, consents, notices and other communications under this Agreement shall be properly given only if made in writing and mailed by certified mail, return receipt requested, postage prepaid, or delivered by hand (including messenger or recognized delivery, courier or air express service) to the party at the address set forth in this Agreement or such other address as such party may designate by notice to the other party. Such approvals, consents, notices and other communications shall be effective on the date of receipt (evidenced by the certified mail receipt) if mailed or on the date of such hand delivery if hand delivered. If any such approval, consent, notice or other communication is not received or cannot be delivered due to a change in the address of the receiving party of which notice was not previously given to the sending party or due to a refusal to accept by the receiving party, such approval, consent, notice or other communication shall be effective on the date delivery is attempted. Any approval, consent, notice or other communication under this Agreement may be given on behalf of a party by the attorney for such party. (a) The address of Lender is: One Embarcadero Center, 33rd Floor, San Francisco, California 94111, attention: Capital Markets, with additional copies to Pillsbury Madison & Sutro, 235 Montgomery Street, San Francisco, California 94104, Attention: Glenn Q. Snyder, Esq. (b) The address of Borrower is: 161 Inverness Drive West, Englewood, Colorado 80112, Attention: Director of Real Estate, Facilities and Corporate Services, with an additional copy to 161 Inverness Drive West, Englewood, Colorado 80112, Attention: Assistant General Counsel. 25 11.7 Headings. The Section headings used in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. 11.8 Modifications in Writing. No amendment, modification, supplement, termination or waiver of or to any provision of this Agreement or any other Loan Document to which Lender is a party, or consent to any departure by Borrower or Guarantor therefrom, shall be effective unless in writing and signed by Lender and Borrower and, if applicable, Guarantor. Any amendment, modification or supplement of or to any provision of this Agreement or any such other Loan Document, any waiver of any provision thereof, and any consent to any departure by Borrower or Guarantor from the terms of any provision thereof shall be effective only in the specific instance and for the specific purpose for which made or given. Borrower shall not amend in any material respect any of the Loan Documents to which Lender is not a party, and no purported amendment thereof shall be effective, unless Lender shall have given its prior written consent thereto. 11.9 Execution in Counterparts. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all such counterparts shall constitute one and the same agreement. 11.10 Severability of Provisions. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. 11.11 WAIVER OF JURY TRIAL. BORROWER AND EACH OTHER PARTY HERETO HEREBY WAIVES ANY RIGHTS TO A TRIAL BY JURY OF ANY MATTER OR CAUSE RELATING TO THIS AGREEMENT. 11.12 Reinstatement; Recapture. To the extent Lender receives any payment by or on behalf of Borrower or Guarantor, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to such party or its estate, trustee, receiver, custodian or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the obligation or part thereof that has been paid, reduced or satisfied by the amount so repaid shall be reinstated by the amount so repaid and shall be included within the liabilities of Borrower to Lender as of the date such initial payment, reduction or satisfaction occurred. 11.13 Governing Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF COLORADO. 26 11.14 Cross Collateralization; Marshalling, etc. Borrower represents, warrants and covenants that in the case of an Event of Default that is continuing (i) Lender shall have the right to pursue all of its rights and remedies in one proceeding, or separately and independently in separate proceedings from time to time, as Lender, in its sole and absolute discretion, shall determine from time to time, (ii) Lender is not required to either marshall assets, sell Collateral in any inverse order of alienation or be subject to any "election of remedies" law or rule, (iii) the exercise by Lender of any remedies against any one item of Collateral will not impede Lender from subsequently or simultaneously exercising remedies against any other item of Collateral, and (iv) all Liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against the Collateral and all Collateral has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Loan or until the Secured Obligations (as defined in the Deed of Trust) have been fully satisfied. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written. LENDER: TRINET REALTY CAPITAL, INC., a Maryland corporation By /s/ Kevin E. Deeble ------------------------------------ Its Vice President ----------------------------- 27 BORROWER: ICG 161, L.P., a Delaware limited liability company By ICG CORPORATE HEADQUARTERS, L.L.C., a Colorado limited liability company, its general partner By ICG SERVICES, INC., a Delaware corporation, its manager By /s/ H. Don Teague ------------------------------ Its Executive Vice President ------------------------ 28 SCHEDULE 6.1(iv) UCC FILINGS 1 UCC-1 Fixture Filing to be recorded in the Official Records of the County of Arapahoe, State of Colorado. UCC-1 Financing Statement to be filed in the Office of the Secretary of State, State of Colorado. SCHEDULE 7.6 TRANSACTIONS WITH AFFILIATES 1 SCHEDULE 7.14 ENCROACHMENTS None. 1 SCHEDULE 7.19 LITIGATION None. 1 EXHIBIT A ENVIRONMENTAL INDEMNITY 1 EXHIBIT B GUARANTY 1 EXHIBIT C FORM OF ASSUMPTION AGREEMENT 1 EX-10 3 EXHIBIT 10.2 Recorded at the Request of: Land Title Guarantee Company When Recorded Mail to: PILLSBURY MADISON & SUTRO LLP P.O. Box 7880 San Francisco, CA 94120-7880 Attn: Laura E. Hannusch, Esq. ASSUMPTION AND MODIFICATION AGREEMENT THIS ASSUMPTION AND MODIFICATION AGREEMENT ("Agreement") is entered into as of the 1st day of May 1999, by and among ICG SERVICES, INC., a Delaware corporation ("Grantor"), whose address is 161 Inverness Drive West, Englewood, Colorado 80112, ICG 161, L.P., a Delaware limited partnership ("Grantee"), whose address is 161 Inverness Drive West, Englewood, Colorado 80112, and TRINET REALTY CAPITAL, INC., a Maryland corporation ("Lender") whose address is One Embarcadero Center, 33rd Floor, San Francisco, California 94111. W I T N E S S E T H: WHEREAS, Grantor is the owner of certain real property located in Arapahoe County, Colorado, more particularly described in Exhibit A attached hereto (the "Premises"); and WHEREAS, Lender previously made a loan to Grantor in the original principal amount of thirty-three million seventy-six thousand seven hundred fifty-four dollars ($33,076,754) (the "Loan"), which Loan is evidenced by a Note executed by Grantor in favor of Lender dated as of January 1, 1999, in the amount of the Loan (the "Note"), and which Note is secured by, among other things, a Deed of Trust, Assignment of Rents and Security Agreement dated as of January 1, 1999 (as amended from time to time, the "Deed of Trust"), encumbering the Premises, executed by Grantor, in favor of the Public Trustee of Arapahoe County, Colorado, as trustee, for the benefit of Lender, said Deed of Trust recorded in the Official Records of Arapahoe County, Colorado, as Reception No. _________________; and WHEREAS, Lender is the owner and holder of the indebtedness and obligations secured by the Deed of Trust (the "Secured Indebtedness"); and WHEREAS, Grantor is the current owner of the Premises; and WHEREAS, Grantor wishes to convey the Premises to Grantee subject to the Deed of Trust; and WHEREAS, the Deed of Trust prohibits Grantor from conveying the Premises to Grantee without the prior written consent of Lender; and WHEREAS, Lender is willing to consent to the proposed conveyance of the Premises to Grantee and the assumption by Grantee of the Secured Indebtedness, subject to certain terms and conditions, including but not limited to those terms and conditions set forth herein; NOW, THEREFORE, in consideration of the provisions hereof, as an inducement to cause Lender to consent to the proposed conveyance, and for other valuable consideration, the receipt and sufficiency of which are acknowledged, it is agreed as follows: (A) Capitalized terms used herein, but not otherwise defined, shall have the meaning given them in the Deed of Trust. (B) Consent to Transfer. Lender hereby consents to the conveyance by Grantor to Grantee of Grantor's interest in the Premises. Except as expressly provided herein or in the Loan Documents (as defined below), such consent by Lender shall not constitute a consent to any further or subsequent sale, transfer, disposition or encumbering of any kind whatsoever, by deed of trust or otherwise, of the Mortgaged Property, or any part thereof or interest therein, or waive the necessity of further consent from Lender whenever such consent is required pursuant to the Loan Documents. (C) Amount of Indebtedness. Lender warrants, as of the date hereof, that the outstanding principal balance under the Note is $33,076,754 and that Grantor is not in default under the Loan Documents. (D) Assignment of the Loan; Assumption by Grantee. Effective as of May 1, 1999 (the "Transfer Date"), Grantor assigns to Grantee all of such Grantor's obligations, rights, powers, equities, remedies, and interests in, to, and arising out of the Loan, together with the Loan Documents, to have and to hold the obligations, rights, powers, equities, remedies, and interests of Grantor in, to, and arising out of the Loan and Loan Documents unto Grantee, its permitted successors and assigns, from and after the date hereof for all the remaining duration of the Loan, subject to the covenants, conditions, and provisions of such Loan as provided in the Note and the other Loan Documents. Effective as of the Transfer Date, Grantee assumes Grantor's liability for the payment of the Secured Indebtedness and all of the obligations of Grantor with respect to the Loan, including but not limited to the obligations set forth in the following documents executed in connection therewith: (i) Note; (ii) Deed of Trust; and 2 (iii) Assignment of Leases and Rents and other Income dated as of January 1, 1999, from Grantor, as assignor, to Lender, as assignee. (The foregoing documents, together with any other documents executed in connection with the Loan, being herein collectively referred to as the "Loan Documents.") Grantee shall not assume the obligations of Grantor under the Loan Agreement or the Secured Environmental Indemnity, each dated as of January 1, 1999 (collectively, the "Restated Agreements"), between Grantor and Lender, as such agreements are being amended and restated and will be executed by Grantee directly. If Lender so requests, Grantee shall sign a new promissory note containing the same terms and conditions and in the same principal amount of the Note to further evidence Grantee's liability for the payment of the Secured Indebtedness and Lender and Grantee shall exchange such new promissory note for the Note. (E) Modification of Loan Documents. (i) It is understood and agreed that, effective as of the Transfer Date, Grantee shall be substituted for Grantor in each of the Loan Documents and each of the Loan Documents shall be modified to amend the term or terms defined to identify Grantor, such as "Maker" in the Note, "Trustor" in the Deed of Trust and "Borrower" in the other Loan Documents, so that all such terms identify Grantee effective as of the Transfer Date. (ii) Section 1.19 of the Deed of Trust is hereby amended by adding the following language at the end of such Section 1.19: ATrustor shall deliver to Beneficiary, within forty-five (45) days after the end of each fiscal quarter, income statements, balance sheets and statements of cash flow of ICG Services, Inc. ("Guarantor") and its Subsidiaries (as defined in the Loan Agreement), on a consolidated basis, for such quarter, and a certificate of compliance, signed by an officer of Guarantor, certifying the accuracy of such statements and Guarantor's compliance with its obligation to maintain at the end of each fiscal quarter a Tangible Net Worth (as defined in the Loan Agreement) of at least fifty million dollars ($50,000,000). In addition, Trustor shall deliver to Beneficiary as soon as practicable, but in any event no later than one hundred five (105) days after each fiscal year, an income statement, balance sheet and statement of cash flow of Guarantor and its Subsidiaries, on a consolidated basis, for such fiscal year, all certified as to accuracy by an independent certified public accountant or representative of Guarantor reasonably acceptable to Beneficiary. All such financial 3 statements shall be prepared in accordance with generally accepted accounting principles consistently applied. Such financial statements shall be in form and detail reasonably satisfactory to Beneficiary." (iii) Section 1.21 of the Deed of Trust is hereby amended by adding "(except with respect to a transfer described in Section 5.14 hereof)" after "any interest in the Mortgaged Property" and before ", of if there is any change. . ." (iv) The Deed of Trust is hereby modified by adding a new Section 5.14, which reads as follows: "5.14 Partial Release. As of May 4, 1999, Trustor, Beneficiary, TEFX and Tenant have entered into that certain Agreement Regarding Subdivision (the "Subdivision Agreement"), whereby the parties thereto have agreed that, at the request of either Beneficiary or Tenant, the Property will be subdivided, with the portion of the Property currently improved with a building and parking facilities (the "Improved Parcel") forming one parcel, and the "Expansion Site" determined in accordance with the Subdivision Agreement forming a second parcel, all on the terms and conditions set forth in the Subdivision Agreement. In such case and upon satisfaction of all of the conditions set forth in the Subdivision Agreement, Beneficiary shall release, or direct the Trustee to release, the Expansion Site from the lien of this Deed of Trust. All expenses of Beneficiary and Trustee incurred in connection with preparing, negotiation and recording such release documents, and the cost of any endorsement to Beneficiary's title insurance policy reasonably required by Beneficiary, shall be paid by Trustor, as set forth in the Subdivision Agreement." (F) The effectiveness of this Agreement and the consents granted by Lender are conditioned on delivery to Lender of: (i) An Amended and Restated Loan Agreement, in form acceptable to Lender, dated as of May 4, 1999, executed by Grantee; (ii) An Unsecured Environmental Indemnity (the "Indemnity"), in form acceptable to Lender, dated as of May 4, 1999, executed by Grantor and Grantee; and (iii) A Continuing Guaranty (the "Guaranty"), in form acceptable to Lender, dated as of May 4, 1999, executed by Grantor. (G) Release. Effective as of the Transfer Date, Lender releases Grantor from any and all liability and obligation under the Loan Documents and the Restated Agreements, and each of them, but not from the documents referenced in paragraphs (F)(ii) and (iii) of this Agreement. 4 (H) Modifications and Renewals. Lender may hereafter enter into any modification, extension or renewal of the Secured Indebtedness with the consent of Grantee alone, and Grantor hereby waive notice of any of the same. Any renewal notes, modification or extension agreements or other documents pertaining to the Secured Indebtedness may hereafter be entered into by Grantee without the joinder of Grantor and without limiting the liability of Grantor for payment of the Secured Indebtedness pursuant to the Guaranty or the Indemnity. (I) Estoppels. Grantor hereby certifies and confirms for the benefit of Lender, the following: (i) The Loan Documents are in full force and effect. (ii) Lender has complied with all terms, conditions and provisions of the Loan Documents to be complied with by Lender, and no event has occurred and no circumstance exists that would, with the passage of time or the giving of notice, or both, constitute a default by Lender under the Loan Documents. There is no existing basis for Grantor to exercise any remedy available to it by virtue of a default or other action by Lender. (iii) There are no charges, liens, defenses, offsets, claims or credits known or asserted by Grantor against the payments due under the Note or other sums due Lender or against the performance of Grantor's obligations under the Loan Documents. (iv) There are no pending suits, proceedings, judgments, bankruptcies, liens or executions against Grantor or any affiliate of Grantor that could adversely affect the Premises. (J) Representations and Warranties. Grantee hereby represents and warrants for the benefit of Lender, the following: (i) Grantee is a Delaware limited partnership, is duly formed and validly existing under the laws of the State of Delaware and is qualified to do business in the State of Colorado. Grantee's federal tax identification number is 84-1448147. (ii) Grantee has full power and authority to enter into this Agreement and to perform this Agreement. The execution, delivery and performance of this Agreement by Grantee have been duly and validly authorized by all necessary action on the part of Grantee and all required consents and approvals have been duly obtained. 5 (iii) This Agreement is a legal, valid and binding obligation of Grantee, enforceable against Grantee in accordance with its terms. (K) No Marshalling of Assets. Lender may proceed against collateral securing the Secured Indebtedness and against parties liable therefor in such order as it may elect, and neither Grantor nor Grantee nor any surety or guarantor for either of them nor any creditor of either Grantor or Grantee shall be entitled to require Lender to marshall assets. The benefit of any rule of law or equity to the contrary is hereby expressly waived. (L) Impairment of Collateral. Lender may, in its sole discretion, release the Deed of Trust or any other collateral securing the Secured Indebtedness or release any party liable therefor. The defenses of impairment of collateral and impairment of recourse and any requirement of diligence on Lender's part in collecting the Secured Indebtedness are hereby waived. (M) Amendment and Waiver in Writing. No provision of this Agreement can be amended or waived, except by a statement in writing signed by all parties to this Agreement. (N) Assignment. This Agreement and all related documents shall be binding upon and inure to the benefit of the respective heirs, successors and assigns of Grantor, Grantee and Lender. (O) Entire Agreement. This Agreement and the documents referenced herein and those executed concurrently herewith represent the entire agreement among the parties concerning the Loan. (P) Severability. Should any provision of this Agreement be invalid or unenforceable for any reason, the remaining provisions hereof shall remain in full effect. (Q) Applicable Law. The validity and construction of this Agreement and all other documents executed with respect to the Secured Indebtedness shall be determined according to the laws of Colorado applicable to contracts executed and performed within that state. (R) Gender and Number. Words used herein indicating gender or number shall be read as context may require. (S) Captions Not Controlling. Captions and headings have been included in this Agreement for the convenience of the parties, and shall not be construed as affecting the content of the respective paragraphs. 6 (T) Counterparts. This Agreement may be executed by counterpart signature pages, and it shall not be necessary that the signatures of all parties be contained on any one counterpart. Each counterpart shall be deemed an original, but all of them together shall constitute one and the same instrument Executed the date first written above. THE UNDERSIGNED ACKNOWLEDGE A THOROUGH UNDERSTANDING OF THE TERMS OF THIS AGREEMENT AND AGREE TO BE BOUND THEREBY: GRANTOR: ICG SERVICES, INC., a Delaware corporation By /s/ H. Don Teague ---------------------------------- Its Executive Vice President ---------------------------- GRANTEE: ICG 161, L.P., a Delaware limited partnership By ICG CORPORATE HEADQUARTERS, L.L.C., a Colorado limited liability company, its general partner By ICG SERVICES, INC., a Delaware corporation, its manager By /s/ H. Don Teague ---------------------------------- Its Executive Vice President --------------------------- LENDER: TRINET REALTY CAPITAL, INC., a Maryland corporation By ---------------------------------- Its --------------------------- 7 STATE OF Colorado ) ) ss. CITY AND COUNTY OF Denver ) The foregoing instrument was acknowledged before me this 13th day of May, 1999, by H. Don Teague as Executive Vice President of ICG SERVICES, INC., a Delaware corporation. My commission expires: 1/3/2000 Witness my hand and official seal. /s/ Elizabeth G. Gashins ------------------------- Notary Public STATE OF Colorado ) ) ss. CITY AND COUNTY OF Denver ) The foregoing instrument was acknowledged before me this 13th day of May, 1999, by H. Don Teague as Executive Vice President of ICG Services, Inc., the general partner of ICG 161, L.P., a Delaware limited partnership. My commission expires: 1/3/2000 Witness my hand and official seal. /s/ Elizabeth G. Gashins ------------------------- Notary Public (T) Counterparts. This Agreement may be executed by counterpart signature pages, and it shall not be necessary that the signatures of all parties be contained on any one counterpart. Each counterpart shall be deemed an original, but all of them together shall constitute one and the same instrument Executed the date first written above. THE UNDERSIGNED ACKNOWLEDGE A THOROUGH UNDERSTANDING OF THE TERMS OF THIS AGREEMENT AND AGREE TO BE BOUND THEREBY: GRANTOR: ICG SERVICES, INC., a Delaware corporation By ---------------------------------- Its ---------------------------- GRANTEE: ICG 161, L.P., a Delaware limited partnership By ICG CORPORATE HEADQUARTERS, L.L.C., a Colorado limited liability company, its general partner By ICG SERVICES, INC., a Delaware corporation, its manager By ---------------------------------- Its --------------------------- LENDER: TRINET REALTY CAPITAL, INC., a Maryland corporation By /s/ Kevin E. Deeble ---------------------------------- Its Vice President --------------------------- 7 STATE OF California ) ) ss. COUNTY OF San Francisco ) The foregoing instrument was acknowledged before me this 12th day of May, 1999, by Kevin E. Deeble as Vice President of TRINET REALTY CAPITAL, INC., a Maryland corporation. My commission expires: November 7, 2002 Witness my hand and official seal. Mary Sainsbury -------------------------- Notary Public EXHIBIT A LEGAL DESCRIPTION All that certain real property in the County of Arapahoe, State of Colorado, described as follows: LOT 1, INVERNESS SUBDIVISION FILING NO. 22, COUNTY OF ARAPAHOE, STATE OF COLORADO EX-10 4 EXHIBIT 10.3 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 19th day of May, 1999 by and between ICG Communications, Inc. ("Employer" or the "Company") and Harry R. Herbst ("Employee"). R E C I T A L S WHEREAS, the Company desires to employ Employee as provided herein; and WHEREAS, Employee desires to be employed by Employer as provided herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. Employment. The Company agrees to employ Employee and Employee hereby agrees to be employed on a full-time basis by the Company or by such of its subsidiary or affiliate corporations as determined by the Company in such position as is mutually agreed, for the period and upon the terms and conditions hereinafter set forth. 2. Duties. During his employment, Employee shall perform the duties and bear the responsibilities commensurate with his position and shall serve the Employer faithfully and to the best of his ability. Employee shall devote 100% of his working time to carrying out his obligations hereunder. 3. Compensation and Benefits. 3.1 The Company shall pay Employee during the Term of this Agreement an annual base salary, payable semi-monthly. The annual base salary will initially be Three Hundred Two Thousand Five Hundred Dollars ($302,500). 3.2 In addition to the base salary, Employee will be eligible for an annual performance bonus in an exact amount to be determined by the Board of Directors of the Company or the Compensation Committee of the Board. The annual bonus will be determined in accordance with the bonus plan of the Company and will be based on objectives and goals set for the Company and the Employee. Employee's annual bonus is initially established at 50% of annual base salary if all objectives and goals are met. 3.3 In addition to salary and bonus payments as provided above, the Company will provide Employee, during the Term of this Agreement, with the benefits of such insurance plans, hospitalization plans and other perquisites as shall be generally provided to employees of the Company at his level and for which Employee may be eligible under the terms and conditions thereof. Employee will also be entitled to all benefits provided under any directors and officers 1 liability insurance or errors and omissions insurance maintained by the Company. Throughout the Term of this Agreement, the Company will provide Employee with a car allowance in the amount of Seven Hundred Dollars ($700) per month. 3.4 Throughout the Term of this Agreement, the Company will reimburse Employee for all reasonable out-of-pocket expenses incurred by Employee in connection with the business of the Company and the performance of his duties under this Agreement, upon presentation to the Company by Employee of an itemized accounting of such expenses with reasonable supporting data. At the request of Employee, the Company will during the Term of this Agreement purchase and maintain at the expense of the Company a life insurance policy on the life of the Employee with the beneficiary being the estate of the Employee in an amount equal to two (2) times the aggregate amount of his annual base salary plus his targeted annual bonus. 3.5 The Company will from time to time provide to Employee stock options pursuant to and subject to the terms and conditions of the Company's Stock Option Plans. 4. Term. The initial term of this Agreement will be for three (3) years commencing as of the date hereof ("Term"). After one (1) year from the date hereof, this Agreement will thereafter automatically renew from month-to-month such that there will always be two (2) years remaining in the Term, unless and until either party shall give at least sixty (60) days notice to the other of his or its desire to terminate this Agreement (in such case, the Term shall end upon the date indicated in such notice). The applicable provisions of Sections 6, 7, and 8 shall remain in full force and effect for the time periods specified in such Sections notwithstanding the termination of this Agreement. 5. Termination. 5.1 If Employee dies during the Term of this Agreement, this Agreement will terminate. The Company will pay the estate of Employee an amount equal to three months salary. In addition, the estate of Employee will be entitled to exercise all options theretofore vested under the Company's Stock Option Plans for a period of one (1) year after the date of death of Employee in accordance with the plans and agreements relating to such options. 5.2 If, during the Term of this Agreement, Employee is prevented from performing his duties by reason of illness or incapacity for one hundred forty (140) days in any one hundred eighty (180) day period, the Company may terminate this Agreement, upon thirty (30) days notice to Employee or his duly appointed legal representative. Employee will be entitled to all benefits provided under any disability plans of the Company. In addition, Employee or his duly appointed legal representative will be entitled to exercise all options theretofore vested under the Company's Stock Option Plans for a period of one (1) year after the date of termination in accordance with the plans and agreements relating to such options. 5.3 For the purposes of this Agreement, a "Change in Control" of the Company shall mean and be deemed to have occurred if (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (Exchange Act)) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the 2 Company representing 50% or more of the combined voting power of the Company's then outstanding securities; (b) at any time a majority of the directors of the Company are persons who were not nominated for election by the Board; (c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; (d) the Company shall sell or otherwise dispose of, in one transaction or a series of related transactions, assets aggregating more than 50% of the assets of the Company and its subsidiaries consolidated; or (e) the stockholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company of all or substantially all the Company's assets. Upon the occurrence of a Change in Control, the Company shall pay Employee an amount equal to one (1) times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. At the time of the occurrence of a Change in Control all options to purchase shares of the Company that have been granted to Employee pursuant to the Company's Stock Option Plans, but not yet vested, will immediately vest and Employee shall be entitled to exercise such options in accordance with the plans and agreements relating to such options. In addition, the Company or Employee may terminate this Agreement upon at least thirty (30) days notice at any time within one (1) year after the occurrence of a Change in Control of the Company. 5.4 Employee may terminate this Agreement upon at least thirty (30) days notice upon the occurrence of a constructive dismissal of Employee. For the purposes of this Agreement, "constructive dismissal" includes, without limiting the generality of any action by the Company which constitutes constructive dismissal, unless consented to by Employee in writing, any of the following actions by the Company: (i) any material reduction in Employee's positions, duties, responsibilities, powers or reporting relationships; (ii) any reduction in the annual salary of Employee; (iii)any requirement to relocate to another city, state or country; and (iv) any material reduction in the value of Employee's benefits plans and programs, including, without limiting the generality of the foregoing, bonus arrangements. 5.5 The Company may terminate this Agreement immediately for gross negligence, intentional misconduct or the commission of a felony by the Employee, in which case all rights under this Agreement shall end as of the date of such termination. 5.6 If this Agreement is terminated by the Company under Section 4 or Section 5.3, the Company shall pay Employee a termination fee in an amount equal to three (3) times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. 3 Such termination fee will be paid in a lump sum within fifteen (15) days from the date of termination. If this Agreement is terminated by Employee under Section 5.3 or Section 5.4, the Company will pay Employee a termination fee equal to three (3) times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. Such termination fee will be paid in a lump sum within fifteen (15) days from the date of termination. In addition, if the Company terminates this Agreement under Section 4 or Employee terminates this Agreement under Section 5.3 or Section 5.4, all options to purchase shares of the Company that have been granted to Employee pursuant to the Company's Stock Option Plans, but not yet vested, will immediately vest on the date of termination and Employee will be entitled to exercise all options held by the Employee for a period of six (6) months after the date of termination in accordance with the plans and agreements relating to such options. 6. Non-Compete and Non-Interference. 6.1 During the Term of this Agreement and, if Employee's employment with the Company is terminated under Section 4 or Section 5.3, for a period of twelve (12) months after such termination, Employee shall not, directly or indirectly, own, manage, operate, control, be employed by, or participate in the ownership, management, operation or control of, a business that is engaged in the same business as the Company within any area constituting, during the term of Employee's employment or at the time Employee's employment is terminated, a Relevant Area. A "Relevant Area" shall be defined for the purposes of this Agreement as any area located within, or within fifty (50) miles of, the legal boundaries or limits of any city within which the Company is engaged in business or in which the Company has publicly announced or privately disclosed to Employee that it plans to engage in business. 6.2 During the Term of this Agreement and for a period of two (2) years after termination of this Agreement, Employee shall not (i) directly or indirectly cause or attempt to cause any employee of the Company or any of its affiliates to leave the employ of the Company or any affiliate, (ii) in any way interfere with the relationship between the Company and any employee or between an affiliate and any employee of the affiliate, or (iii) interfere or attempt to interfere with any transaction in which the Company or any of its affiliates was involved during the Term of this Agreement. 6.3 Employee agrees that, because of the nature and sensitivity of the information to which he will be privy and because of the nature and scope of the Company's business, the restrictions contained in this Section 6 are fair and reasonable. 7. Confidential Information. 7.1 The relationship between the Company and Employee is one of confidence and trust. This relationship and the rights granted and duties imposed by this Section shall continue until a date ten (10) years from the date Employee's employment is terminated. 7.2 As used in this Agreement (i) "Confidential Information" means information disclosed to or acquired by Employee about the Company's plans, 4 products, processes and services, including information relating to research, development, inventions, manufacturing, purchasing, accounting, engineering, marketing, merchandising, selling, pricing, tariffed or contractual terms, customer lists and prospect lists and other market information, with respect to any of the Company's business activities; and (ii) "Inventions" means any inventions, discoveries, concepts and ideas, whether patentable or not, including, without limitation, processes, methods, formulas, and techniques (as well as related improvements and knowledge) that are based on or related to Confidential Information, that pertain in any manner to the Company's technology, expertise or business and that are made or conceived by Employee, either solely or jointly with others, and while employed by the Company or within six (6) months thereafter, whether or not made or conceived during working hours or with the use of the Company's facilities, materials or personnel. 7.3 Employee agrees that he shall at no time during the Term of this Agreement or at any time thereafter disclose any Confidential Information to any person, firm or corporation to any extent or for any reason or purpose or use any Confidential Information for any purpose other than the conduct of the Company's business. 7.4 Any Confidential Information that is directly or indirectly originated, developed or perfected to any degree by Employee during the term of his employment by the Company shall be and remain the sole property of the Company and shall be deemed trade secrets of the Company. 7.5 Upon termination of Employee's employment pursuant to any of the provisions herein, Employee or his legal representative shall deliver to the Company all originals and all duplicates and/or copies of all documents, records, notebooks, and similar repositories of or containing Confidential Information then in his possession, whether prepared by him or not. 7.6 Employee agrees that the covenants and agreements contained in this Section 7 are fair and reasonable and that no waiver or modification of this Section or any covenant or condition set forth herein shall be valid unless set forth in writing and duly executed by the parties hereto. 8. Injunctive Relief. Upon a material breach or threatened material breach by Employee of any of the provisions of Sections 6 or 7 of this Agreement, the Company shall be entitled to an injunction restraining Employee from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach, including recovery of damages from Employee. 9. No Waiver. A waiver by the Company of a breach of any provision of this Agreement by Employee shall not operate or be construed as a waiver of any subsequent or other breach by Employee. 10. Severability. It is the desire and intent of the parties that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision or portion of this Agreement shall be adjudicated to be invalid or unenforceable, this 5 Agreement shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made. 11. Notices. All communications, requests, consents and other notices provided for in this Agreement shall be in writing and shall be deemed given if delivered by hand or mailed by first class mail, postage prepaid, to the last known address of the recipient. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Colorado. 13. Assignment. Neither this Agreement nor any rights or duties hereunder may be assigned by Employee or the Company without the prior written consent of the other, such consent not to be unreasonably withheld. 14. Amendments. No provision of this Agreement shall be altered, amended, revoked or waived except by an instrument in writing, signed by each party to this Agreement. 15. Binding Effect. Except as otherwise provided herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, heirs, successors and assigns. 16. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties and supersedes all prior understandings, agreements or representations by or between the parties, whether written or oral, which relate in any way to the subject matter hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. /s/ Harry R. Herbst -------------------------------------- Harry R. Herbst ICG COMMUNICATIONS, INC. By: /s/ J. Shelby Bryan ------------------------------ Name: J. Shelby Bryan ------------------------------ Title: President and CEO ------------------------------ 6 EX-10 5 EXHIBIT 10.4 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 19th day of May, 1999 by and between ICG Communications, Inc. ("Employer" or the "Company") and Don Teague ("Employee"). R E C I T A L S WHEREAS, the Company desires to employ Employee as provided herein; and WHEREAS, Employee desires to be employed by Employer as provided herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. Employment. The Company agrees to employ Employee and Employee hereby agrees to be employed on a full-time basis by the Company or by such of its subsidiary or affiliate corporations as determined by the Company in such position as is mutually agreed, for the period and upon the terms and conditions hereinafter set forth. 2. Duties. During his employment, Employee shall perform the duties and bear the responsibilities commensurate with his position and shall serve the Employer faithfully and to the best of his ability. Employee shall devote 100% of his working time to carrying out his obligations hereunder. 3. Compensation and Benefits. 3.1 The Company shall pay Employee during the Term of this Agreement an annual base salary, payable semi-monthly. The annual base salary will initially be Two Hundred Sixty Four Thousand Dollars ($264,000). 3.2 In addition to the base salary, Employee will be eligible for an annual performance bonus in an exact amount to be determined by the Board of Directors of the Company or the Compensation Committee of the Board. The annual bonus will be determined in accordance with the bonus plan of the Company and will be based on objectives and goals set for the Company and the Employee. Employee's annual bonus is initially established at 45% of annual base salary if all objectives and goals are met. 3.3 In addition to salary and bonus payments as provided above, the Company will provide Employee, during the Term of this Agreement, with the benefits of such insurance plans, hospitalization plans and other perquisites as shall be generally provided to employees of the Company at his level and for which Employee may be eligible under the terms and conditions thereof. Employee will also be entitled to all benefits provided under any directors and officers 1 liability insurance or errors and omissions insurance maintained by the Company. Throughout the Term of this Agreement, the Company will provide Employee with a car allowance in the amount of Seven Hundred Dollars ($700) per month. 3.4 Throughout the Term of this Agreement, the Company will reimburse Employee for all reasonable out-of-pocket expenses incurred by Employee in connection with the business of the Company and the performance of his duties under this Agreement, upon presentation to the Company by Employee of an itemized accounting of such expenses with reasonable supporting data. At the request of Employee, the Company will during the Term of this Agreement purchase and maintain at the expense of the Company a life insurance policy on the life of the Employee with the beneficiary being the estate of the Employee in an amount equal to two (2) times the aggregate amount of his annual base salary plus his targeted annual bonus. 3.5 The Company will from time to time provide to Employee stock options pursuant to and subject to the terms and conditions of the Company's Stock Option Plans. 4. Term. The initial term of this Agreement will be for three (3) years commencing as of the date hereof ("Term"). After one (1) year from the date hereof, this Agreement will thereafter automatically renew from month-to-month such that there will always be two (2) years remaining in the Term, unless and until either party shall give at least sixty (60) days notice to the other of his or its desire to terminate this Agreement (in such case, the Term shall end upon the date indicated in such notice). The applicable provisions of Sections 6, 7, and 8 shall remain in full force and effect for the time periods specified in such Sections notwithstanding the termination of this Agreement. 5. Termination. 5.1 If Employee dies during the Term of this Agreement, this Agreement will terminate. The Company will pay the estate of Employee an amount equal to three months salary. In addition, the estate of Employee will be entitled to exercise all options theretofore vested under the Company's Stock Option Plans for a period of one (1) year after the date of death of Employee in accordance with the plans and agreements relating to such options. 5.2 If, during the Term of this Agreement, Employee is prevented from performing his duties by reason of illness or incapacity for one hundred forty (140) days in any one hundred eighty (180) day period, the Company may terminate this Agreement, upon thirty (30) days notice to Employee or his duly appointed legal representative. Employee will be entitled to all benefits provided under any disability plans of the Company. In addition, Employee or his duly appointed legal representative will be entitled to exercise all options theretofore vested under the Company's Stock Option Plans for a period of one (1) year after the date of termination in accordance with the plans and agreements relating to such options. 5.3 For the purposes of this Agreement, a "Change in Control" of the Company shall mean and be deemed to have occurred if (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (Exchange Act)) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the 2 Company representing 50% or more of the combined voting power of the Company's then outstanding securities; (b) at any time a majority of the directors of the Company are persons who were not nominated for election by the Board; (c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; (d) the Company shall sell or otherwise dispose of, in one transaction or a series of related transactions, assets aggregating more than 50% of the assets of the Company and its subsidiaries consolidated; or (e) the stockholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company of all or substantially all the Company's assets. Upon the occurrence of a Change in Control, the Company shall pay Employee an amount equal to one (1) times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. At the time of the occurrence of a Change in Control all options to purchase shares of the Company that have been granted to Employee pursuant to the Company's Stock Option Plans, but not yet vested, will immediately vest and Employee shall be entitled to exercise such options in accordance with the plans and agreements relating to such options. In addition, the Company or Employee may terminate this Agreement upon at least thirty (30) days notice at any time within one (1) year after the occurrence of a Change in Control of the Company. 5.4 Employee may terminate this Agreement upon at least thirty (30) days notice upon the occurrence of a constructive dismissal of Employee. For the purposes of this Agreement, "constructive dismissal" includes, without limiting the generality of any action by the Company which constitutes constructive dismissal, unless consented to by Employee in writing, any of the following actions by the Company: (i) any material reduction in Employee's positions, duties, responsibilities, powers or reporting relationships; (ii) any reduction in the annual salary of Employee; (iii)prior to the occurrence of a Change in Control of the Company, any requirement to relocate to another city, state or country, provided, however, that this provision shall not be applicable if the principal executive offices of the Company are being relocated to such city, state or country; (iv) subsequent to the occurrence of a Change in Control of the Company, any requirement to relocate to another city, state or country; and (v) any material reduction in the value of Employee's benefits plans and programs, including, without limiting the generality of the foregoing, bonus arrangements. 3 5.5 The Company may terminate this Agreement immediately for gross negligence, intentional misconduct or the commission of a felony by the Employee, in which case all rights under this Agreement shall end as of the date of such termination. 5.6 If this Agreement is terminated by the Company under Section 4 or Section 5.3, the Company shall pay Employee a termination fee in an amount equal to three (3) times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. Such termination fee will be paid in a lump sum within fifteen (15) days from the date of termination. If this Agreement is terminated by Employee under Section 5.4, the Company will pay Employee a termination fee equal to three (3) times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. Such termination fee will be paid in a lump sum within fifteen (15) days from the date of termination. In addition, if the Company terminates this Agreement under Section 4 or Employee terminates this Agreement under Section 5.3 or Section 5.4, all options to purchase shares of the Company that have been granted to Employee pursuant to the Company's Stock Option Plans, but not yet vested, will immediately vest on the date of termination and Employee will be entitled to exercise all options held by the Employee for a period of six (6) months after the date of termination in accordance with the plans and agreements relating to such options. 6. Non-Compete and Non-Interference. 6.1 During the Term of this Agreement and, if Employee's employment with the Company is terminated under Section 4 or Section 5.3, for a period of twelve (12) months after such termination, Employee shall not, directly or indirectly, own, manage, operate, control, be employed by, or participate in the ownership, management, operation or control of, a business that is engaged in the same business as the Company within any area constituting, during the term of Employee's employment or at the time Employee's employment is terminated, a Relevant Area. A "Relevant Area" shall be defined for the purposes of this Agreement as any area located within, or within fifty (50) miles of, the legal boundaries or limits of any city within which the Company is engaged in business or in which the Company has publicly announced or privately disclosed to Employee that it plans to engage in business. 6.2 During the Term of this Agreement and for a period of two (2) years after termination of this Agreement, Employee shall not (i) directly or indirectly cause or attempt to cause any employee of the Company or any of its affiliates to leave the employ of the Company or any affiliate, (ii) in any way interfere with the relationship between the Company and any employee or between an affiliate and any employee of the affiliate, or (iii) interfere or attempt to interfere with any transaction in which the Company or any of its affiliates was involved during the Term of this Agreement. 6.3 Employee agrees that, because of the nature and sensitivity of the information to which he will be privy and because of the nature and scope of the Company's business, the restrictions contained in this Section 6 are fair and reasonable. 4 7. Confidential Information. 7.1 The relationship between the Company and Employee is one of confidence and trust. This relationship and the rights granted and duties imposed by this Section shall continue until a date ten (10) years from the date Employee's employment is terminated. 7.2 As used in this Agreement (i) "Confidential Information" means information disclosed to or acquired by Employee about the Company's plans, products, processes and services, including information relating to research, development, inventions, manufacturing, purchasing, accounting, engineering, marketing, merchandising, selling, pricing, tariffed or contractual terms, customer lists and prospect lists and other market information, with respect to any of the Company's business activities; and (ii) "Inventions" means any inventions, discoveries, concepts and ideas, whether patentable or not, including, without limitation, processes, methods, formulas, and techniques (as well as related improvements and knowledge) that are based on or related to Confidential Information, that pertain in any manner to the Company's technology, expertise or business and that are made or conceived by Employee, either solely or jointly with others, and while employed by the Company or within six (6) months thereafter, whether or not made or conceived during working hours or with the use of the Company's facilities, materials or personnel. 7.3 Employee agrees that he shall at no time during the Term of this Agreement or at any time thereafter disclose any Confidential Information to any person, firm or corporation to any extent or for any reason or purpose or use any Confidential Information for any purpose other than the conduct of the Company's business. 7.4 Any Confidential Information that is directly or indirectly originated, developed or perfected to any degree by Employee during the term of his employment by the Company shall be and remain the sole property of the Company and shall be deemed trade secrets of the Company. 7.5 Upon termination of Employee's employment pursuant to any of the provisions herein, Employee or his legal representative shall deliver to the Company all originals and all duplicates and/or copies of all documents, records, notebooks, and similar repositories of or containing Confidential Information then in his possession, whether prepared by him or not. 7.6 Employee agrees that the covenants and agreements contained in this Section 7 are fair and reasonable and that no waiver or modification of this Section or any covenant or condition set forth herein shall be valid unless set forth in writing and duly executed by the parties hereto. 8. Injunctive Relief. Upon a material breach or threatened material breach by Employee of any of the provisions of Sections 6 or 7 of this Agreement, the Company shall be entitled to an injunction restraining Employee from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach, including recovery of damages from Employee. 5 9. No Waiver. A waiver by the Company of a breach of any provision of this Agreement by Employee shall not operate or be construed as a waiver of any subsequent or other breach by Employee. 10. Severability. It is the desire and intent of the parties that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision or portion of this Agreement shall be adjudicated to be invalid or unenforceable, this Agreement shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made. 11. Notices. All communications, requests, consents and other notices provided for in this Agreement shall be in writing and shall be deemed given if delivered by hand or mailed by first class mail, postage prepaid, to the last known address of the recipient. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Colorado. 13. Assignment. Neither this Agreement nor any rights or duties hereunder may be assigned by Employee or the Company without the prior written consent of the other, such consent not to be unreasonably withheld. 14. Amendments. No provision of this Agreement shall be altered, amended, revoked or waived except by an instrument in writing, signed by each party to this Agreement. 15. Binding Effect. Except as otherwise provided herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, heirs, successors and assigns. 16. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties and supersedes all prior understandings, agreements or representations by or between the parties, whether written or oral, which relate in any way to the subject matter hereof. 6 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. /s/ Don Teague -------------------------------------- Don Teague ICG COMMUNICATIONS, INC. By: /s/ J. Shelby Bryan ------------------------------ Name: J. Shelby Bryan ------------------------------ Title: President and CEO ------------------------------ 7 EX-10 6 EXHIBIT 10.5 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 19th day of May, 1999 by and between ICG Communications, Inc. ("Employer" or the "Company") and John Kane ("Employee"). R E C I T A L S WHEREAS, the Company desires to employ Employee as provided herein; and WHEREAS, Employee desires to be employed by Employer as provided herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. Employment. The Company agrees to employ Employee and Employee hereby agrees to be employed on a full-time basis by the Company or by such of its subsidiary or affiliate corporations as determined by the Company in such position as is mutually agreed, for the period and upon the terms and conditions hereinafter set forth. 2. Duties. During his employment, Employee shall perform the duties and bear the responsibilities commensurate with his position and shall serve the Employer faithfully and to the best of his ability. Employee shall devote 100% of his working time to carrying out his obligations hereunder. 3. Compensation and Benefits. 3.1 The Company shall pay Employee during the Term of this Agreement an annual base salary, payable semi-monthly. The annual base salary will initially be Two Hundred Thirty-Six Thousand Five Hundred Dollars ($236,500). 3.2 In addition to the base salary, Employee will be eligible for an annual performance bonus in an exact amount to be determined by the Board of Directors of the Company or the Compensation Committee of the Board. The annual bonus will be determined in accordance with the bonus plan of the Company and will be based on objectives and goals set for the Company and the Employee. Employee's annual bonus is initially established at 40% of annual base salary if all objectives and goals are met. 3.3 In addition to salary and bonus payments as provided above, the Company will provide Employee, during the Term of this Agreement, with the benefits of such insurance plans, hospitalization plans and other perquisites as shall be generally provided to employees of the Company at his level and for which Employee may be eligible under the terms and conditions thereof. Employee will also be entitled to all benefits provided under any directors and officers 1 liability insurance or errors and omissions insurance maintained by the Company. Throughout the Term of this Agreement, the Company will provide Employee with a car allowance in the amount of Seven Hundred Dollars ($700) per month. 3.4 Throughout the Term of this Agreement, the Company will reimburse Employee for all reasonable out-of-pocket expenses incurred by Employee in connection with the business of the Company and the performance of his duties under this Agreement, upon presentation to the Company by Employee of an itemized accounting of such expenses with reasonable supporting data. At the request of Employee, the Company will during the Term of this Agreement purchase and maintain at the expense of the Company a life insurance policy on the life of the Employee with the beneficiary being the estate of the Employee in an amount equal to two (2) times the aggregate amount of his annual base salary plus his targeted annual bonus. 3.5 The Company will from time to time provide to Employee stock options pursuant to and subject to the terms and conditions of the Company's Stock Option Plans. 4. Term. The initial term of this Agreement will be for three (3) years commencing as of the date hereof ("Term"). After one (1) year from the date hereof, this Agreement will thereafter automatically renew from month-to-month such that there will always be two (2) years remaining in the Term, unless and until either party shall give at least sixty (60) days notice to the other of his or its desire to terminate this Agreement (in such case, the Term shall end upon the date indicated in such notice). The applicable provisions of Sections 6, 7, and 8 shall remain in full force and effect for the time periods specified in such Sections notwithstanding the termination of this Agreement. 5. Termination. 5.1 If Employee dies during the Term of this Agreement, this Agreement will terminate. The Company will pay the estate of Employee an amount equal to three months salary. In addition, the estate of Employee will be entitled to exercise all options theretofore vested under the Company's Stock Option Plans for a period of one (1) year after the date of death of Employee in accordance with the plans and agreements relating to such options. 5.2 If, during the Term of this Agreement, Employee is prevented from performing his duties by reason of illness or incapacity for one hundred forty (140) days in any one hundred eighty (180) day period, the Company may terminate this Agreement, upon thirty (30) days notice to Employee or his duly appointed legal representative. Employee will be entitled to all benefits provided under any disability plans of the Company. In addition, Employee or his duly appointed legal representative will be entitled to exercise all options theretofore vested under the Company's Stock Option Plans for a period of one (1) year after the date of termination in accordance with the plans and agreements relating to such options. 5.3 For the purposes of this Agreement, a "Change in Control" of the Company shall mean and be deemed to have occurred if (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (Exchange Act)) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the 2 Company representing 50% or more of the combined voting power of the Company's then outstanding securities; (b) at any time a majority of the directors of the Company are persons who were not nominated for election by the Board; (c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; (d) the Company shall sell or otherwise dispose of, in one transaction or a series of related transactions, assets aggregating more than 50% of the assets of the Company and its subsidiaries consolidated; or (e) the stockholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company of all or substantially all the Company's assets. Upon the occurrence of a Change in Control, the Company shall pay Employee an amount equal to one (1) times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. At the time of the occurrence of a Change in Control all options to purchase shares of the Company that have been granted to Employee pursuant to the Company's Stock Option Plans, but not yet vested, will immediately vest and Employee shall be entitled to exercise such options in accordance with the plans and agreements relating to such options. In addition, the Company or Employee may terminate this Agreement upon at least thirty (30) days notice at any time within one (1) year after the occurrence of a Change in Control of the Company. 5.4 Employee may terminate this Agreement upon at least thirty (30) days notice upon the occurrence of a constructive dismissal of Employee. For the purposes of this Agreement, "constructive dismissal" includes, without limiting the generality of any action by the Company which constitutes constructive dismissal, unless consented to by Employee in writing, any of the following actions by the Company: (i) any material reduction in Employee's positions, duties, responsibilities, powers or reporting relationships; (ii) any reduction in the annual salary of Employee; (iii)prior to the occurrence of a Change in Control of the Company, any requirement to relocate to another city, state or country, provided, however, that this provision shall not be applicable if the principal executive offices of the Company are being relocated to such city, state or country; (iv) subsequent to the occurrence of a Change in Control of the Company, any requirement to relocate to another city, state or country; and (v) any material reduction in the value of Employee's benefits plans and programs, including, without limiting the generality of the foregoing, bonus arrangements. 3 5.5 The Company may terminate this Agreement immediately for gross negligence, intentional misconduct or the commission of a felony by the Employee, in which case all rights under this Agreement shall end as of the date of such termination. 5.6 If this Agreement is terminated by the Company under Section 4 or Section 5.3, the Company shall pay Employee a termination fee in an amount equal to three (3) times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. Such termination fee will be paid in a lump sum within fifteen (15) days from the date of termination. If this Agreement is terminated by Employee under Section 5.4, the Company will pay Employee a termination fee equal to three (3) times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. Such termination fee will be paid in a lump sum within fifteen (15) days from the date of termination. In addition, if the Company terminates this Agreement under Section 4 or Employee terminates this Agreement under Section 5.3 or Section 5.4, all options to purchase shares of the Company that have been granted to Employee pursuant to the Company's Stock Option Plans, but not yet vested, will immediately vest on the date of termination and Employee will be entitled to exercise all options held by the Employee for a period of six (6) months after the date of termination in accordance with the plans and agreements relating to such options. 6. Non-Compete and Non-Interference. 6.1 During the Term of this Agreement and, if Employee's employment with the Company is terminated under Section 4 or Section 5.3, for a period of twelve (12) months after such termination, Employee shall not, directly or indirectly, own, manage, operate, control, be employed by, or participate in the ownership, management, operation or control of, a business that is engaged in the same business as the Company within any area constituting, during the term of Employee's employment or at the time Employee's employment is terminated, a Relevant Area. A "Relevant Area" shall be defined for the purposes of this Agreement as any area located within, or within fifty (50) miles of, the legal boundaries or limits of any city within which the Company is engaged in business or in which the Company has publicly announced or privately disclosed to Employee that it plans to engage in business. 6.2. During the Term of this Agreement and for a period of two (2) years after termination of this Agreement, Employee shall not (i) directly or indirectly cause or attempt to cause any employee of the Company or any of its affiliates to leave the employ of the Company or any affiliate, (ii) in any way interfere with the relationship between the Company and any employee or between an affiliate and any employee of the affiliate, or (iii) interfere or attempt to interfere with any transaction in which the Company or any of its affiliates was involved during the Term of this Agreement. 6.3 Employee agrees that, because of the nature and sensitivity of the information to which he will be privy and because of the nature and scope of the Company's business, the restrictions contained in this Section 6 are fair and reasonable. 4 7. Confidential Information. 7.1 The relationship between the Company and Employee is one of confidence and trust. This relationship and the rights granted and duties imposed by this Section shall continue until a date ten (10) years from the date Employee's employment is terminated. 7.2 As used in this Agreement (i) "Confidential Information" means information disclosed to or acquired by Employee about the Company's plans, products, processes and services, including information relating to research, development, inventions, manufacturing, purchasing, accounting, engineering, marketing, merchandising, selling, pricing, tariffed or contractual terms, customer lists and prospect lists and other market information, with respect to any of the Company's business activities; and (ii) "Inventions" means any inventions, discoveries, concepts and ideas, whether patentable or not, including, without limitation, processes, methods, formulas, and techniques (as well as related improvements and knowledge) that are based on or related to Confidential Information, that pertain in any manner to the Company's technology, expertise or business and that are made or conceived by Employee, either solely or jointly with others, and while employed by the Company or within six (6) months thereafter, whether or not made or conceived during working hours or with the use of the Company's facilities, materials or personnel. 7.3 Employee agrees that he shall at no time during the Term of this Agreement or at any time thereafter disclose any Confidential Information to any person, firm or corporation to any extent or for any reason or purpose or use any Confidential Information for any purpose other than the conduct of the Company's business. 7.4 Any Confidential Information that is directly or indirectly originated, developed or perfected to any degree by Employee during the term of his employment by the Company shall be and remain the sole property of the Company and shall be deemed trade secrets of the Company. 7.5 Upon termination of Employee's employment pursuant to any of the provisions herein, Employee or his legal representative shall deliver to the Company all originals and all duplicates and/or copies of all documents, records, notebooks, and similar repositories of or containing Confidential Information then in his possession, whether prepared by him or not. 7.6 Employee agrees that the covenants and agreements contained in this Section 7 are fair and reasonable and that no waiver or modification of this Section or any covenant or condition set forth herein shall be valid unless set forth in writing and duly executed by the parties hereto. 8. Injunctive Relief. Upon a material breach or threatened material breach by Employee of any of the provisions of Sections 6 or 7 of this Agreement, the Company shall be entitled to an injunction restraining Employee from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach, including recovery of damages from Employee. 9. No Waiver. A waiver by the Company of a breach of any provision of this Agreement by Employee shall not operate or be construed as a waiver of any subsequent or other breach by Employee. 5 10. Severability. It is the desire and intent of the parties that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision or portion of this Agreement shall be adjudicated to be invalid or unenforceable, this Agreement shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made. 11. Notices. All communications, requests, consents and other notices provided for in this Agreement shall be in writing and shall be deemed given if delivered by hand or mailed by first class mail, postage prepaid, to the last known address of the recipient. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Colorado. 13. Assignment. Neither this Agreement nor any rights or duties hereunder may be assigned by Employee or the Company without the prior written consent of the other, such consent not to be unreasonably withheld. 14. Amendments. No provision of this Agreement shall be altered, amended, revoked or waived except by an instrument in writing, signed by each party to this Agreement. 15. Binding Effect. Except as otherwise provided herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, heirs, successors and assigns. 16. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties and supersedes all prior understandings, agreements or representations by or between the parties, whether written or oral, which relate in any way to the subject matter hereof. 6 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. /s/ John Kane -------------------------------------- John Kane ICG COMMUNICATIONS, INC. By: /s/ J. Shelby Bryan ------------------------------ Name: J. Shelby Bryan ------------------------------ Title: President and CEO ------------------------------ 7 EX-10 7 EXHIBIT 10.6 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st day of June, 1999 by and between ICG Communications, Inc. ("Employer" or the "Company") and Douglas Falk ("Employee"). R E C I T A L S WHEREAS, the Company desires to employ Employee as provided herein; and WHEREAS, Employee desires to be employed by Employer as provided herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. Employment. The Company agrees to employ Employee and Employee hereby agrees to be employed on a full-time basis by the Company or by such of its subsidiary or affiliate corporations as determined by the Company in such position as is designated by the Company, for the period and upon the terms and conditions hereinafter set forth. 2. Duties. During his employment, Employee shall perform the duties and bear the responsibilities commensurate with his position and shall serve the Employer faithfully and to the best of his ability. Employee shall devote 100% of his working time to carrying out his obligations hereunder. 3. Compensation and Benefits. 3.1 The Company shall pay Employee during the Term of this Agreement an annual base salary, payable semi-monthly. The annual base salary will initially be Two Hundred Seventy-Five Thousand Dollars ($275,000). 3.2 In addition to the base salary, Employee will be eligible for an annual performance bonus in an exact amount to be determined by the Board of Directors of the Company or the Compensation Committee of the Board. The annual bonus will be determined in accordance with the bonus plan of the Company and will be based on objectives and goals set for the Company and the Employee. Employee's annual bonus is initially established at 45% of annual base salary if all objectives and goals are met. 3.3 In addition to salary and bonus payments as provided above, the Company will provide Employee, during the Term of this Agreement, with the benefits of such insurance plans, hospitalization plans and other perquisites as shall be generally provided to employees of the Company at his level and for which Employee may be eligible under the terms and conditions thereof. Employee will also be entitled to all benefits provided under any directors and officers 1 liability insurance or errors and omissions insurance maintained by the Company. Throughout the Term of this Agreement, the Company will provide Employee with a car allowance in the amount of Eleven Hundred Eighty Dollars ($1,180) per month. 3.4 Throughout the Term of this Agreement, the Company will reimburse Employee for all reasonable out-of-pocket expenses incurred by Employee in connection with the business of the Company and the performance of his duties under this Agreement, upon presentation to the Company by Employee of an itemized accounting of such expenses with reasonable supporting data. 3.5 The Company will from time to time provide to Employee stock options pursuant to and subject to the terms and conditions of the Company's Stock Option Plans. 4. Term. The initial term of this Agreement will be for two (2) years commencing as of the date hereof ("Term"). After one (1) year from the date hereof, this Agreement will thereafter automatically renew from month-to-month such that there will always be one (1) year remaining in the Term, unless and until either party shall give at least sixty (60) days notice to the other of his or its desire to terminate this Agreement (in such case, the Term shall end upon the date indicated in such notice). The applicable provisions of Sections 6, 7, and 8 shall remain in full force and effect for the time periods specified in such Sections notwithstanding the termination of this Agreement. 5. Termination. 5.1 If Employee dies during the Term of this Agreement, this Agreement will terminate. The Company will pay the estate of Employee an amount equal to the salary for the remaining Term of this Agreement. In addition, the estate of Employee will be entitled to exercise all options theretofore vested under the Company's Stock Option Plans for a period of one (1) year after the date of death of Employee in accordance with the plans and agreements relating to such options. 5.2 If, during the Term of this Agreement, Employee is prevented from performing his duties by reason of illness or incapacity for one hundred forty (140) days in any one hundred eighty (180) day period, the Company may terminate this Agreement, upon thirty (30) days notice to Employee or his duly appointed legal representative. Employee will be entitled to all benefits provided under any disability plans of the Company. In addition, Employee or his duly appointed legal representative will be entitled to exercise all options theretofore vested under the Company's Stock Option Plans for a period of one (1) year after the date of termination in accordance with the plans and agreements relating to such options. 5.3 For the purposes of this Agreement, a "Change in Control" of the Company shall mean and be deemed to have occurred if (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (Exchange Act)) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; (b) at any time a majority of the directors of the Company are persons who were not nominated for election by the Board; (c) the 2 stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; (d) the Company shall sell or otherwise dispose of, in one transaction or a series of related transactions, assets aggregating more than 50% of the assets of the Company and its subsidiaries consolidated; or (e) the stockholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company of all or substantially all the Company's assets. Upon the occurrence of a Change in Control, the Company shall pay Employee an amount equal to one (1) times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. At the time of the occurrence of a Change in Control all options to purchase shares of the Company that have been granted to Employee pursuant to the Company's Stock Option Plans, but not yet vested, will immediately vest and Employee shall be entitled to exercise such options in accordance with the plans and agreements relating to such options. In addition, the Company or Employee may terminate this Agreement upon at least thirty (30) days notice at any time within one (1) year after the occurrence of a Change in Control of the Company. 5.4 Employee may terminate this Agreement upon at least thirty (30) days notice upon the occurrence of a constructive dismissal of Employee. For the purposes of this Agreement, "constructive dismissal" shall mean, unless consented to by Employee in writing, any of the following actions by the Company: (i) any reduction in the annual salary of Employee; (ii) prior to the occurrence of a Change in Control of the Company, any requirement to relocate to another city, state or country, provided, however, that this provision shall not be applicable if the principal executive offices of the Company are being relocated to such city, state or country; and (iii)any material reduction in the value of Employee's benefits plans and programs, including, without limiting the generality of the foregoing, bonus arrangements. 5.5 The Company may terminate this Agreement immediately for gross negligence, intentional misconduct or the commission of a felony by the Employee, in which case all rights under this Agreement shall end as of the date of such termination. 5.6 If this Agreement is terminated by the Company under Section 4 or Section 5.3, the Company shall pay Employee a termination fee in an amount equal to two (2) times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. Such termination fee will be paid in a lump sum within fifteen (15) days from the date of termination. If this Agreement is terminated by Employee under Section 5.4, the Company will pay Employee a termination fee equal to two (2) 3 times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. Such termination fee will be paid in a lump sum within fifteen (15) days from the date of termination. In addition, if Employee terminates this Agreement under Section 5.3 or Section 5.4, all options to purchase shares of the Company that have been granted to Employee pursuant to the Company's Stock Option Plans, but not yet vested, will immediately vest on the date of termination and Employee will be entitled to exercise all options held by the Employee for a period of six (6) months after the date of termination in accordance with the plans and agreements relating to such options. 6. Non-Compete and Non-Interference. 6.1 During the Term of this Agreement and, if Employee's employment with the Company is terminated under Section 4 or Section 5.3, for a period of twelve (12) months after such termination, Employee shall not, directly or indirectly, own, manage, operate, control, be employed by, or participate in the ownership, management, operation or control of, a business that is engaged in the same business as the Company within any area constituting, during the term of Employee's employment or at the time Employee's employment is terminated, a Relevant Area. A "Relevant Area" shall be defined for the purposes of this Agreement as any area located within, or within fifty (50) miles of, the legal boundaries or limits of any city within which the Company is engaged in business or in which the Company has publicly announced or privately disclosed to Employee that it plans to engage in business. 6.2 During the Term of this Agreement and for a period of two (2) years after termination of this Agreement, Employee shall not (i) directly or indirectly cause or attempt to cause any employee of the Company or any of its affiliates to leave the employ of the Company or any affiliate, (ii) in any way interfere with the relationship between the Company and any employee or between an affiliate and any employee of the affiliate, or (iii) interfere or attempt to interfere with any transaction in which the Company or any of its affiliates was involved during the Term of this Agreement. 6.3 Employee agrees that, because of the nature and sensitivity of the information to which he will be privy and because of the nature and scope of the Company's business, the restrictions contained in this Section 6 are fair and reasonable. 7. Confidential Information. 7.1 The relationship between the Company and Employee is one of confidence and trust. This relationship and the rights granted and duties imposed by this Section shall continue until a date ten (10) years from the date Employee's employment is terminated. 7.2 As used in this Agreement (i) "Confidential Information" means information disclosed to or acquired by Employee about the Company's plans, products, processes and services, including information relating to research, development, inventions, manufacturing, purchasing, accounting, engineering, marketing, merchandising, selling, pricing, tariffed or contractual terms, customer lists and prospect lists and other market information, with respect to any of the Company's business activities; and (ii) "Inventions" means any 4 inventions, discoveries, concepts and ideas, whether patentable or not, including, without limitation, processes, methods, formulas, and techniques (as well as related improvements and knowledge) that are based on or related to Confidential Information, that pertain in any manner to the Company's technology, expertise or business and that are made or conceived by Employee, either solely or jointly with others, and while employed by the Company or within six (6) months thereafter, whether or not made or conceived during working hours or with the use of the Company's facilities, materials or personnel. 7.3 Employee agrees that he shall at no time during the Term of this Agreement or at any time thereafter disclose any Confidential Information to any person, firm or corporation to any extent or for any reason or purpose or use any Confidential Information for any purpose other than the conduct of the Company's business. 7.4 Any Confidential Information that is directly or indirectly originated, developed or perfected to any degree by Employee during the term of his employment by the Company shall be and remain the sole property of the Company and shall be deemed trade secrets of the Company. 7.5 Upon termination of Employee's employment pursuant to any of the provisions herein, Employee or his legal representative shall deliver to the Company all originals and all duplicates and/or copies of all documents, records, notebooks, and similar repositories of or containing Confidential Information then in his possession, whether prepared by him or not. 7.6 Employee agrees that the covenants and agreements contained in this Section 7 are fair and reasonable and that no waiver or modification of this Section or any covenant or condition set forth herein shall be valid unless set forth in writing and duly executed by the parties hereto. 8. Injunctive Relief. Upon a material breach or threatened material breach by Employee of any of the provisions of Sections 6 or 7 of this Agreement, the Company shall be entitled to an injunction restraining Employee from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach, including recovery of damages from Employee. 9. No Waiver. A waiver by the Company of a breach of any provision of this Agreement by Employee shall not operate or be construed as a waiver of any subsequent or other breach by Employee. 10. Severability. It is the desire and intent of the parties that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision or portion of this Agreement shall be adjudicated to be invalid or unenforceable, this Agreement shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made. 5 11. Notices. All communications, requests, consents and other notices provided for in this Agreement shall be in writing and shall be deemed given if delivered by hand or mailed by first class mail, postage prepaid, to the last known address of the recipient. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Colorado. 13. Assignment. Neither this Agreement nor any rights or duties hereunder may be assigned by Employee or the Company without the prior written consent of the other, such consent not to be unreasonably withheld. 14. Amendments. No provision of this Agreement shall be altered, amended, revoked or waived except by an instrument in writing, signed by each party to this Agreement. 15. Binding Effect. Except as otherwise provided herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, heirs, successors and assigns. 16. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties and supersedes all prior understandings, agreements or representations by or between the parties, whether written or oral, which relate in any way to the subject matter hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. /s/ Douglas Falk -------------------------------------- Douglas Falk ICG COMMUNICATIONS, INC. By: /s/ Don Teague ------------------------------ Name: Don Teague ------------------------------ Title: Executive V.P. ------------------------------ 6 EX-10 8 EXHIBIT 10.7 AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment") is made as of the 9th day of June, 1999 by and between ICG Communications, Inc. ("Employer" or the "Company") and John Kane ("Employee"). R E C I T A L S WHEREAS, the Company and Employee previously entered into that certain Employment Agreement dated as of May 19, 1999 (the "Employment Agreement"); WHEREAS, the parties desire to amend certain of the terms of the Employment Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. Section 3.1. The second sentence of Section 3.1 shall be amended to read as follows: "The annual base salary will as of June 9, 1999 be Four Hundred Thousand Dollars ($400,000)." 2. Section 3.2. The last sentence of Section 3.2 shall be amended to read as follows: "Employee's annual bonus is established at 60% of annual base salary if all objectives and goals are met." IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written. /s/ John Kane --------------------------- John Kane ICG COMMUNICATIONS, INC. By: /s/ Don Teague ------------------------------ Name: Don Teague ------------------------------ Title: Executive V.P. ------------------------------ EX-10 9 EXHIBIT 10.8 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 28th day of June, 1999 by and between ICG Communications, Inc. ("Employer" or the "Company") and William S. Beans, Jr. ("Employee"). R E C I T A L S WHEREAS, the Company desires to employ Employee as provided herein; and WHEREAS, Employee desires to be employed by Employer as provided herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. Employment. The Company agrees to employ Employee and Employee hereby agrees to be employed on a full-time basis by the Company or by such of its subsidiary or affiliate corporations as determined by the Company in such position as is designated by the Company, for the period and upon the terms and conditions hereinafter set forth. 2. Duties. Employee shall serve as Executive Vice President of the Company. During his employment, Employee shall perform the duties and bear the responsibilities commensurate with his position and shall serve the Employer faithfully and to the best of his ability. Employee shall devote 100% of his working time to carrying out his obligations hereunder. 3. Compensation and Benefits. 3.1 The Company shall pay Employee during the Term of this Agreement an annual base salary, payable semi-monthly. The annual base salary will initially be Two Hundred and Fifty Thousand Dollars ($250,000.00). 3.2 In addition to the base salary, Employee will be eligible for an annual performance bonus in an exact amount to be determined by the Board of Directors of the Company or the Compensation Committee of the Board. The annual bonus will be determined in accordance with the bonus plan of the Company and will be based on objectives and goals set for the Company and Employee. Employee's annual bonus is initially established at 50% of annual base salary (the "Targeted Annual Bonus") if all objectives and goals are met. The annual bonus is payable at the sole discretion of the Company and is contingent upon Employee being employed by the Company as of the date of the payment of the annual bonus. Notwithstanding the foregoing, Employee is guaranteed to receive and will receive an annual bonus for 1999 in the amount of One Hundred and Twenty Five Thousand Dollars ($125,000); 2/8 of this bonus will be paid to Employee when 1 bonuses are paid to all employees for the second quarter of 1999, 1/8 of this bonus will be paid to Employee when bonuses are paid to all employees for the third quarter of 1999 and the remaining 5/8 of this bonus will be paid to Employee when final bonuses for 1999 are paid to all employees. 3.3 In addition to salary and bonus payments as provided above, the Company will provide Employee, during the Term of this Agreement, with the benefits of such insurance plans, hospitalization plans and other perquisites as shall be generally provided to employees of the Company at his level and for which Employee may be eligible under the terms and conditions thereof. Employee will also be entitled to all benefits provided under any directors and officers liability insurance or errors and omissions insurance maintained by the Company. Throughout the Term of this Agreement, the Company will provide Employee with a car allowance in the amount of One Thousand and Three Hundred Dollars ($1,300.00) per month. 3.4 Throughout the Term of this Agreement, the Company will reimburse Employee for all reasonable out-of-pocket expenses incurred by Employee in connection with the business of the Company and the performance of his duties under this Agreement, upon presentation to the Company by Employee of an itemized accounting of such expenses with reasonable supporting data. 3.5 The Company may from time to time provide to Employee stock options pursuant to and subject to the terms and conditions of the Company's stock option plans. Initially, the Company will provide to Employee: (1) 14,814 stock options under the Company's 1998 Stock Option Plan with an exercise price equal to the closing stock price of the Company's common stock on June 28, 1999 vesting in equal increments over three years (subject to the approval of such grant by the Stock Option Committee of the Board of Directors of the Company); (2) 135,186 non-qualified stock options with an exercise price equal to the closing stock price of the Company's common stock on June 28, 1999 vesting in equal increments over three years; and (3) 260,000 Share Price Appreciation Vesting non-qualified stock options with an exercise price equal to the closing stock price of the Company's common stock on June 28, 1999 vesting based upon share price appreciation, in each case pursuant to the terms of a stock option agreement to be entered into between Employee and the Company. 3.6 The Company will pay Employee certain relocation expenses associated with Employee's relocation from New Jersey to the Denver, Colorado metropolitan area. This reimbursement will be pursuant to the Tier One Relocation Policy of the Company. 3.7 Employee will be entitled to a moving allowance of $50,000 to cover expenses incidentally incurred by Employee in moving his residence from New Jersey to the Denver, Colorado metropolitan area. In addition, the Company will reimburse Employee for taxes payable in respect of the reimbursement hereunder by paying additional amounts under this Section 3.7 so that the total amount paid under this Section 3.7 ("X") equals the $50,000 amount reimbursable to 2 Employee under this Section 3.7 ("Reimbursement") divided by one (1) minus Employee's effective federal, state and local income tax rate ("TR") by use of the following formula: X = Reimbursement. 1 - TR 3.8 Employee will be entitled to an executive life insurance policy in an amount equal to two (2) times the aggregate amount of Employee's annual base salary plus the Targeted Annual Bonus plus the annual value of his benefits and perquisites under this Agreement. 3.9 Employee will be entitled to receive up to $6,000 as a financial planning benefit in the first year of the Term hereunder, and up to $4,500 as a financial planning benefit in each successive year of the Term hereunder. 3.10 The Company will advance Employee on his first day of employment an amount to be determined by Employee up to $100,000, which will be repaid by Employee (a) in cash upon his voluntary resignation pursuant to Section 4 hereof or (b) as a deduction to any lump-sum payment made to Employee by the Company in connection with a termination of his employment hereunder. 4. Term. The initial term of this Agreement will be for two (2) years commencing as of the date hereof ("Term"). After one (1) year from the date hereof, this Agreement will thereafter automatically renew from month-to-month such that there will always be one (1) year remaining in the Term, unless and until either party shall give at least sixty (60) days notice to the other of his or its desire to terminate this Agreement (in such case, the Term shall end upon the date indicated in such notice). The applicable provisions of Sections 6, 7, and 8 shall remain in full force and effect for the time periods specified in such Sections notwithstanding the termination of this Agreement. 5. Termination. 5.1 If Employee dies during the Term of this Agreement, this Agreement will terminate and the Company will pay the estate of Employee an amount equal to three months salary. In addition, the estate of Employee will be entitled to exercise all options theretofore vested under each stock option agreement between Employee and the Company (collectively, the "Stock Option Agreements") for a period of one (1) year after the date of death of Employee in accordance with the plans and agreements relating to such options. 5.2 If, during the Term of this Agreement, Employee is prevented from performing his duties by reason of illness or incapacity for one hundred forty (140) days in any one hundred eighty (180) day period, the Company may terminate this Agreement, upon thirty (30) days notice to Employee or his duly appointed legal representative. Employee will be entitled to all benefits provided under any disability plans of the Company. In addition, Employee or his duly appointed legal representative will be entitled to exercise all options theretofore vested 3 under the Stock Option Agreements for a period of one (1) year after the date of termination in accordance with the plans and agreements relating to such options. 5.3 For the purposes of this Agreement, a "Change in Control" of the Company shall mean and be deemed to have occurred if (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (Exchange Act)) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; (b) at any time a majority of the directors of the Company are persons who were not nominated for election by the Board; (c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; (d) the Company shall sell or otherwise dispose of, in one transaction or a series of related transactions, assets aggregating more than 50% of the assets of the Company and its subsidiaries consolidated; or (e) the stockholders of the Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company of all or substantially all the Company's assets. Upon the occurrence of a Change in Control, the Company shall pay Employee an amount equal to one (1) times the aggregate amount of his annual base salary plus his Targeted Annual Bonus plus the annual value of his benefits and perquisites. At the time of the occurrence of a Change in Control all options to purchase shares of the Company that have been granted to Employee pursuant to the Stock Option Agreements or the Company's stock option plans, but not yet vested, will immediately vest and Employee shall be entitled to exercise such options in accordance with the plans and agreements relating to such options, provided, however, that the options granted under the Share Price Appreciation Vesting Non-Qualified Option Agreement, dated as of June 28, 1999, between Employee and the Company shall not vest on an accelerated basis as provided herein upon the occurrence of a Change in Control. In addition, the Company or Employee may terminate this Agreement upon at least thirty (30) days notice at any time within one (1) year after the occurrence of a Change in Control of the Company. 5.4 Employee may terminate this Agreement upon at least thirty (30) days notice upon the occurrence of a constructive dismissal of Employee. For the purposes of this Agreement, "constructive dismissal" shall mean, unless consented to by Employee in writing, any of the following actions by the Company: (i) any reduction in the annual salary of Employee; (ii) prior to the occurrence of a Change in Control of the Company, any requirement to relocate to another state or country, provided, however, that this provision shall not be applicable if the principal executive offices of the Company are being 4 relocated to such state or country; and (iii)any material reduction in the value of Employee's benefits plans and programs. 5.5 The Company may terminate this Agreement immediately for gross negligence, intentional misconduct or the commission of a felony by Employee, in which case all rights under this Agreement shall end as of the date of such termination. 5.6 If this Agreement is terminated by the Company under Section 4, the Company shall pay Employee a termination fee in an amount equal to the aggregate amount of his annual base salary that would have been paid during the remaining Term of the Agreement. If this Agreement is terminated by the Company under Section 5.3, the Company shall pay Employee a termination fee in an amount equal to two (2) times the aggregate amount of his annual base salary plus his Targeted Annual Bonus plus the annual value of his benefits and perquisites. Such termination fee will be paid in a lump sum within fifteen (15) days from the date of termination. If this Agreement is terminated by Employee under Section 5.4, the Company will pay Employee a termination fee equal to two (2) times the aggregate amount of his annual base salary plus his Targeted Annual Bonus plus the annual value of his benefits and perquisites. Such termination fee will be paid in a lump sum within fifteen (15) days from the date of termination. In addition, if Employee terminates this Agreement under Section 5.3 or Section 5.4, all options to purchase shares of the Company that have been granted to Employee pursuant to the Stock Option Agreements or the Company's stock option plans, but not yet vested, will immediately vest on the date of termination and Employee will be entitled to exercise all options held by Employee for a period of six (6) months after the date of termination in accordance with the plans and agreements relating to such options, provided, however, that the options granted under the Share Price Appreciation Vesting Non-Qualified Option Agreement, dated as of June 28, 1999, between Employee and the Company shall not vest on an accelerated basis as provided herein upon the occurrence of a Change in Control. 6. Non-Compete and Non-Interference. 6.1 During the Term of this Agreement and, if Employee's employment with the Company is terminated under Section 4 or Section 5.3, for a period of twelve (12) months after such termination, Employee shall not, directly or indirectly, own, manage, operate, control, be employed by, or participate in the ownership, management, operation or control of, a business that is engaged in the same business as the Company within any area constituting, during the term of Employee's employment or at the time Employee's employment is terminated, a Relevant Area. A "Relevant Area" shall be defined for the purposes of this Agreement as any area located within, or within fifty (50) miles of, the legal boundaries or limits of any city within which the Company is engaged in business or in which the Company has publicly announced or privately disclosed to Employee that it plans to engage in business. 5 6.2 During the Term of this Agreement and for a period of two (2) years after termination of this Agreement, Employee shall not (i) directly or indirectly cause or attempt to cause any employee of the Company or any of its affiliates to leave the employ of the Company or any affiliate, (ii) in any way interfere with the relationship between the Company and any employee or between an affiliate and any employee of the affiliate, or (iii) interfere or attempt to interfere with any transaction in which the Company or any of its affiliates was involved during the Term of this Agreement. 6.3 Employee agrees that, because of the nature and sensitivity of the information to which he will be privy and because of the nature and scope of the Company's business, the restrictions contained in this Section 6 are fair and reasonable. 7. Confidential Information. 7.1 The relationship between the Company and Employee is one of confidence and trust. This relationship and the rights granted and duties imposed by this Section shall continue until a date ten (10) years from the date Employee's employment is terminated. 7.2 As used in this Agreement (i) "Confidential Information" means information disclosed to or acquired by Employee about the Company's plans, products, processes and services, including information relating to research, development, inventions, manufacturing, purchasing, accounting, engineering, marketing, merchandising, selling, pricing, tariffed or contractual terms, customer lists and prospect lists and other market information, with respect to any of the Company's business activities; and (ii) "Inventions" means any inventions, discoveries, concepts and ideas, whether patentable or not, including, without limitation, processes, methods, formulas, and techniques (as well as related improvements and knowledge) that are based on or related to Confidential Information, that pertain in any manner to the Company's technology, expertise or business and that are made or conceived by Employee, either solely or jointly with others, and while employed by the Company or within six (6) months thereafter, whether or not made or conceived during working hours or with the use of the Company's facilities, materials or personnel. 7.3 Employee agrees that he shall at no time during the Term of this Agreement or at any time thereafter disclose any Confidential Information to any person, firm or corporation to any extent or for any reason or purpose or use any Confidential Information for any purpose other than the conduct of the Company's business. 7.4 Any Confidential Information that is directly or indirectly originated, developed or perfected to any degree by Employee during the term of his employment by the Company shall be and remain the sole property of the Company and shall be deemed trade secrets of the Company. 6 7.5 Upon termination of Employee's employment pursuant to any of the provisions herein, Employee or his legal representative shall deliver to the Company all originals and all duplicates and/or copies of all documents, records, notebooks, and similar repositories of or containing Confidential Information then in his possession, whether prepared by him or not. 7.6 Employee agrees that the covenants and agreements contained in this Section 7 are fair and reasonable and that no waiver or modification of this Section or any covenant or condition set forth herein shall be valid unless set forth in writing and duly executed by the parties hereto. 8. Injunctive Relief. Upon a material breach or threatened material breach by Employee of any of the provisions of Sections 6 or 7 of this Agreement, the Company shall be entitled to an injunction restraining Employee from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach, including recovery of damages from Employee. 9. No Waiver. A waiver by the Company of a breach of any provision of this Agreement by Employee shall not operate or be construed as a waiver of any subsequent or other breach by Employee. 10. Severability. It is the desire and intent of the parties that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision or portion of this Agreement shall be adjudicated to be invalid or unenforceable, this Agreement shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made. 11. Notices. All communications, requests, consents and other notices provided for in this Agreement shall be in writing and shall be deemed given if delivered by hand or mailed by first class mail, postage prepaid, to the last known address of the recipient. 12. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Colorado. 13. Assignment. Neither this Agreement nor any rights or duties hereunder may be assigned by Employee or the Company without the prior written consent of the other, such consent not to be unreasonably withheld. 14. Amendments. No provision of this Agreement shall be altered, amended, revoked or waived except by an instrument in writing, signed by each party to this Agreement. 7 15. Binding Effect. Except as otherwise provided herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, heirs, successors and assigns. 16. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 17. Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties and supersedes all prior understandings, agreements or representations by or between the parties, whether written or oral, which relate in any way to the subject matter hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. /s/ William S. Beans, Jr. -------------------------------------- William S. Beans, Jr. ICG COMMUNICATIONS, INC. By: /s/ John Kane ------------------------------ Name: John Kane ------------------------------ Title: President ------------------------------ 8 EX-10 10 EXHIBIT 10.9 ICG COMMUNICATIONS, INC. SHARE PRICE APPRECIATION VESTING NON-QUALIFIED STOCK OPTION Granted to WILLIAM S. BEANS, JR. Optionee 260,000 $ 20.25 ------------------ ----------------- Number of Shares Price Per Share (Fair Market Value on Date of Grant) DATE GRANTED: June 28, 1999 EXPIRATION DATE: June 27, 2009 SHARE PRICE APPRECIATION VESTING NON-QUALIFIED STOCK OPTION AGREEMENT AGREEMENT made as of this 28th day of June, 1999 between ICG Communications, Inc., a Delaware corporation (the "Company"), and William S. Beans, Jr. (the "Employee"). W I T N E S E T H: WHEREAS, the Company desires, in connection with the employment of the Employee, to provide the Employee with an opportunity to acquire common stock, $.01 par value (hereinafter referred to as "Common Stock"), of the Company on favorable terms and thereby increase his proprietary interest in the continued progress and success of the business of the Company; NOW, THEREFORE, in consideration of the premises, the mutual covenants herein set forth and other good and valuable consideration, the Company and the Employee hereby agree as follows: 1. Confirmation of Grant of Option. Pursuant to a determination by the Stock Option Committee of the Board of Directors of the Company (the "Stock Option Committee"), made on June 28, 1999 (the "Date of Grant"), the Company, subject to the terms of this Agreement, hereby confirms that the Employee has been granted as a matter of separate inducement and agreement, and in addition to and not in lieu of salary or other compensation for services, the right to purchase (hereinafter referred to as the "Option") an aggregate of 260,000 shares of Common Stock, subject to adjustment as provided in Section 8 hereof (such shares, as adjusted, shall hereinafter be referred to as the "Shares"). 2. Purchase Price. The purchase price of shares of Common Stock covered by the Option will be $20.25 per share (the "Exercise Price") subject to adjustment as provided in Section 8 hereof. 3. Exercise of Option. The Option shall vest and become exercisable on the terms and conditions hereinafter set forth: A. The Option shall become exercisable cumulatively as to the following amounts of the number of Shares originally subject thereto (after giving effect to any adjustment pursuant to Section 8 hereof), on the dates and subject to the terms and conditions indicated: 1. Upon the six month anniversary of the date of this Agreement, a number of Shares, if any, equal to 50% of the Earned Shares Value (as defined herein) shall vest to the Employee. For purposes of this subparagraph, "Earned Shares Value" shall be determined as follows: (i) Subtract the Base Price (as defined in subparagraph (C) below) from the applicable Anniversary Price (as defined in subparagraph (B) below), and then round such result down to the nearest whole number divisible by five (the "Increase Amount"), and (ii) locate on Exhibit "B" hereto the corresponding Earned Shares Value for such Increase Amount. If the Increase Amount is less than or equal to five, the Earned Shares Value shall equal zero and no Shares will vest on such anniversary date. 2. Upon every succeeding six month anniversary of the date of this Agreement until, but not including, the fifth anniversary of the date of this Agreement, an incremental number of Shares subject to the Option shall vest to the Employee equal to the excess, if any, of (a) 50% of the Earned Shares Value (as defined herein), over (b) the aggregate number of Shares subject to the Option which previously vested under this Agreement. For purposes of this subparagraph, "Earned Shares Value" shall be determined by rounding the Anniversary Price (as defined in subparagraph (B) below) down to the nearest whole number divisible by five (the "Increase Amount") and locating the corresponding Earned Shares Value on Exhibit B hereto for such Increase Amount. If the Increase Amount is less than or equal to five, the Earned Shares Value shall equal zero and no Shares will vest on such anniversary date. 3. Upon the fifth anniversary of the date of this Agreement, all of the remaining Shares subject to the Option but not yet vested shall vest to the Employee. B. The "Anniversary Price" shall mean the average closing price per share of the Common Stock for the five trading days immediately prior to the day as to which the Anniversary Price is being determined on the NASDAQ National Market or national stock exchange, as the case may be, or, if the Common Stock is not included on the NASDAQ National Market or listed on a national stock exchange, the average closing sales price of the Common Stock as reported for such five trading days on the NASDAQ SmallCap Market or, if the Common Stock shall not be so included, the average of the bid and asked prices at the end of the day in the over-the-counter market as reported by NASDAQ for the five trading days immediately prior to the day on which the Anniversary Price is being determined or, if the Common Stock is not included on NASDAQ, as reported by the National Quotation Bureau, Inc. or any successor organization. C. The "Base Price" shall mean the closing price of the Common Stock as reported on the NASDAQ National Market on June 28, 1999, which the parties agree was $20.25. D. The Option may be exercised pursuant to the provisions of this Section 3, by notice and payment (including, but not limited to, a cashless exercise) to the Company as provided in Sections 11 and 16 hereof. 4. Term of Option. The term of the Option shall be a period of ten (10) years from the Date of Grant, subject to earlier termination or cancellation as provided in this Agreement. The Option, to the extent unexercised, shall expire on the day immediately prior to the tenth anniversary of the Date of Grant. The holder of the Option shall not have any rights to dividends or any other rights of a stockholder with respect to any shares of Common Stock subject to the Option until such shares shall have been issued to him (as evidenced by the 2 appropriate entry on the books of a duly authorized transfer agent of the Company) provided that the date of issuance shall not be earlier than the date the Option is exercised and provision of the purchase price of the shares of Common Stock (with respect to which the Option is being exercised) is made to the Company pursuant to the provisions contained herein. 5. Non-transferability of Option. The Option shall not be transferable otherwise than by will or by the laws of descent and distribution or pursuant to a domestic relations order, and the Option may be exercised during the lifetime of the Employee only by him. More particularly, but without limiting the generality of the foregoing, the Option may not be assigned, transferred (except as provided in the immediately preceding sentence) or otherwise disposed of, or pledged or hypothecated in any way, and shall not be subject to execution, attachment or other process. Any assignment, transfer, pledge, hypothecation or other disposition of the Option attempted contrary to the provisions of this Agreement, or any levy of execution, attachment or other process attempted upon the Option, will be null and void and without effect. Any attempt to make any such assignment, transfer, pledge, hypothecation or other disposition of the Option or any attempt to make any such levy of execution, attachment or other process will cause the Option to terminate immediately upon the happening of any such event; provided, however, that any such termination of the Option under the foregoing provisions of this Section 5 will not prejudice any rights or remedies which the Company or any Parent or Subsidiary may have under this Agreement or otherwise. 6. Exercise Upon Cessation of Employment. (a) If the Employee at any time ceases to be an employee of the Company and of any parent corporation of the Company (a "Parent") within the meaning of Section 424(e) of the Internal Revenue Code of 1986, as amended (the "Code"), or subsidiary corporation of the Company (a "Subsidiary") within the meaning of Section 424(f) of the Code by reason of his discharge for Good Cause (as defined below), the Option shall, at the time of such termination of employment, terminate and the Employee shall forfeit all rights hereunder. If, however, the Employee for any other reason (other than Disability or death) ceases to be such an employee, the Option may, subject to the provisions of Sections 5 and 8 hereof, be exercised by the Employee to the same extent the Employee would have been entitled under Section 3 hereof to exercise the Option immediately prior to such cessation of employment, at any time within three (3) months after such cessation of employment, at the end of which period the Option, to the extent not then exercised, shall terminate and the Employee shall forfeit all rights hereunder, even if the Employee subsequently returns to the employ of the Company or any Parent or Subsidiary. In no event, however, may the Option be exercised after the expiration of the term provided in Section 4 hereof. As used herein, "Good Cause" shall mean (i) the Employee's willful or gross misconduct or willful or gross negligence in the performance of his duties for the Company or for any Parent or Subsidiary after prior written notice of such misconduct or negligence and the continuance thereof for a period of 30 days after receipt by the Employee of such notice, (ii) the Employee's intentional or habitual neglect of his duties for the Company or for any Parent or Subsidiary after prior written notice of such neglect, or (iii) the Employee's theft or misappropriation of funds of the Company or of any Parent or Subsidiary or commission of a felony. 3 (b) The Option shall not be affected by any change of duties or position of the Employee so long as he continues to be an employee of the Company or of any Parent or Subsidiary thereof who is regularly employed on a salaried basis. 7. Exercise Upon Death or Disability. (a) If the Employee dies while he is employed by the Company or by any Parent or Subsidiary (or within three (3) months after his Retirement (as defined below), and on or after the first date upon which he would have been entitled to exercise the Option under the provisions of Section 3 hereof, the Option may, subject to the provisions of Sections 5 and 8 hereof, be exercised with respect to all or any part of the shares of Common Stock as to which the deceased Employee had not exercised the Option at the time of his death (but only to the extent the Option was exercisable at the earlier of (i) the date of his Retirement or (ii) the date of his death), by the estate of the Employee (or by the person or persons who acquire the right to exercise the Option by written designation of the Employee) at any time within the period ending one (1) year after the date of the Employee's death (in no event, however, after the expiration of the term provided in Section 4 hereof), at the end of which period the Option, to the extent not then exercised, shall terminate and the estate or other beneficiaries shall forfeit all rights hereunder. As used herein, "Retirement" shall mean the termination of employment by the Employee from the Company or from any Parent or Subsidiary, who at the time of such termination is at least fifty-five (55) years of age and who has completed at least ten (10) years of service (at least 1,000 hours in any fiscal year) with the Company or any Parent or Subsidiary, or any combination thereof. (b) In the event that the employment of the Employee by the Company and any Parent or Subsidiary is terminated by reason of the Disability (as defined below) of the Employee on or after the first date upon which he would have been entitled to exercise the Option under the provisions of Section 3 hereof, the Option may, subject to the provisions of Sections 5 and 8 hereof, be exercised with respect to all or any part of the shares of Common Stock as to which he had not exercised the Option at the time of his Disability (but only to the extent the Option was exercisable at such time) by the Employee, at any time within the period ending one (1) year after the date of such termination of employment (in no event, however, after the expiration of the term provided in Section 4 hereof), at the end of which period the Option, to the extent not then exercised, shall terminate and the Employee shall forfeit all rights hereunder even if the Employee subsequently returns to the employ of the Company or any Parent or Subsidiary. As used herein, "Disability" shall have the same meaning as the term "permanent and total disability" under Section 22(e)(3) of the Code. 8. Adjustments. In the event there is any change in the Common Stock of the Company by reason of any reorganization, recapitalization, stock split, stock dividend or otherwise, there shall be substituted for or added to each share of Common Stock theretofore appropriated or thereafter subject, or which may become subject, to this Option the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be so changed or for which each such share shall be exchanged, or to which each such share be entitled, as the case may be, and the per share price thereof also shall be appropriately adjusted. 4 9. Merger, Consolidation or Change in Control of the Company. Subject to the provisions of Section 8 hereof, upon (a) the merger or consolidation of the Company with or into another corporation (pursuant to which the stockholders of the Company immediately prior to such merger or consolidation will not, as of the date of such merger or consolidation, own a beneficial interest in shares of voting securities of the corporation surviving such merger or consolidation having at least a majority of the combined voting power of such corporation's then outstanding securities), if the agreement of merger or consolidation does not provide for (i) the continuance of this Option or (ii) the substitution of new option(s) for this Option, or for the assumption of such Option by the surviving corporation, (b) the dissolution, liquidation or sale of substantially all the assets of the Company or (c) a Change in Control (as defined below) of the Company, any options which remain unvested shall be forfeited as of the effective time of any merger, consolidation, dissolution, liquidation, sale of assets or Change in Control of the Company. As used herein, a "Change in Control of the Company" shall be deemed to have occurred if any person (including any individual, firm, partnership or other entity) together with all Affiliates and Associates (as defined under Rule 12b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the "Exchange Act")) of such person, but excluding (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any subsidiary of the Company, (ii) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of the Company, (iii) the Company or any subsidiary of the Company or (iv) only as provided in the immediately following sentence, the Employee together with all Affiliates and Associates of the Employee, is or becomes the Beneficial Owner (as defined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 40% of more of the combined voting power of the Company's then outstanding securities, such person being hereinafter referred to as an Acquiring Person. The provisions of clause (iv) of the immediately preceding sentence shall apply only with respect to the Option(s) held by the Employee if, together with his Affiliates or Associates, if any, he is or becomes the direct or indirect Beneficial Owner of the percentage of securities set forth in such clause. 10. Registration. The shares of Common Stock subject hereto and issuable upon the exercise hereof may not be registered under the Securities Act of 1933, as amended, and, if required upon the request of counsel to the Company, the Employee will give a representation as to his investment intent with respect to such shares prior to their issuance as set forth in Section 11 hereof. The Company may register or qualify the shares covered by the Option for sale pursuant to the Securities Act of 1933, as amended, and the rules and regulations thereunder (the "Securities Act") at any time prior to or after the exercise in whole or in part of the Option. 11. Method of Exercise of Option. (a) Subject to the terms and conditions of this Agreement, the Option shall be exercisable by notice in the manner set forth in Exhibit A hereto (the "Notice") and provision for payment to the 5 Company in accordance with the procedure prescribed herein. Each such Notice shall: (i) state the election to exercise the Option and the number of Shares in respect of which it is being exercised; (ii) contain a representation and agreement as to investment intent, if required by counsel to the Company with respect to such Shares, in form satisfactory to counsel for the Company; (iii) be signed by the Employee or the person or persons entitled to exercise the Option and, if the Option is being exercised by any person or persons other than the Employee, be accompanied by proof, satisfactory to counsel for the Company, of the right of such person or persons to exercise the Option; and (iv) be received by the Company on or before the date of the expiration of this Option. In the event the date of expiration of this Option falls on a day which is not a regular business day at the Company's executive offices in Englewood, Colorado, then such written notice must be received at such office on or before the last regular business day prior to such date of expiration. (b) Payment of the purchase price of any shares of Common Stock, in respect of which the Option shall be exercised, shall be made by the Employee or such person or persons at the place specified by the Company at the time the Notice is delivered to the Company (i) by delivering to the Company a certified or bank cashier's check payable to the order of the Company, (ii) by delivering to the Company properly endorsed certificates of shares of Common Stock (or certificates accompanied by an appropriate stock power) with signature guaranties by a bank or trust company, (iii) by having withheld from the total number of shares of Common Stock to be acquired upon the exercise of this Option a specified number of such shares of Common Stock, (iv) by any form of "cashless" exercise or (v) by any combination of the above. (c) The Option shall be deemed to have been exercised with respect to any particular shares of Common Stock if, and only if, the preceding provisions of this Section 11 and the provisions of Section 12 hereof shall have been complied with, in which event the Option shall be deemed to have been exercised on the date the Notice of exercise of the Option was received by the Company. Anything in this Agreement to the contrary notwithstanding, any notice of exercise given pursuant to the provisions of this Section 11 shall be void and of no effect if all the preceding provisions of this Section 11 and the provisions of Section 12 shall not have been complied with. (d) The certificate or certificates for shares of Common Stock as to which the Option shall be exercised will be registered in the name of the Employee (or in the name of the Employee's estate or other beneficiary if the Option is exercised after the Employee's death), or if the Option is exercised by the Employee and if the Employee so requests in the notice exercising the Option, will be registered in the name of the Employee and another person jointly, with right of survivorship and will be delivered as soon as practical after the date the Notice (and full payment) is received by the Company, but only upon compliance with all of the provisions of this Agreement. 6 (e) If the Employee fails to accept delivery of and pay for all or any part of the number of Shares specified in such Notice upon tender or delivery thereof, his right to exercise the Option with respect to such undelivered Shares may be terminated in the sole discretion of the Board of Directors of the Company. The Option may be exercised only with respect to full Shares. (f) The Company shall not be required to issue or deliver any certificate or certificates for shares of its Common Stock purchased upon the exercise of any part of this Option prior to the payment to the Company, upon its demand, of any amount requested by the Company for the purpose of satisfying its liability, if any, to withhold state or local income or earnings tax or any other applicable tax or assessment (plus interest or penalties thereon, if any, caused by a delay in making such payment) incurred by reason of the exercise of this Option or the transfer of shares thereupon. Such payment shall be made by the Employee in cash or, with the consent of the Company, by tendering to the Company shares of Common Stock equal in value to the amount of the required withholding. In the alternative, the Company may, at its option, satisfy such withholding requirements by withholding from the shares of Common Stock to be delivered to the Employee pursuant to an exercise of this Option a number of shares of Common Stock equal in value to the amount of the required withholding. 12. Approval of Counsel. The exercise of the Option and the issuance and delivery of shares of Common Stock pursuant thereto shall be subject to approval by the Company's counsel of all legal matters in connection therewith, including compliance with the requirements of the Securities Act and the Exchange Act and the requirements of any stock exchange upon which the Common Stock may then be listed. 13. Resale of Common Stock. (a) If so requested by the Company, upon any sale or transfer of the Common Stock purchased upon exercise of the Option, the Employee shall deliver to the Company an opinion of counsel satisfactory to the Company to the effect that either (i) the Common Stock to be sold or transferred has been registered under the Securities Act and that there is in effect a current prospectus meeting the requirements of Section 10(a) of the Securities Act which is being or will be delivered to the purchaser or transferee at or prior to the time of delivery of the certificates evidencing the Common Stock to be sold or transferred, or (ii) such Common Stock may then be sold without violating Section 5 of the Securities Act. (b) The Common Stock issued upon exercise of the Option shall bear the following legend if required by counsel for the Company: THE SHARES EVIDENCED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS, IN THE OPINION OF COUNSEL FOR THE COMPANY, SUCH REGISTRATION IS NOT REQUIRED. 7 14. Reservation of Shares. To the extent shares of Common Stock are not readily tradable over an established securities market, the Company shall at all times during the term of the Option reserve and keep available such number of shares of the class of stock then subject to the Option as will be sufficient to satisfy the requirements of this Agreement. 15. Limitation of Action. The Employee and the Company each acknowledges that every right of action accruing to him or it, as the case may be, and arising out of or in connection with this Agreement against the Company or a Parent or Subsidiary, on the one hand, or against the Employee, on the other hand, shall, irrespective of the place where an action may be brought, cease and be barred by the expiration of three years from the date of the act or omission in respect of which such right of action arises. 16. Notices. Each notice relating to the Agreement shall be in writing and delivered in person or by certified mail to the proper address. All notices to the Company or the Committee shall be addressed to them at 161 Inverness Drive West, Englewood, Colorado 80112, Attn: Secretary. All notices to the Employee shall be addressed to the Employee or such other person or persons at the Employee's address specified in the Agreement. Anyone to whom a notice may be given under this Agreement may designate a new address by notice to that effect. 17. Benefits of Agreement. The Agreement shall inure to the benefit of and be binding upon each successor and assign of the Company. All obligations imposed upon the Employee and all rights granted to the Company under this Agreement shall be binding upon the Employee's heirs, legal representatives and successors. 18. Severability. In the event that any one or more provisions of this Agreement shall be deemed to be illegal or unenforceable, such illegality or unenforceability shall not affect the validity and enforceability of the remaining legal and enforceable provisions hereof, which shall be construed as if such illegal or unenforceable provision or provisions had not been inserted. 19. Governing Law. This Agreement will be construed and governed in accordance with the laws of the State of Delaware. 20. Employment. Nothing contained in this Agreement shall be construed as (a) a contract of employment between the Employee and the Company or any Parent or Subsidiary, (b) as a right of the Employee to be continued in the employ of the Company or any Parent or Subsidiary, or (c) as a limitation on the right of the Company or any Parent or Subsidiary to discharge the Employee at any time, with or without cause. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in its name by its Chairman of the Board, President or one of its Executive Vice 8 Presidents and the Employee has hereunto set his hand all as of the date, month and year first above written. ICG COMMUNICATIONS, INC. By: /s/ John Kane -------------------------------- Name: John Kane --------------------------- Title: President -------------------------- /s/ William S. Beans, Jr. ----------------------------------- William S. Beans, Jr. ----------------------------------- Social Security Number 9 EXHIBIT A SHARE PRICE APPRECIATION VESTING NON-QUALIFIED STOCK OPTION EXERCISE FORM [DATE] ICG Communications, Inc. 161 Inverness Drive West Englewood, Colorado 80112 Dear Sirs: Pursuant to the provisions of the Share Price Appreciation Vesting Non-Qualified Stock Option Agreement dated _________________, 1999, whereby you have granted to me a Share Price Appreciation Vesting non-qualified stock option to purchase 260,000 shares of Common Stock of ICG Communications, Inc. (the "Company"), I hereby notify you that I elect to exercise my option to purchase [ ] of the shares covered by such option at the price specified therein. In full payment of the price for the shares being purchased hereby, I am delivering to you herewith (a) a certified or bank cashier's check payable to the order of the Company in the amount of $____________,1 or (b) a certificate or certificates for [ ] shares of Common Stock of the Company, and which have a fair market value as of the date hereof of $___________, and a certified or bank cashier's check, payable to the order of the Company, in the amount of $________________.2 Any such stock certificate or certificates are endorsed, or accompanied by an appropriate stock power, to the order of the Company, with my signature guaranteed by a bank or trust company or by a member firm of the New York Stock Exchange. [I hereby acknowledge that I am purchasing these shares for investment purposes only and not for resale.] Very truly yours, ------------------------------ [Name] [Address] (For notices, reports, dividend checks and other communications to stockholders.) __________________________ 1. $______________of this amount is the purchase price of the shares, and the balance represents payment of withholding taxes as follows: Federal $______________, State $____________ and Local $____________. 2. $______________of this amount is at least equal to the current market value of Common Stock of the Company, and the balance represents payment of withholding taxes as follows: Federal $______________, State $____________ and Local $____________. 10 EXHIBIT B Increase Amount (in Dollars) Earned Shares Value ----------------- ------------------- 5 0 10 20000 15 30000 20 40000 25 50000 -------------------------------------------------------------- 30 60000 35 70000 40 80000 45 90000 50 100000 -------------------------------------------------------------- 55 110000 60 120000 65 125000 70 130000 75 135000 -------------------------------------------------------------- 80 140000 85 145000 90 150000 95 155000 100 160000 -------------------------------------------------------------- 105 165000 110 170000 115 175000 120 180000 125 185000 -------------------------------------------------------------- 130 190000 135 195000 140 200000 145 205000 150 210000 -------------------------------------------------------------- 155 215000 160 220000 165 225000 170 230000 175 235000 -------------------------------------------------------------- 180 240000 185 245000 190 250000 195 255000 200 260000 11 EX-10 11 EXHIBIT 10.10 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") is made as of the 1st day of July, 1999 by and between ICG Communications, Inc. ("Employer" or the "Company") and Michael D. Kallet ("Employee"). R E C I T A L S WHEREAS, the Company desires to employ Employee as provided herein; and WHEREAS, Employee desires to be employed by Employer as provided herein. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties agree as follows: 1. Employment. The Company agrees to employ Employee and Employee hereby agrees to be employed on a full-time basis by the Company or by such of its subsidiary or affiliate corporations as determined by the Company in the position described in Section 2, for the period and upon the terms and conditions hereinafter set forth. 2. Duties. The Company agrees to employ the Employee for the term of employment under this Agreement in the position of Executive Vice President of Products and Strategic Development, reporting to the President of the Company. During his employment, Employee shall perform the duties and bear the responsibilities commensurate with his position and shall serve the Employer faithfully and to the best of his ability. These duties will include the overall management of the Product Marketing, Product Development and Engineering, CTO, Strategic Planning and Business Development groups of the Company. The duties will also include setting the strategy for supporting the Company's services and the overall Company product road map. Employee shall devote 100% of his working time to carrying out his obligations hereunder. 3. Compensation and Benefits. 3.1 The Company shall pay Employee during the Term of this Agreement an annual base salary, payable semi-monthly. The annual base salary will initially be Two Hundred Forty Thousand Dollars ($240,000). 3.2 In addition to the base salary, Employee will be eligible for an annual performance bonus in an exact amount to be determined by the Board of Directors of the Company. The annual bonus will be determined in accordance with the bonus plan of the Company and will be based on objectives and goals set for the Company and the Employee. Employee's annual bonus is initially established at 45% of annual base salary if all objectives and goals are met. 3.3 In addition to salary and bonus payments as provided above, the Company will provide Employee, during the Term of this Agreement, with the benefits of such insurance plans, hospitalization plans and other perquisites as shall be generally provided to employees of the Company at his level and for which Employee may be eligible under the terms and conditions thereof. Employee will also be entitled to all benefits provided under any directors and officers liability insurance or errors and omissions insurance maintained by the Company. 1 Throughout the Term of this Agreement, the Company will provide Employee with a car allowance in the amount of Five Hundred Dollars ($500.00) per month. 3.4 Throughout the Term of this Agreement, the Company will reimburse Employee for all reasonable out-of-pocket expenses incurred by Employee in connection with the business of the Company and the performance of his duties under this Agreement, upon presentation to the Company by Employee of an itemized accounting of such expenses with reasonable supporting data. 3.5 The Company will from time to time provide to Employee stock options pursuant to and subject to the terms and conditions of the Company's Stock Option Plans. 4. Term. The initial term of this Agreement will be for two (2) years commencing as of the date hereof ("Term"). After one (1) year from the date hereof, this Agreement will thereafter automatically renew from month-to-month such that there will always be one (1) year remaining in the Term, unless and until either party shall give at least sixty (60) days notice to the other of his or its desire to terminate this Agreement (in such case, the Term shall end upon the date indicated in such notice). The applicable provisions of Sections 6, 7, and 8 shall remain in full force and effect for the time periods specified in such Sections notwithstanding the termination of this Agreement. 5. Termination. 5.1 If Employee dies during the Term of this Agreement, this Agreement will terminate. The Company will pay the estate of Employee an amount equal to three months salary. In addition, the estate of Employee will be entitled to exercise all options theretofore vested under the Company's Stock Option Plans for a period of one (1) year after the date of death of Employee in accordance with the plans and agreements relating to such options. 5.2 If, during the Term of this Agreement, Employee is prevented from performing his duties by reason of illness or incapacity for one hundred forty (140) days in any one hundred eighty (180) day period, the Company may terminate this Agreement, upon thirty (30) days notice to Employee or his duly appointed legal representative. Employee will be entitled to all benefits provided under any disability plans of the Company. In addition, Employee or his duly appointed legal representative will be entitled to exercise all options theretofore vested under the Company's Stock Option Plans for a period of one (1) year after the date of termination in accordance with the plans and agreements relating to such options. 5.3 For the purposes of this Agreement, a "Change in Control" of the Company shall mean and be deemed to have occurred if (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 as amended (Exchange Act)) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities; (b) at any time a majority of the directors of the Company are persons who were not nominated for election by the Board; (c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; (d) the Company shall sell or otherwise dispose of, in one transaction or a series of related transactions, assets aggregating more than 50% of the assets of the Company and its subsidiaries consolidated; or (e) the stockholders of the 2 Company approve a plan of complete liquidation of the Company or any agreement for the sale or disposition by the Company of all or substantially all the Company's assets. Upon the occurrence of a Change in Control, the Company shall pay Employee an amount equal to one (1) times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. At the time of the occurrence of a Change in Control all options to purchase shares of the Company that have been granted to Employee pursuant to the Company's Stock Option Plans, but not yet vested, will immediately vest and Employee shall be entitled to exercise such options in accordance with the plans and agreements relating to such options. In addition, the Company or Employee may terminate this Agreement upon at least thirty (30) days notice at any time within one (1) year after the occurrence of a Change in Control of the Company. 5.4 Employee may terminate this Agreement upon at least thirty (30) days notice upon the occurrence of a constructive dismissal of Employee. For the purposes of this Agreement, "constructive dismissal" shall mean, unless consented to by Employee in writing, any of the following actions by the Company: (i) any reduction in the annual salary or bonus level of Employee; (ii) any requirement to relocate, except for office locations that would not increase the Employee's one-way commute distance by more than twenty (20) miles; (iii)any material reduction in the value of Employee's benefits plans and programs; and (iv) any reduction or material change in title, positions, duties, responsibilities, powers and reporting structure. 5.5 The Company may terminate this Agreement immediately for willful and intentional gross negligence, misconduct or the conviction of a felony by the Employee, in which case all rights under this Agreement shall end as of the date of such termination. No act, shall be considered "willful" unless committed without good faith and a reasonable belief that the act or omission was in the Company's best interest. 5.6 If this Agreement is terminated by the Company under Section 4, the Company shall pay Employee a termination fee in an amount equal to the aggregate amount of his annual base salary that would have been paid during the remaining Term of the Agreement plus his targeted annual bonus plus the annual value of his benefits and perquisites. If this Agreement is terminated by the Company under Section 5.3, or, for the avoidance of doubt, under Section 4 within twelve (12) months of a "change of control" as defined in Section 5.3, the Company shall pay Employee a termination fee in an amount equal to two (2) times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. Such termination fee will be paid in a lump sum within fifteen (15) days from the date of termination. If this Agreement is terminated by Employee under Section 5.4, the Company will pay Employee a termination fee equal to two (2) times the aggregate amount of his annual base salary plus his targeted annual bonus plus the annual value of his benefits and perquisites. Such termination fee will be paid in a lump sum within fifteen (15) days from the date of termination. In addition, if Employee terminates this Agreement under Section 5.3 or Section 5.4 or Company terminates this Agreement under Section 4 or Section 5.3 all options to purchase shares of the Company that have been granted to Employee pursuant to the Company's Stock Option Plans, but not yet vested, will immediately vest on the date of termination and Employee will be entitled to exercise all options held by the 3 Employee for a period of twelve (12) months after the date of termination in accordance with the plans and agreements relating to such options. 5.7. If Employee remains an employee of the Company until February 17, 2000, then Employee will have the right to voluntarily terminate his employment with the Company anytime thereafter and receive six months salary and fifty percent (50%) of his annual bonus and six (6) months health insurance benefits. 5.8. The parties acknowledge that all stock options granted to Employee under the Netcom On-Line Communication Services, Inc. 1993 Stock Option Plan (Amended and Restated as of January 23, 1997) have been vested. If Employee's employment terminates for any reason, including Employee's resignation, Employee will be entitled to exercise all such options for a period of one (1) year after the date of termination in accordance with the plans and agreements relating to such options. 6. Non-Compete and Non-Interference. 6.1 During the Term of this Agreement and, if Employee's employment with the Company is terminated under Section 4 or Section 5.3, for a period of twelve (12) months after such termination, Employee shall not, directly or indirectly, own, manage, operate, control, be employed by, or participate in the ownership (more than 5%), management, operation or control of, a business that is engaged materially in the same business as the Company within any area constituting, during the term of Employee's employment or at the time Employee's employment is terminated, a Relevant Area. A "Relevant Area" shall be defined for the purposes of this Agreement as any area located within, or within fifty (50) miles of, the legal boundaries or limits of any city within which the Company is engaged in business or in which the Company has publicly announced or privately disclosed to Employee that it plans to engage in business. 6.2. During the Term of this Agreement and for a period of two (2) years after termination of this Agreement, Employee shall not (i) directly or indirectly cause or attempt to cause any employee of the Company or any of its affiliates to leave the employ of the Company or any affiliate, (ii) in any way interfere with the relationship between the Company and any employee or between an affiliate and any employee of the affiliate, or (iii) interfere or attempt to interfere with any transaction in which the Company or any of its affiliates was involved during the Term of this Agreement. 6.3 Employee agrees that, because of the nature and sensitivity of the information to which he will be privy and because of the nature and scope of the Company's business, the restrictions contained in this Section 6 are fair and reasonable. 7. Confidential Information. 7.1 The relationship between the Company and Employee is one of confidence and trust. This relationship and the rights granted and duties imposed by this Section shall continue until a date ten (10) years from the date Employee's employment is terminated. 7.2 As used in this Agreement (i) "Confidential Information" means information disclosed to or acquired by Employee about the Company's plans, products, processes and services, including information relating to research, development, inventions, manufacturing, purchasing, accounting, engineering, marketing, merchandising, selling, pricing, tariffed or contractual terms, customer lists and prospect lists and other market information, with respect to 4 any of the Company's business activities; and (ii) "Inventions" means any inventions, discoveries, concepts and ideas, whether patentable or not, including, without limitation, processes, methods, formulas, and techniques (as well as related improvements and knowledge) that are based on or related to Confidential Information, that pertain in any manner to the Company's technology, expertise or business and that are made or conceived by Employee, either solely or jointly with others, and while employed by the Company, whether or not made or conceived during working hours or with the use of the Company's facilities, materials or personnel. 7.3 Employee agrees that he shall at no time during the Term of this Agreement or at any time thereafter disclose any Confidential Information to any person, firm or corporation to any extent or for any reason or purpose or use any Confidential Information for any purpose other than the conduct of the Company's business, unless such Confidential Information has been publicly disclosed by the Company or a third party. 7.4 Any Confidential Information that is directly or indirectly originated, developed or perfected to any degree by Employee during the term of his employment by the Company shall be and remain the sole property of the Company and shall be deemed trade secrets of the Company. 7.5 Upon termination of Employee's employment pursuant to any of the provisions herein, Employee or his legal representative shall deliver to the Company all originals and all duplicates and/or copies of all documents, records, notebooks, and similar repositories of or containing Confidential Information then in his possession, whether prepared by him or not. 7.6 Employee agrees that the covenants and agreements contained in this Section 7 are fair and reasonable and that no waiver or modification of this Section or any covenant or condition set forth herein shall be valid unless set forth in writing and duly executed by the parties hereto. 8. Injunctive Relief. Upon a material breach by Employee of any of the provisions of Sections 6 or 7 of this Agreement, the Company shall be entitled to an injunction restraining Employee from such breach. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies for such breach, including recovery of damages from Employee. 9. No Waiver. A waiver by the Company of a breach of any provision of this Agreement by Employee shall not operate or be construed as a waiver of any subsequent or other breach by Employee. 10. Severability. It is the desire and intent of the parties that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision or portion of this Agreement shall be adjudicated to be invalid or unenforceable, this Agreement shall be deemed amended to delete therefrom the portion thus adjudicated to be invalid or unenforceable, such deletion to apply only with respect to the operation of such provision in the particular jurisdiction in which such adjudication is made. 11. Gross-Up Payment. In the event it is determined that any payment or distribution of any type to or for the benefit of the Employee, pursuant to this Agreement or otherwise, by the Company, any person who acquires ownership or effective control of the Company, or ownership of a substantial portion of the assets of the Company (within the meaning of section 260G of the Internal Revenue Code ("Code") and the regulations thereunder) or any affiliate of such 5 person (the "Total Payments') would be subject to the excise tax imposed by Section 4999 of the Code or any such interest and penalties, with respect to such excise tax (such excise tax, together with any interest and penalties are collectively referred to as the "Excise Tax"), then the Employee shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that, after payment by the Employee of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payment. 12. Determination by Accountant. All mathematical determinations and determinations as to whether any of the Total Payments are "parachute payments" (within the meaning of Section 280G of the Code), in each case which determinations are required to be made under this Section 12, including whether a Gross-Up Payment is required, the amount of such Gross-Up Payment, and amounts relevant to the last sentence of this Section 12, shall be made by an independent accounting firm selected by the Employee from among the largest six accounting firms in the United States (the "Accounting Firm"). The Accounting Firm shall provide to the Company and to the Employee its determination (the "Determination"), together with detailed supporting calculations regarding the amount of any Gross-Up Payment and any other relevant matter, within ten (10) days after termination of the Employee's employment, if applicable, or at such earlier time following termination of employment as is requested by the Employee (if the Employee reasonably believes that any of the Total Payments may be subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax is payable by the Employee, it shall furnish the Employee with a written statement that such Accounting Firm has concluded that no Excise Tax is payable (including the reasons therefor) and that the Employee has substantial authority not to report any Excise Tax on the Employee's federal income tax return. If a Gross-Up Payment is determined to be payable, it shall be paid to the Employee within ten (10) days after the Determination is delivered to the Company or the Employee. Any determination by the Accounting Firm shall be binding upon the Company and the Employee, absent manifest error. As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments not made by the Company and members of the Company should have been made ("Underpayment"), or that Gross-Up Payments will have been made by the Company and members of the Company that should not have been made ("Overpayments"). In either such event, the Accounting Firm shall determine the amount of the underpayment or Overpayment that has occurred. In the case of an Underpayment, the Company promptly shall pay, or cause to be paid, the amount of such Underpayment to or for the benefit of the Employee. In the case of an Overpayment, the Employee shall, at the direction and expense of the Company, take such steps as are reasonably necessary (including the filing of returns and claims for refund), follow reasonable instructions from, and procedures established by the Company, and otherwise reasonably cooperate with the Company to correct such Overpayment; provided, however, that (1) Employee shall not in any event be obligated to return to the Company an amount greater than the net after-tax portion of the Overpayment that he has retained or recovered as a refund from the applicable taxing authorities and (2) this provision shall be interpreted in a manner consistent with the intent of Section 11, which is to make the Employee whole, on an after-tax basis, from the application of the Excise Tax, it being understood that the correction of an Overpayment may result in the Employee repaying to the Company an amount that is less than the Overpayment. 13. Notices. All communications, requests, consents and other notices provided for in this Agreement shall be in writing and shall be deemed given if delivered by hand or mailed by first class mail, postage prepaid, to the last known address of the recipient. 6 14. Governing Law; Arbitration. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Colorado. Any dispute or controversy arising out of the Employee's employment or the termination thereof, including, but not limited to, any claim of discrimination under state or federal law, shall be settled exclusively by arbitration in San Jose, California, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction. 15. Assignment. Neither this Agreement nor any rights or duties hereunder may be assigned by Employee or the Company without the prior written consent of the other, such consent not to be unreasonably withheld. 16. Amendments. No provision of this Agreement shall be altered, amended, revoked or waived except by an instrument in writing, signed by each party to this Agreement. 17. Binding Effect. Except as otherwise provided herein, this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective legal representatives, heirs, successors (including pursuant to mergers) and assigns. 18. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 19. Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties and supersedes all prior understandings, agreements or representations by or between the parties, whether written or oral, which relate in any way to the subject matter hereof. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. /s/ Michael D. Kallet -------------------------------------- Michael D. Kallet ICG COMMUNICATIONS, INC. By: /s/ John Kane ------------------------------ Name: John Kane ------------------------------ Title: President ------------------------------ 7 EX-10 12 EXHIBIT 10.11 CREDIT AGREEMENT EXECUTION COPY $200,000,000 CREDIT AGREEMENT Dated as of August 12, 1999 Among ICG EQUIPMENT, INC. ICG NETAHEAD, INC. as Borrowers and ICG SERVICES, INC. as Parent THE INITIAL LENDERS AND THE INITIAL ISSUING BANK as Initial Lenders and Initial Issuing Bank and ROYAL BANK OF CANADA as Administrative Agent and Collateral Agent and MORGAN STANLEY SENIOR FUNDING, INC. as Sole Book-Runner and Lead Arranger and BANK OF AMERICA, N.A. and BARCLAYS BANK PLC as Co-Documentation Agents T A B L E O F C O N T E N T S Section Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.01. Certain Defined Terms...................................................1 1.02. Computation of Time Periods; Other Definitional Provisions.............28 1.03. Accounting Terms.......................................................28 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT 2.01. The Advances and the Letters of Credit.................................29 2.02. Making the Advances....................................................30 2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit.....32 2.04. Repayment of Advances..................................................33 2.05. Termination or Reduction of the Commitments............................35 2.06. Prepayments............................................................36 2.07. Interest...............................................................38 2.08. Fees...................................................................38 2.09. Conversion of Advances.................................................39 2.10. Increased Costs, Etc...................................................40 2.11. Payments and Computations..............................................41 2.12. Taxes..................................................................43 2.13. Sharing of Payments, Etc...............................................45 2.14. Use of Proceeds........................................................45 2.15. Defaulting Lenders.....................................................46 ARTICLE III CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT 3.01. Conditions Precedent to Initial Extension of Credit....................48 3.02. Conditions Precedent to Each Borrowing and Issuance and Renewal........54 3.03. Determinations Under Section 3.01......................................55 ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.01. Representations and Warranties of the Borrower.........................55 Section Page ARTICLE V COVENANTS OF THE LOAN PARTIES 5.01. Affirmative Covenants..................................................61 5.02. Negative Covenants.....................................................66 5.03. Reporting Requirements.................................................72 5.04. Financial Covenants....................................................76 ARTICLE VI EVENTS OF DEFAULT 6.01. Events of Default......................................................79 6.02. Actions in Respect of the Letters of Credit upon Default...............85 ARTICLE VII PARENT GUARANTY 7.01. Guaranty...............................................................86 7.02. Guaranty Absolute......................................................86 7.03. Waiver.................................................................87 7.04. Subrogation............................................................87 ARTICLE VIII THE AGENTS 8.01. Authorization and Action...............................................88 8.02. Agents' Reliance, Etc..................................................88 8.03. Agents and Affiliates..................................................88 8.04. Lender Party Credit Decision...........................................89 8.05. Indemnification........................................................89 8.06. Successor Agents.......................................................90 ARTICLE IX MISCELLANEOUS 9.01. Amendments, Etc........................................................91 9.02. Notices, Etc...........................................................91 9.03. No Waiver; Remedies....................................................92 ii Section Page 9.04. Costs and Expenses.....................................................92 9.05. Right of Set-off.......................................................93 9.06. Binding Effect.........................................................94 9.07. Assignments and Participations.........................................94 9.08. Execution in Counterparts..............................................97 9.09. No Liability of the Issuing Bank.......................................97 9.10. Confidentiality........................................................98 9.11. Release of Collateral..................................................98 9.12. Jurisdiction, Etc......................................................98 9.13. Governing Law..........................................................98 9.14. Waiver of Jury Trial...................................................99 SCHEDULES Schedule I - Commitments and Applicable Lending Offices Schedule II - Subsidiary Guarantors Schedule 4.01(a) - Equity Investors Schedule 4.01(b) - Subsidiaries Schedule 4.01(d) - Authorizations, Approvals, Actions, Notices and Filings Schedule 4,01(q) - Tax Matters Schedule 4.01(s) - Existing Debt Schedule 4.01(t) - Liens Schedule 4.01(u) - Owned Real Property Schedule 4.01(v) - Leased Real Property Schedule 4.01(w) - Investments Schedule 4.01(x) - Intellectual Property Schedule 4.01(y) - Material Contracts EXHIBITS Exhibit A-1 - Form of Tranche A Term Note Exhibit A-2 - Form of Tranche B Term Note Exhibit A-3 - Form of Working Capital Note Exhibit B - Form of Notice of Borrowing Exhibit C - Form of Assignment and Acceptance Exhibit D - Form of Security Agreement Exhibit E - Form of Subsidiary Guaranty Exhibit F - Form of Solvency Certificate Exhibit G - Form of Opinion of Counsel to the Loan Parties Exhibit H - Form of Opinion of Local Counsel Exhibit I - Form of Borrowing Base Certificate iii EXECUTION COPY CREDIT AGREEMENT CREDIT AGREEMENT dated as of August 12, 1999, among ICG Equipment, Inc., a Colorado corporation ("ICG Equipment"), ICG NetAhead, Inc., a Delaware corporation ("ICG NetAhead" and, together with ICG Equipment, the "Borrowers"), ICG Services, Inc., a Delaware corporation (the "Parent"), the banks, financial institutions and other institutional lenders listed on the signature pages hereof as the Initial Lenders (the "Initial Lenders") and the bank listed on the signature pages hereof as the Initial Issuing Bank (the "Initial Issuing Bank" and, together with the Initial Lenders, the "Initial Lender Parties"), Morgan Stanley Senior Funding, Inc. ("Morgan Stanley"), as sole book-runner and lead arranger (the "Lead Arranger"), Royal Bank of Canada, as collateral agent (together with any successor collateral agent appointed pursuant to Article VII, the "Collateral Agent") and as administrative agent (together with any successor administrative agent appointed pursuant to Article VII, the "Administrative Agent") for the Lender Parties (as hereinafter defined)) and Bank of America, N.A. and Barclays Bank Plc, as co-documentation agents (the "Co-Documentation Agents" and, together with the Lead Arranger and the Collateral Agent, the "Agents"). PRELIMINARY STATEMENTS: (1) Each Borrower has requested that the Lenders make Advances (as hereinafter defined) to such Borrower on the terms and conditions set forth herein. (2) The Lenders are willing to make Advances to each Borrower, on the terms and subject to the conditions set forth herein. (3) Each Borrower wishes to enter into the transactions contemplated hereby for significant commercial purposes associated with its ongoing operations (including, without limitation, the Internet Service Business and the Telecommunications Business) (each, as hereinafter defined). NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Administrative Agent" has the meaning specified in the recital of parties to this Agreement. "Administrative Agent's Account" means the account of the Administrative Agent as the Administrative Agent shall specify in writing to the Lender Parties. "Advance" means a Tranche A Term Advance, a Tranche B Term Advance, a Working Capital Advance or a Letter of Credit Advance. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 10% or more of the Voting Interests of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Interests, by contract or otherwise. "Agents" has the meaning specified in the recital of parties to this Agreement. "Agreement Value" means, for each Hedge Agreement, on any date of determination, an amount determined by the Administrative Agent equal to: (a) in the case of a Hedge Agreement documented pursuant to the Master Agreement (Multicurrency-Cross Border) published by the International Swap and Derivatives Association, Inc. (the "Master Agreement"), the amount, if any, that would be payable by any Loan Party or any of its Subsidiaries to its counterparty to such Hedge Agreement, as if (i) such Hedge Agreement was being terminated early on such date of determination, (ii) such Loan Party or Subsidiary was the sole "Affected Party", and (iii) the Administrative Agent was the sole party determining such payment amount (with the Administrative Agent making such determination pursuant to the provisions of the form of Master Agreement); or (b) in the case of a Hedge Agreement traded on an exchange, the mark-to-market value of such Hedge Agreement, which will be the unrealized loss on such Hedge Agreement to the Loan Party or Subsidiary of a Loan Party party to such Hedge Agreement determined by the Administrative Agent based on the settlement price of such Hedge Agreement on such date of determination, or (c) in all other cases, the mark-to-market value of such Hedge Agreement, which will be the unrealized loss on such Hedge Agreement to the Loan Party or Subsidiary of a Loan Party party to such Hedge Agreement determined by the Administrative Agent as the amount, if any, by which (i) the present value of the future cash flows to be paid by such Loan Party or Subsidiary exceeds (ii) the present value of the future cash flows to be received by such Loan Party or Subsidiary pursuant to such Hedge Agreement; capitalized terms used and not otherwise defined in this definition shall have the respective meanings set forth in the above described Master Agreement. "Applicable Lending Office" means, with respect to each Lender Party, such Lender Party's Domestic Lending Office in the case of a Base Rate Advance and such Lender Party's Eurodollar Lending Office in the case of a Eurodollar Rate Advance. "Applicable Margin" means, at any time, (a) in respect of the Tranche A Term Facility and the Working Capital Facility, (i) for the first six calendar months following the Effective Date, 3.125% in the case of Eurodollar Rate Advances, and 2.125% in the case of Base Rate Advances, and (ii) thereafter, a 2 percentage per annum determined by reference to the ICG Total Leverage Ratio as set forth below and (b) in respect of the Tranche B Term Facility, 3.500% in the case of Eurodollar Rate Advances, and 2.500% in the case of Base Rate Advances. ICG Total Leverage Ratio Base Rate Advances Eurodollar Rate Advances > 10:1 2.125% 3.125% < 10:1, and > 7.5:1 1.750% 2.750% - < 7.5:1, and > 5.0:1 1.500% 2.500% - - < 5.0:1 1.250% 2.250% The Applicable Margin for each Base Rate Advance shall be determined by reference to the ICG Total Leverage Ratio in effect from time to time and the Applicable Margin for each Eurodollar Rate Advance shall be determined by reference to the ratio in effect on the first day of each Interest Period for such Advance; provided, however, that no change in the Applicable Margin shall be effective until three Business Days after the date on which the Administrative Agent receives the financial statements required to be delivered pursuant to Section 5.03(b) or (c), as the case may be, and a certificate of the Chief Financial Officer of each Borrower demonstrating the ICG Total Leverage Ratio. "Appropriate Borrower" means (a) with respect to any Borrowing, the Borrower named in the Notice of Borrowing pursuant to Section 2.02(a)(i) for such Advance; and (b) with respect to any Letter of Credit, the Borrower named in the Notice of Issuance pursuant to Section 2.03(a) for such Letter of Credit. "Appropriate Borrower's Account" means (a) with respect to ICG Equipment, the account of ICG Equipment as ICG Equipment shall specify in writing to the Administrative Agent and (b) with respect to ICG NetAhead, the account of ICG NetAhead as ICG NetAhead shall specify in writing to the Administrative Agent. "Appropriate Lender" means, at any time, with respect to (a) any of the Tranche A Term Facility, Tranche B Term Facility and Working Capital Facility, a Lender that has a Commitment with respect to such Facility at such time, and (b) the Letter of Credit Facility, (i) the Issuing Bank and (ii) if the other Working Capital Lenders have made Letter of Credit Advances pursuant to Section 2.03(c) that are outstanding at such time, each such other Working Capital Lender. "Approved Fund" means, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. 3 "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender Party and an Eligible Assignee, and accepted by the Administrative Agent, in accordance with Section 9.07 and in substantially the form of Exhibit C hereto. "Available Amount" of any Letter of Credit means, at any time, the maximum amount available to be drawn under such Letter of Credit at such time (assuming compliance at such time with all conditions to drawing). "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by Royal Bank of Canada in New York, New York, from time to time, as its base or prime rate; and (b) 2 of 1% per annum above the Federal Funds Rate. "Base Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(i). "Borrowers" has the meaning specified in the recital of parties to this Agreement. "Borrowing" means a Tranche A Term Borrowing, a Tranche B Term Borrowing or a Working Capital Borrowing. "Borrowing Base Certificate" means a certificate in substantially the form of Exhibit I hereto, duly certified by the Chief Financial Officer of a Borrower. "Borrowing Base Deficiency" means, at any time, the failure of (a) the sum of the Loan Values of the Eligible Collateral at such time to equal or exceed the (b) sum of the aggregate principal amount of the Advances outstanding at such time plus the aggregate Available Amount under all Letters of Credit outstanding at such time. "Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market. "Capital Expenditures" means, for any Person for any period, the sum of, without duplication, (a) all cash expenditures made, directly or indirectly, by such Person or any of its Subsidiaries during such period for equipment, fixed assets, real property, improvements or other assets, or for replacements or substitutions therefor or additions thereto and other tangible and intangible assets that may be capitalized under GAAP, that have been or should be, in accordance with GAAP, reflected as additions to property, plant or equipment on a Consolidated balance sheet of such Person or have a useful life of more than one year plus, without duplication, (b) the aggregate principal amount of all Debt (including Obligations under Capitalized Leases) assumed or incurred in connection with any such expenditures. For purposes of this definition, the purchase 4 price of equipment that is purchased simultaneously with the trade-in of existing equipment or with insurance proceeds shall be included in Capital Expenditures only to the extent of the gross amount of such purchase price less the credit granted by the seller of such equipment for the equipment being traded in at such time or the amount of such proceeds, as the case may be. "Capitalized Leases" means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases. "Cash Collateral Account" has the meaning s pecified in the Security Agreement. "Cash Equivalents" means any of the following, to the extent owned by each Borrower or any of its respective Subsidiaries free and clear of all Liens other than Liens created under the Collateral Documents and having a maturity of not greater than 365 days from the date of the acquisition thereof: (a) readily marketable direct obligations of the Government of the United States or any agency or instrumentality thereof or obligations unconditionally guaranteed by the full faith and credit of the Government of the United States, (b) insured certificates of deposit of or time deposits with any commercial bank that is a Lender Party or a member of the Federal Reserve System, issues (or the parent of which issues) commercial paper rated as described in clause (c) below, is organized under the laws of the United States or any State thereof and has combined capital and surplus of at least $1 billion or (c) commercial paper in an aggregate amount of no more than $25,000,000 per issuer outstanding at any time, issued by any corporation organized under the laws of any State of the United States and rated at least "Prime-1" (or the then equivalent grade) by Moody's Investors Service, Inc. or "A-1" (or the then equivalent grade) by Standard & Poor's, a division of The McGraw-Hill Companies, Inc. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time. "CERCLIS" means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency. "Change of Control" means the occurrence of any of the following: (a) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Interests of ICG (or other securities convertible into such Voting Interests) representing 35% or more of the combined voting power of all Voting Interests of ICG; or (b) (i) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Interests of ICG (or other securities convertible into such Voting Interests) representing 20% or more of the combined voting power of all Voting Interests of ICG and (ii) during any period of up to 24 consecutive months, commencing before or after the date of this Agreement, individuals who at the beginning of such 24-month period were directors of ICG shall cease for any reason to constitute a majority of the board of directors of ICG, or (c) ICG shall cease to own directly or indirectly 100% of the Equity Interests of the Parent; or (d) the Parent shall cease to own directly or indirectly 100% of the Equity Interests of the Borrowers. 5 "Co-Documentation Agents" has the meaning specified in the recital of parties to this Agreement. "Collateral" means all "Collateral" referred to in the Collateral Documents and all other property that is or is intended to be subject to any Lien in favor of the Collateral Agent for the benefit of the Secured Parties. "Collateral Agent" has the meaning specified in the recital of parties to this Agreement. "Collateral Documents" means Mortgages, the Security Agreement and any other agreement that creates or purports to create a Lien in favor of the Collateral Agent for the benefit of the Secured Parties. "Commitment" means a Tranche A Term Commitment, a Tranche B Term Commitment, a Working Capital Commitment or a Letter of Credit Commitment. "Commitment Letter" means the commitment letter, dated June 25, 1999, between the Parent and Morgan Stanley. "Confidential Information" means information that any Loan Party furnishes to any Agent or any Lender Party on a confidential basis, but does not include any such information that is or becomes generally available to the public other than as a result of a breach by such Agent or any Lender Party of its obligations hereunder or that is or becomes available to such Agent or such Lender Party from a source other than the Loan Parties that is not, to the best of such Agent's or such Lender Party's knowledge, acting in violation of a confidentiality agreement with a Loan Party. "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Contingent Obligation" means, with respect to any Person, any Obligation or arrangement of such Person to guarantee or intended to guarantee any Debt, Capitalized Leases, dividends or other payment Obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the Obligation of a primary obligor, (b) the Obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement or (c) any Obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof. The amount of 6 any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder), as determined by such Person in good faith. "CFC" means any Person that is a "controlled foreign corporation" pursuant to Section 957 of the Internal Revenue Code. "Conversion", "Convert" and "Converted" each refer to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.09 or 2.10. "Current Assets" of any Person means all assets of such Person that would, in accordance with GAAP, be classified as current assets of a company conducting a business the same as or similar to that of such Person, after deducting adequate reserves in each case in which a reserve is proper in accordance with GAAP. "Current Liabilities" of any Person means (a) all Debt of such Person that by its terms is payable on demand or matures within one year after the date of determination (excluding any Debt renewable or extendible, at the option of such Person, to a date more than one year from such date or arising under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date), (b) all amounts of Funded Debt of such Person required to be paid or prepaid within one year after such date and (c) all other items (including taxes accrued as estimated) that in accordance with GAAP would be classified as current liabilities of such Person. "Debt" of any Person at any date of determination means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all Obligations of such Person for the deferred and unpaid purchase price of property or services which is due more than 6 months after the date of placing such property in service or taking delivery of title thereto or the completion of such services, (other than trade payables and accrued current liabilities incurred in the ordinary course of such Person's business), (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Obligations of such Person as lessee under Capitalized Leases, (f) all Obligations of such Person under acceptance, letter of credit or similar facilities, (g) for the purposes of Sections 5.02(b) and 6.01(e) only, all monetary Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests in such Person or any other Person or any warrants, rights or options to acquire such capital stock (in each case, pursuant to the terms of such Equity Interests or capital stock) if the failure to pay such monetary obligations allows the holders of such Equity Interests or capital stock to exercise remedies or additional right against such Person, valued, in the case of Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) 7 all Obligations of such Person in respect of Hedge Agreements, valued at the Agreement Value thereof, (i) all Contingent Obligations of such Person and (j) all indebtedness and other payment Obligations referred to in clauses (a) through (i) above of another Person secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment Obligations. "Debt for Borrowed Money" of any Person means all items that, in accordance with GAAP, would be classified as indebtedness on a Consolidated balance sheet of such Person. "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Defaulted Advance" means, with respect to any Lender Party at any time, the portion of any Advance required to be made by such Lender Party to the Appropriate Borrower pursuant to Section 2.01 or 2.02 at or prior to such time that has not been made by such Lender Party or by the Administrative Agent for the account of such Lender Party pursuant to Section 2.02(e) as of such time. In the event that a portion of a Defaulted Advance shall be deemed made pursuant to Section 2.15(a), the remaining portion of such Defaulted Advance shall be considered a Defaulted Advance originally required to be made pursuant to Section 2.01 on the same date as the Defaulted Advance so deemed made in part. "Defaulted Amount" means, with respect to any Lender Party at any time, any amount required to be paid by such Lender Party to any Agent or any other Lender Party hereunder or under any other Loan Document at or prior to such time that has not been so paid as of such time, including, without limitation, any amount required to be paid by such Lender Party to (a) the Issuing Bank pursuant to Section 2.03(c) to purchase a portion of a Letter of Credit Advance made by such Issuing Bank, (b) the Administrative Agent pursuant to Section 2.02(e) to reimburse the Administrative Agent for the amount of any Advance made by the Administrative Agent for the account of such Lender Party, (c) any other Lender Party pursuant to Section 2.13 to purchase any participation in Advances owing to such other Lender Party and (d) any Agent or the Issuing Bank pursuant to Section 8.05 to reimburse such Agent or the Issuing Bank for such Lender Party's ratable share of any amount required to be paid by the Lender Parties to such Agent or the Issuing Bank as provided therein. In the event that a portion of a Defaulted Amount shall be deemed paid pursuant to Section 2.15(b), the remaining portion of such Defaulted Amount shall be considered a Defaulted Amount originally required to be paid hereunder or under any other Loan Document on the same date as the Defaulted Amount so deemed paid in part. "Default Termination Notice" has the meaning specified in Section 2.01(d). "Defaulting Lender" means, at any time, any Lender Party that, at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take any action or be the subject of any action or proceeding of a type described in Section 6.01(f). 8 "Domestic Lending Office" means, with respect to any Lender Party, the office of such Lender Party specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender Party, as the case may be, or such other office of such Lender Party as such Lender Party may from time to time specify to each Borrower and the Administrative Agent. "EBITDA" means, with respect to any Person for any period, the sum of the following, determined on a Consolidated basis without duplication, in accordance with GAAP: (a) net income (or net loss) of such Person and its Subsidiaries for such period plus (b) the sum of the following (in each case, to the extent deducted in determining net income) (i) income and franchise tax expenses of such Person and its Subsidiaries, (ii) interest expense of such Person and its Subsidiaries, (iii) amortization, depreciation and other non-cash charges and (iv) any non-recurring extraordinary losses, less (c) interest income of such Person and its Subsidiaries and any non-recurring extraordinary gains. "Effective Date" means the first date on which the conditions set forth in Article III shall have satisfied. "Eligible Assignee" means any commercial bank or financial institution (including, without limitation, any fund that regularly invests in loans similar to the Advances) as approved by the Administrative Agent and (so long as no Event of Default has occurred and is continuing at the time of such assignment) by each Borrower (such approvals not to be unreasonably withheld); provided, however, that neither any Loan Party nor any Affiliate of a Loan Party shall qualify as an Eligible Assignee under this definition. "Eligible Collateral" means, collectively, all property, plant and equipment of the Borrowers and their respective Subsidiaries pledged under the Collateral Documents and in which the Collateral Agent has a perfected security interest that (i) is not subject to any Lien that is prior to the security interests created under the Loan Documents and (ii) is related to the Internet Service Business or the Telecommunications Business. "Environmental Action" means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, any Environmental Permit or Hazardous Material or arising from alleged injury or threat to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "Environmental Law" means any Federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, writ, judgment, injunction, decree or judicial or agency interpretation, policy or guidance relating to pollution or protection of the environment, health, safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials. 9 "Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law. "Equipment" means all Equipment referred to in Section 1(a) of the Security Agreement. "Equity Interests" means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of any Loan Party, or under common control with any Loan Party, within the meaning of Section 414 of the Internal Revenue Code. "ERISA Event" means (a)(i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC or (ii) the requirements of Section 4043(b) of ERISA apply with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of any Loan Party or any ERISA Affiliate in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by any Loan Party or any ERISA Affiliate from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for imposition of a lien under Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, such Plan. "Eurocurrency Liabilities" has the meaning specified in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. 10 "Eurodollar Lending Office" means, with respect to any Lender Party, the office of such Lender Party specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender Party (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender Party as such Lender Party may from time to time specify to each Borrower and the Administrative Agent. "Eurodollar Rate" means, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a) the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. Dollars at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period for a period equal to such Interest Period (provided that, if for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in U.S. Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates) by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period. "Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(ii). "Eurodollar Rate Reserve Percentage" for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period. "Events of Default" has the meaning specified in Section 6.01. "Excess Amount" has the meaning specified in Section 6.01(q). "Excess Cash Flow" means, for any period, (a) the sum of: 11 (i) Consolidated net income (or loss) of the Borrowers and their Subsidiaries for such period plus (ii) the aggregate amount of all non-cash charges deducted in arriving at such Consolidated net income (or loss) plus (iii) if there was a net increase in Consolidated Current Liabilities of the Borrower and their Subsidiaries during such period, the amount of such net increase plus (iv) if there was a net decrease in Consolidated Current Assets (excluding cash and Cash Equivalents) of the Borrowers and their Subsidiaries during such period, the amount of such net decrease less (b) the sum of: (i) the aggregate amount of all non-cash credits included in arriving at such Consolidated net income (or loss) plus (ii) if there was a net decrease in Consolidated Current Liabilities of the Borrowers and their Subsidiaries during such period, the amount of such net decrease plus (iii) if there was a net increase in Consolidated Current Assets (excluding cash and Cash Equivalents) of the Borrowers and their Subsidiaries during such period, the amount of such net increase plus (iv) the aggregate amount of Capital Expenditures of the Borrowers and their respective Subsidiaries paid in cash during such period to the extent permitted by this Agreement plus (v) the aggregate amount of all regularly scheduled principal payments of Funded Debt made by the Borrowers and their respective Subsidiaries during such period plus (vi) cash dividend payments made to the Parent by any Loan Party to the extent such cash is applied by the Parent to pay any amount in respect of Debt of the Parent permitted by the Loan Documents plus (vii) the aggregate principal amount of all optional prepayments of Term Advances made during such period pursuant to Section 2.06(a) plus. (viii) solely to the extent not deducted in determining Consolidated net income (or loss) of the Borrowers and their Subsidiaries for such period and without duplication of the items contained in clauses (i) through (vii) immediately above, cash 12 tax payments to governmental authorities or made pursuant to the Tax Sharing Agreement. "Excluded Receivables" means (i) accounts receivable reflecting amounts due for reciprocal compensation for traffic to the internet, and (ii) accounts receivable which are more than 120 days past the original invoice date. "Existing Debt" means Debt of each Loan Party and its Subsidiaries outstanding immediately before giving effect to the consummation of the Transaction. "Extraordinary Receipt" means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including, without limitation, tax refunds (excluding amounts applied to pay taxes within 18 months of receipt thereof), pension plan reversions, proceeds of insurance (including, without limitation, any key man life insurance but excluding proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments and any purchase price adjustment received in connection with any purchase agreement; provided, however, that an Extraordinary Receipt shall not include cash receipts received from proceeds of insurance, condemnation awards (or payments in lieu thereof) or indemnity payments to the extent that such proceeds, awards or payments (A) in respect of loss or damage to equipment, fixed assets or real property are applied (or in respect of which expenditures were previously incurred) to replace or repair the equipment, fixed assets or real property in respect of which such proceeds were received in accordance with the terms of the Loan Documents, so long as such application is made within six months after the occurrence of such damage or loss or (B) are received by any Person in respect of any third party claim against such Person and applied to pay (or to reimburse such Person for its prior payment of) such claim and the costs and expenses of such Person with respect thereto. "Facility" means the Tranche A Facility, the Tranche B Facility, the Working Capital Facility or the Letter of Credit Facility "FCC" means the Federal Communications Commission or any successor commission or agency of the United States of America having jurisdiction over each Borrower or any System. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means the fee letter dated June 25, 1999 between the Parent, the Borrowers and Morgan Stanley, as amended. 13 "Fiscal Year" means a fiscal year of each Borrower and its Consolidated Subsidiaries ending on December 31 in any calendar year. "Fixed Charge Coverage Ratio" means, at any date of determination, the ratio of (a) EBITDA of the Parent and its Subsidiaries to (b) the Fixed Charges, in each case, of or by the Parent and its Subsidiaries during the two consecutive fiscal quarters most recently ended for which financial statements are required to be delivered to the Lender Parties pursuant to Section 5.03(b) or (c), as the case may be. "Fixed Charges" means, with respect to the Parent and its Subsidiaries, for any period, the sum of the following determined on a consolidated basis, without duplication, in accordance with GAAP: (a) scheduled principal payments to be made during such period and Interest Expense during such period, in respect of Debt of the Parent and its Subsidiaries, (b) Capital Expenditures made by the Parent and its Subsidiaries during such period, (c) cash taxes payable by the Parent and its Subsidiaries during such Period and (d) cash dividends paid by the Parent and its Subsidiaries during such period. "Funded Debt" of any Person means Debt in respect of the Advances, in the case of each Borrower, and all other Debt of such Person that by its terms matures more than one year after the date of determination or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year after such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year after such date, including, without limitation, all amounts of Funded Debt of such Person required to be paid or prepaid within one year after the date of determination. "GAAP" has the meaning specified in Section 1.03. "Grantors" has the meaning specified in the Security Agreement. "Gross PP & E" means, collectively, all property, plant and equipment of the Borrowers and their respective Subsidiaries that is related to the Internet Service Business or the Telecommunications Business. "ICG 161" means ICG 161 L.P., a Delaware limited partnership. "ICG Corporate Headquarters" means ICG Corporate Headquarters L.L.C., a Colorado limited liability company. "Guaranties" means the Parent Guaranty and the Subsidiary Guaranty. "Guarantors" means the Parent and the Subsidiary Guarantors. "Hazardous Materials" means (a) petroleum or petroleum products, by-products or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, 14 classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law. "Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other hedging agreements. "Hedge Bank" means any Lender Party or an Affiliate of a Lender Party in its capacity as a party to a Secured Hedge Agreement. "ICG" means ICG Communications, Inc, a Delaware corporation. "ICG Equipment" has the meaning specified in the recital of parties this Agreement. "ICG NetAhead" has the meaning specified in the recital of parties this Agreement. "ICG Total Leverage Ratio" means, at any date of determination, the ratio of (A) Total Debt of ICG and its Subsidiaries as of the end of the most recently completed fiscal quarter to (B) the product of (i) two times (ii) EBITDA of ICG and its Subsidiaries for such fiscal quarter and the immediately preceding fiscal quarter. "Indemnified Party" has the meaning specified in Section 9.04(b). "Initial Extension of Credit" means the earlier to occur of the initial Borrowing and the initial issuance of a Letter of Credit hereunder. "Initial Issuing Bank", "Initial Lender Parties" and "Initial Lenders" each has the meaning specified in the recital of parties to this Agreement. "Insufficiency" means, with respect to any Plan, the amount, if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA. "Interest Coverage Ratio" means, at any time of determination in respect of any Person, the ratio of (a) EBITDA to (b) Interest Expense, in each case, of or by such Person during the two consecutive fiscal quarters most recently ended for which financial statements are required to be delivered to the Lender Parties pursuant to Section 5.03(b) or (c), as the case may be. "Interest Expense" means, for any period in respect of any Person, total accrued interest less accreted interest (including, without limitation, cash interest expense attributable to Capitalized Leases) determined on a Consolidated basis, without duplication, for such Person and its Subsidiaries in accordance with GAAP. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance, and ending on the last day of the period selected by the Appropriate Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by such Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months or, until 15 the Syndication Date, 7-days, as such Borrower may, upon notice received by the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: (a) the Appropriate Borrower may not select any Interest Period with respect to any Eurodollar Rate Advance under a Facility that ends after any principal repayment installment date for such Facility unless, after giving effect to such selection, the aggregate principal amount of Base Rate Advances and of Eurodollar Rate Advances having Interest Periods that end on or prior to such principal repayment installment date for such Facility shall be at least equal to the aggregate principal amount of Advances under such Facility due and payable on or prior to such date; (b) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; (c) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month; (d) neither of the Borrowers may select a 7-day Interest Period on or after the Syndication Date; and (e) subject to clause (a) above, if the Appropriate Borrower has failed to notify the Administrative Agent with respect to the duration of any Interest Period, the duration of such Interest Period shall be one month. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Internet Service Business" has the meaning specified in the Indenture dated as of February 12, 1998 between the Parent and Norwest Bank Colorado, National Association, as Trustee relating to the 10% Senior Discount Notes issued by the Parent due 2008. "Inventory" means all Inventory referred to in Section 1(b) of the Security Agreement. "Investment" in any Person means any loan or advance to such Person, any purchase or other acquisition of any Equity Interests or Debt or the assets comprising a division or business unit or a substantial part or all 16 of the business of such Person, any capital contribution to such Person or any other direct or indirect investment in such Person, including, without limitation, any acquisition by way of a merger or consolidation and any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (i) or (j) of the definition of "Debt" in respect of such Person. "Issuing Bank" means the Initial Issuing Bank and any Eligible Assignee to which the Letter of Credit Commitment hereunder has been assigned pursuant to Section 9.07 so long as each such Eligible Assignee expressly agrees to perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as the Issuing Bank and notifies the Administrative Agent of its Applicable Lending Office and the amount of its Letter of Credit Commitment (which information shall be recorded by the Administrative Agent in the Register), for so long as the Initial Issuing Bank or Eligible Assignee, as the case may be, shall have a Letter of Credit Commitment. "L/C Cash Collateral Account" has the meaning specified in the Borrowers Security Agreement. "L/C Related Documents" has the meaning specified in Section 2.04(d)(ii)(A). "Lead Arranger" has the meaning specified in the recital of parties to this Agreement. "Lender Party" means any Lender or the Issuing Bank. "Lenders" means the Initial Lenders and each Person that shall become a Lender hereunder pursuant to Section 9.07 for so long as such Initial Lender or Person, as the case may be, shall be a party to this Agreement. "Letter of Credit Advance" means an advance made by the Issuing Bank or any Working Capital Lender pursuant to Section 2.03(c). "Letter of Credit Agreement" has the meaning specified in Section 2.03(a). "Letter of Credit Commitment" means, with respect to the Issuing Bank, at any time, the amount set forth opposite the Issuing Bank's name on Schedule I hereto under the caption "Letter of Credit Commitment" or, if the Issuing Bank has entered into an Assignment and Acceptance, set forth for the Issuing Bank in the Register maintained by the Administrative Agent pursuant to Section 9.07(d) as the Issuing Bank's "Letter of Credit Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Letter of Credit Facility" means, at any time, an amount equal to $25,000,000, as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Letters of Credit" has the meaning specified in Section 2.01(d). 17 "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property. "Loan Documents" means (a) for purposes of this Agreement and the Notes and any amendment, supplement or modification hereof or thereof, (i) this Agreement, (ii) the Notes, (iii) the Guaranties, (iv) the Collateral Documents, (v) the Fee Letter, and (vi) each Letter of Credit Agreement and (b) for purposes of the Guaranties and the Collateral Documents and for all other purposes other than for purposes of this Agreement and the Notes, (i) this Agreement, (ii) the Notes, (iii) the Guaranties, (iv) the Collateral Documents, (v) the Fee Letter, (vi) each Letter of Credit Agreement, and (vii) each Secured Hedge Agreement. "Loan Parties" means the Borrowers and the Guarantors (including, without limitation, the Parent). "Loan Value" means 70% of the gross book value of any item of Eligible Collateral. "Margin Stock" has the meaning specified in Regulation U. "Material Adverse Change" means any material adverse change in the business, condition (financial or otherwise), operations, performance, properties or prospects of the Parent and its Subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of the Parent and its Subsidiaries taken as a whole, (b) the rights and remedies of any Agent or any Lender Party under any Transaction Document or (c) the ability of any Loan Party to perform its Obligations under any Transaction Document to which it is or is to be a party. "Material Contract" means (i) each agreement described as a Master Lease Agreement, and each agreement in the nature of a master lease, to which ICG Equipment is a party as lessor, (ii) any other material lease agreement to which ICG Equipment is a party as lessor and (iii) each other contract to which either Borrower or any of its Subsidiaries is a party involving aggregate consideration payable to or by such Person of $5,000,000 or more in any year or otherwise material to the business, condition (financial or otherwise), operations, performance, properties or prospects of such Person. "Morgan Stanley" has the meaning specified in the recital of parties to this Agreement. "Mortgages" has the meaning specified in Section 3.01(a)(v). "Mortgage Policies" has the meaning specified in Section 3.01(a)(v)(B). "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any 18 of the preceding five plan years made or accrued an obligation to make contributions. "Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan Party or any ERISA Affiliate and at least one Person other than the Loan Parties and the ERISA Affiliates or (b) was so maintained and in respect of which any Loan Party or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "Net Cash Proceeds" means, with respect to any sale, lease, transfer or other disposition of any asset other than in the ordinary course of business, or any Extraordinary Receipt received by or paid to or for the account of any Person, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person in connection with such transaction after deducting therefrom only (without duplication) (a) brokerage commissions, underwriting or placement agent fees and discounts, legal fees, accountant's and consultant's fees, finder's fees and other similar fees and commissions, (b) provision for the amount of taxes payable in connection with or as a result of such transaction, (c) the amount of any Debt secured by a Lien on such asset that, by the terms of the agreement or instrument governing such Debt, is required to be repaid upon such disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate of such Person or any Loan Party or any Affiliate of any Loan Party and are properly attributable to such transaction or to the asset that is the subject thereof and (d) such other reserves as are required by GAAP; provided, however, that in the case of taxes that are deductible under clause (b) above but for the fact that, at the time of receipt of such cash, such taxes have not been actually paid or are not then payable, such Loan Party or such Subsidiary may deduct an amount (the "Reserved Amount") equal to the amount reserved in accordance with GAAP for such Loan Party's or such Subsidiary's reasonable estimate of such taxes, other than taxes for which such Loan Party or such Subsidiary is indemnified, provided further, however, that, at the time such taxes are paid, an amount equal to the amount, if any, by which the Reserved Amount for such taxes exceeds the amount of such taxes actually paid shall constitute "Net Cash Proceeds" of the type for which such taxes were reserved for all purposes hereunder; provided further that "Net Cash Proceeds " shall not include any proceeds that are reinvested in the Internet Service Business or the Telecommunications Business of the Borrowers and their respective Subsidiaries so long as such reinvestment is made within 270 days after the receipt of such proceeds. "Note" means a Tranche A Term Note, a Tranche B Term Note or a Working Capital Note. "Notice of Borrowing" has the meaning specified in Section 2.02(a). "Notice of Issuance" has the meaning specified in Section 2.03(a). "Notice of Renewal" has the meaning specified in Section 2.01 (d). 19 "Notice of Termination" has the meaning specified in Section 2.01(d). "NPL" means the National Priorities List under CERCLA. "Obligation" means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any proceeding referred to in Section 6.01(f). Without limiting the generality of the foregoing, the Obligations of any Loan Party under the Loan Documents include (a) the obligation to pay principal, interest, Letter of Credit commissions, charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by such Loan Party under any Loan Document and (b) the obligation of such Loan Party to reimburse any amount in respect of any of the foregoing that any Lender Party, in its reasonable discretion, may elect to pay or advance on behalf of such Loan Party. "Open Year" has the meaning specified in Section 4.01(q)(ii). "Other Taxes" has the meaning specified in Section 2.12(b). "Parent" has the meaning set forth in the recital of the parties hereto. "Parent Guaranty" means the guaranty contained in Article VII hereof. "Parent Total Leverage Ratio" means, at any date of determination, the ratio of (A) Total Debt of the Parent and its Subsidiaries as of the end of the most recently completed fiscal quarter to (B) the product of (i) two times (ii) EBITDA of the Parent and its Subsidiaries for such fiscal quarter and the immediately preceding fiscal quarter. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor). "Permitted Liens" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (i) Liens for taxes, assessments, governmental charges or claims that are being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (ii) statutory and common law Liens of landlords and carriers, warehousemen, mechanics, attorneys, suppliers, materialmen, repairmen or other similar Liens arising in the ordinary course of business, unexercised rights of set off, in each case with respect to amounts not yet delinquent or that are bonded or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, licenses, statutory or regulatory obligations, bankers' acceptances, surety, 20 indemnity, performance and appeal bonds, trade or government contracts, performance and return-of-money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements (including reciprocal easement agreements), rights-of-way, municipal, building and zoning ordinances and similar charges, utility agreements, covenants, reservations, restrictions, encroachments, charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of any Loan Party or any of its Subsidiaries; (vi) leases, subleases, licenses and rights-of-use granted to others and rights of purchase pursuant to installment sales that do not materially interfere with the ordinary course of business of any Loan Party or any of its Subsidiaries; (vii) any interest or title of a lessor in the property subject to any Capitalized Lease or operating lease; (viii) Liens arising from filing Uniform Commercial Code financing statements regarding leases or installment sales; (ix) Liens on property of, or on shares of capital stock or Debt, any Person existing at the time such Person becomes, or becomes a part of, any Subsidiary of any Loan Party; provided that such Liens do not extend to or cover any property or assets of any Loan Party or any Subsidiary of any Loan Party of other than the property or assets acquired; (x) Liens in favor of any Loan Party or any Subsidiary of any Loan Party; (xi) Liens arising from the rendering of a final judgment or order against any Loan Party or any Subsidiary of any Loan Party that does not give rise to an Event of Default; (xii) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (xiii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; and (xiv) Liens arising out of conditional sale, installment sales, title retention, consignment or similar arrangements for the sale of goods entered into by any Loan Party or any of its Subsidiaries in the ordinary course of business. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan. "Pledged Debt" has the meaning specified in the Security Agreement. "Pre-Commitment Information" means all information (including, without limitation, any confidential information) that any Loan Party has furnished to any Agent or Lender Party at or prior to the date of, or in connection with, the Commitment Letter. "Preferred Interests" means, with respect to any Person, Equity Interests issued by such Person that are entitled to a preference or priority over any other Equity Interests issued by such Person upon any distribution of such Person's property and assets, whether by dividend or upon liquidation. "Prepayment Amount" has the meaning specified in Section 5.03(a). "Prepayment Date" has the meaning specified in Section 5.03(a). 21 "Prepayment Notice" has the meaning specified in Section 5.03(a). "Pro Rata Share" of any amount means, with respect to any Working Capital Lender at any time, the product of such amount times a fraction the numerator of which is the amount of such Lender's Working Capital Commitment at such time (or, if the Commitments shall have been terminated pursuant to Section 2.05 or 6.01, such Lender's Working Capital Commitment as in effect immediately prior to such termination) and the denominator of which is the Working Capital Facility at such time (or, if the Commitments shall have been terminated pursuant to Section 2.05 or 6.01, the Working Capital Facility as in effect immediately prior to such termination). "PUC" means any state governmental authority having utility or telecommunications authority over any Borrower or any System. "Receivables" means all Receivables referred to in Section 1(c) of the Security Agreement. "Redeemable" means, with respect to any Equity Interest, any Debt or any other right or Obligation, any such Equity Interest, Debt, right or Obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder. "Reduction Amount" has the meaning specified in Section 2.06 (b)(iv). "Register" has the meaning specified in Section 9.07(d). "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Related Documents" means the Tax Sharing Agreement. "Required Lenders" means, at any time, Lenders owed or holding at least a majority in interest of the sum of (a) the aggregate principal amount of the Advances outstanding at such time, (b) the aggregate Available Amount of all Letters of Credit outstanding at such time, (c) the aggregate Unused Tranche A Term Commitments at such time and (d) the aggregate Unused Working Capital Commitments at such time; provided, however, that if any Lender shall be a Defaulting Lender at such time, there shall be excluded from the determination of Required Lenders at such time (A) the aggregate principal amount of the Advances owing to such Lender (in its capacity as a Lender) and outstanding at such time, (B) such Lender's Pro Rata Share of the aggregate Available Amount of all Letters of Credit outstanding at such time, (C) the Unused Tranche A Term Commitment of such Lender at such time and (D) the Unused Working Capital Commitment of such Lender at such time. For purposes of this definition, the aggregate principal amount of the Letter of Credit Advances owing to the Issuing Bank and the Available Amount of each Letter of Credit shall be considered to be owed to the Working Capital Lenders ratably in accordance with their respective Working Capital Commitments. 22 "Responsible Officer" means any officer of any Loan Party or any of its Subsidiaries. "Restricted Subsidiary" has the meaning specified in the Indenture dated as of February 12, 1998 between the Parent and Norwest Bank Colorado, National Association as Trustee, in respect of the 10% Senior Discount Notes due 2008. "Revenue" means, for any period, Consolidated revenues of ICG and its Subsidiaries for such period as determined on a Consolidated basis in accordance with GAAP. "Secured Hedge Agreement " means any Hedge Agreement required or permitted under Article V that is entered into by a Borrower and any Hedge Bank. "Secured Obligations" has the meaning specified in Section 2 of the Security Agreement. "Secured Parties" means the Agents, the Lender Parties and the Hedge Banks. "Security Agreement" has the meaning specified in Section 3.01(a)(ii). "Senior Secured Debt" means, at any date of determination, with respect to the Parent and its Subsidiaries, all Debt of the Parent and its Subsidiaries that is either secured by a Lien on any assets of the Parent and/or any of its Subsidiaries or is not Subordinated Debt. "Senior Secured Debt Ratio" means, at any date of determination, the ratio of (a) Senior Secured Debt as of the end of the most recently completed fiscal quarter to (b) the product of (i) two times (ii) EBITDA of the Parent and its Subsidiaries for such fiscal quarter and the immediately preceding fiscal quarter. "Senior Secured Debt Service" means, with respect to the Parent and its Subsidiaries, for any period, the sum of (a) the aggregate amount of all principal of, interest accrued on, and premium, if any, on any Senior Secured Debt that is due and payable during such period and (b) the aggregate amount of all fees, costs, expenses, indemnification payments, insurance policy premiums and other amounts, in each case, that are due and payable with respect to such Debt during such period. "Senior Secured Debt Service Coverage Ratio" means, at any date of determination, the ratio of (a) EBITDA of the Parent and its Subsidiaries for the two most recently ended fiscal quarters of the Parent for which financial statements are required to be delivered to the Lender Parties pursuant to Section 5.03(b) or (c), as the case may be, to (b) Senior Secured Debt Service for such two fiscal quarters. "Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any Loan Party or any ERISA Affiliate and no Person other than the Loan Parties and the ERISA Affiliates or (b) was so maintained and in respect of which any Loan Party or any ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. 23 "Solvent" and "Solvency" mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Standby Letter of Credit" means any Letter of Credit issued under the Letter of Credit Facility, other than a Trade Letter of Credit. "Subordinated Debt" means any Debt of any Loan Party that is subordinated to the Obligations of such Loan Party under the Loan Documents on, and that otherwise contains, terms and conditions satisfactory to the Required Lenders. "Subordinated Debt Documents" means all agreements, indentures and instruments pursuant to which Subordinated Debt is issued, in each case as amended, to the extent permitted under the Loan Documents. "Subsidiary" of any Person means any corporation, partnership joint venture, limited liability company trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, joint venture or limited liability company or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries; provided, however, that, solely for the purposes of Sections 5.01(j) and 5.02(d), (e), (g), (j) and (l), "Subsidiary" shall not include ICG 161 and ICG Corporate Headquarters. "Subsidiary Guarantors" means the Subsidiaries of the Borrowers listed on Schedule II hereto and each other Subsidiary of each Borrower (other than ICG 161 and ICG Corporate Headquarters) that shall be required to execute and deliver a guaranty pursuant to Section 5.01(j). "Subsidiary Guaranty" has the meaning specified in Section 3.01(a)(iii). "Syndication Date" means the earlier to occur of (a) the 30th day following the Effective Date and (b) the date upon which the Syndication Agent has determined in its sole discretion (and has so notified the Borrowers) that the primary syndication of the Facilities has been completed. 24 "System" means each data communications, telecommunications or information system (including, without limitation, any voice, video transmission, data or Internet services), and any related, ancillary or complementary services, owned by the Borrowers or their respective Subsidiaries and all replacements, enhancements or additions thereto. "Syndication Period" has the meaning specified in Section 2.02(b). "Tax Sharing Agreement" means the Tax Sharing Agreement between ICG, the Parent and each of the Borrowers dated as of August 9, 1999. "Taxes" has the meaning specified in Section 2.12(a). "Telecommunications Business" has the meaning specified in the Indenture dated as of February 12, 1998 between the Parent and Norwest Bank Colorado, National Association, as Trustee, in respect of the 10% Senior Discount Notes due 2008. "Term Advance" means a Tranche A Term Advance or a Tranche B Term Advance. "Term Borrowing" means a Tranche A Term Borrowing or a Tranche B Term Borrowing. "Term Commitment" means a Tranche A Term Commitment or a Tranche B Term Commitment. "Term Facility" means the Tranche A Term Facility or the Tranche B Term Facility. "Term Lender" means a Tranche A Term Lender or the Tranche B Term Lender. "Term Note" means a Tranche A Term Note or the Tranche B Term Note. "Total Debt" means, at any date of determination, with respect to any Person and its Subsidiaries, the sum of the following determined on a Consolidated basis, without duplication, in accordance with GAAP: (a) all liabilities, obligations and indebtedness for borrowed money, including, but not limited to, obligations evidenced by bonds, debentures, notes or other similar instruments, (b) all obligations to pay the deferred and unpaid purchase price of property or services which is due more than 6 months after placing such property in service or taking delivery or title thereto or the completion of such services, (exclusive of rent for real property for which the associated lease would not be capitalized under GAAP), including, but not limited to, all obligations under non-competition agreements, excluding trade payables and accrued current liabilities arising in the ordinary course of business, (c) all obligations as lessees under capital leases (other than the interest component thereof), (d) all guaranty obligations, (e) all obligations, liabilities and indebtedness of any other Person secured by a Lien on any asset of such Person and its Subsidiaries, (f) all obligations, contingent or otherwise, relative to the face amount of letters of credit (excluding those that are cash collateralized), whether or not drawn and banker's acceptances issued for the account of any of such Person and its Subsidiaries, and (g) all 25 Obligations of such Person in respect of Hedge Agreements, valued at the Agreement Value thereof. "Trade Letter of Credit" means any Letter of Credit that is issued under the Letter of Credit Facility for the benefit of a supplier of Inventory to either Borrower or any of its Subsidiaries to effect payment for such Inventory. "Tranche A Term Advance" means an advance made by any Tranche A Term Lender pursuant to Section 2.01(a). "Tranche A Term Borrowing" means a borrowing consisting of simultaneous Tranche A Advances pursuant to Section 2.02(b). "Tranche A Term Commitment" means, with respect to any Tranche A Term Lender at any time, the amount set forth opposite such Lender's name on Schedule I hereto under the caption "Tranche A Term Commitment" or, if such Lender has entered into one or more Assignment and Acceptances, the aggregate amount set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 9.07(d) as such Lender's "Tranche A Term Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Tranche A Term Facility" means, at any time, the aggregate amount of the Tranche A Term Lenders' Tranche A Term Commitments at such time. "Tranche A Term Lender" means any Lender that has a Tranche A Term Commitment. "Tranche A Term Note" means a promissory note of each Borrower payable to the order of any Tranche A Term Lender, in substantially the form of Exhibit A-1 hereto, evidencing the indebtedness of such Borrower to such Lender resulting from each Tranche A Advance made by such Lender, evidencing the indebtedness of such Borrower to such Lender resulting from each such Tranche A Term Advance made by such Lender, as amended. "Tranche A Termination Date" means, for the Tranche A Term Facility, the earlier of (a) June 30, 2005 and (b) the termination in whole of the Tranche A Term Commitments pursuant to Section 2.05 or 6.01. "Tranche B Term Advance" means an advance made by any Tranche B Term Lender pursuant to Section 2.01(b). "Tranche B Term Borrowing" means a borrowing consisting of simultaneous Tranche B Advances pursuant to Section 2.02(b). "Tranche B Term Commitment" means, with respect to any Tranche B Term Lender, the amount set forth opposite such Lender's name on Schedule I hereto under the caption "Tranche B Term Commitment" or, if such Lender has entered into one or more Assignment and Acceptances, the aggregate amount set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 9.07(d) as such Lender's "Tranche B Term 26 Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Tranche B Term Facility" means, at any time, the aggregate amount of the Tranche B Term Lenders' Tranche B Term Commitments at such time. "Tranche B Term Lender" means any Lender that has a Tranche B Term Commitment. "Tranche B Term Note" means a promissory note of each Borrower payable to the order of any Tranche B Term Lender, in substantially the form of Exhibit A-2 hereto, evidencing the indebtedness of such Borrower to such Lender resulting from each Tranche B Advance made by such Lender, evidencing the indebtedness of such Borrower to such Lender resulting from each such Tranche B Term Advance made by such Lender, as amended. "Tranche B Termination Date" means, for the Tranche B Term Facility, the earlier of (a) March 31, 2006, and (b) the termination in whole of the Tranche B Term Commitments pursuant to Section 2.05 or 6.01. "Transaction Documents" means, collectively, the Loan Documents and the Related Documents. "Type" refers to the distinction between Advances bearing interest at the Base Rate and Advances bearing interest at the Eurodollar Rate. "Unused Tranche A Term Commitment" means, with respect to any Tranche A Term Lender at any time, (a) such Lender=s Tranche A Term Commitment at such time minus (b) the aggregate principal amount of all Tranche A Term Advances made by such Lender and outstanding at such time. "Unused Working Capital Commitment" means, with respect to any Working Capital Lender at any time, (a) such Lender's Working Capital Commitment at such time minus (b) the sum of (i) the aggregate principal amount of all Working Capital Advances and (without duplication) Letter of Credit Advances made by such Lender (in its capacity as a Lender) and outstanding at such time plus (ii) such Lender's Pro Rata Share of (A) the aggregate Available Amount of all Letters of Credit outstanding at such time and (B) the aggregate principal amount of all Letter of Credit Advances made by the Issuing Bank pursuant to Section 2.03(c) and outstanding at such time. "Voting Interests" means shares of capital stock issued by a corporation, or equivalent Equity Interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. 27 "Welfare Plan" means a welfare plan, as defined in Section 3(1) of ERISA, that is maintained for employees of any Loan Party or in respect of which any Loan Party could have liability. "Withdrawal Liability" has the meaning specified in Part I of Subtitle E of Title IV of ERISA. "Working Capital Advance" has the meaning specified in Section 2.01(c). "Working Capital Borrowing" means a borrowing consisting of simultaneous Working Capital Advances of the same Type made by the Working Capital Lenders. "Working Capital Commitment" means, with respect to any Working Capital Lender at any time, the amount set forth opposite such Lender's name on Schedule I hereto under the caption "Working Capital Commitment" or, if such Lender has entered into one or more Assignment and Acceptances, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 9.07(d) as such Lender's "Working Capital Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Working Capital Facility" means, at any time, the aggregate amount of the Working Capital Lenders' Working Capital Commitments at such time. "Working Capital Termination Date" means, for the Working Capital Facility and the Letter of Credit Facility, the earlier of (a) June 30, 2005 and (b) the termination in whole of the Working Capital Commitments and the Letter of Credit Commitments pursuant to Section 2.05 or 6.01. "Working Capital Lender" means any Lender that has a Working Capital Commitment. "Working Capital Note" means a promissory note of each Borrower payable to the order of any Working Capital Lender, in substantially the form of Exhibit A-3 hereto, evidencing the aggregate indebtedness of such Borrower to such Lender resulting from the Working Capital Advances and Letter of Credit Advances, as amended. SECTION 1.02. Computation of Time Periods; Other Definitional Provisions. In this Agreement and the other Loan Documents in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". References in the Loan Documents to any agreement or contract "as amended" shall mean and be a reference to such agreement or contract as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with its terms. SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the financial statements referred to in Section 4.01(g) ("GAAP"). 28 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT SECTION 2.01. The Advances and the Letters of Credit. (a) The Tranche A Term Advances. Each Tranche A Term Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances (a "Tranche A Term Advance") to the Appropriate Borrower on the Effective Date and, from time to time thereafter, on any Business Day during the period from the Effective Date until August 10, 2000 in an amount for each such Advance not to exceed such Lender's Unused Tranche A Term Commitment at such time. Each Tranche A Term Borrowing shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and shall consist of Tranche A Term Advances made simultaneously by the Tranche A Term Lenders ratably according to their Tranche A Term Commitments. Amounts borrowed under this Section 2.01(a) and repaid or prepaid may not be reborrowed. (b) The Tranche B Term Advances. Each Tranche B Term Lender severally agrees, on the terms and conditions hereinafter set forth, to make a single advance (a "Tranche B Term Advance") to the Borrowers on the Effective Date in an amount not to exceed such Lender's Tranche B Term Commitment at such time. The Tranche B Term Borrowing shall consist of Tranche B Term Advances made simultaneously by the Tranche B Term Lenders ratably according to their Tranche B Term Commitments. Amounts borrowed under this Section 2.01(b) and repaid or prepaid may not be reborrowed. (c) The Working Capital Advances. Each Working Capital Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances (each a "Working Capital Advance") to the Appropriate Borrower from time to time on any Business Day during the period from the Effective Date until the Working Capital Termination Date in an amount for each such Advance not to exceed such Lender's Unused Working Capital Commitment at such time. Each Working Capital Borrowing shall be in an aggregate amount of $1,000,000 or an integral multiple of $500,000 in excess thereof (other than a Borrowing the proceeds of which shall be used solely to repay or prepay in full outstanding Letter of Credit Advances) and shall consist of Working Capital Advances made simultaneously by the Working Capital Lenders ratably according to their Working Capital Commitments. Within the limits of each Working Capital Lender's Unused Working Capital Commitment in effect from time to time, each Borrower may borrow under this Section 2.01(c), prepay pursuant to Section 2.06(a) and reborrow under this Section 2.01(c). (d) The Letters of Credit. The Issuing Bank agrees, on the terms and conditions hereinafter set forth, to issue (or cause its Affiliate that is a commercial bank to issue on its behalf) letters of credit (the "Letters of Credit") for the account of the Appropriate Borrower from time to time on any Business Day during the period from the Effective Date until 60 days before the Working Capital Termination Date in an aggregate Available Amount (i) for all Letters of Credit not to exceed at any time the lesser of (x) the Letter of Credit Facility at such time and (y) the Issuing Bank's Letter of Credit Commitment at such time and (ii) for each such Letter of Credit not to exceed an amount equal to the Unused Working Capital Commitments of the Working Capital Lenders at such time. No Letter of Credit shall have an expiration date (including all rights of the Appropriate Borrower or the beneficiary to require 29 renewal) later than the earlier of 60 days before the Working Capital Termination Date and (A) in the case of a Standby Letter of Credit, one year after the date of issuance thereof, but may by its terms be renewable annually upon notice (a "Notice of Renewal") given to the Issuing Bank and the Administrative Agent on or prior to any date for notice of renewal set forth in such Letter of Credit but in any event at least three Business Days prior to the date of the proposed renewal of such Standby Letter of Credit and upon fulfillment of the applicable conditions set forth in Article III unless the Issuing Bank has notified the Appropriate Borrower (with a copy to the Administrative Agent) on or prior to the date for notice of termination set forth in such Letter of Credit but in any event at least 30 Business Days prior to the date of automatic renewal of its election not to renew such Standby Letter of Credit (a "Notice of Termination") and (B) in the case of a Trade Letter of Credit, 60 days after the date of issuance thereof; provided that the terms of each Standby Letter of Credit that is automatically renewable annually shall (x) require the Issuing Bank to give the beneficiary named in such Standby Letter of Credit notice of any Notice of Termination, (y) permit such beneficiary, upon receipt of such notice, to draw under such Standby Letter of Credit prior to the date such Standby Letter of Credit otherwise would have been automatically renewed and (z) not permit the expiration date (after giving effect to any renewal) of such Standby Letter of Credit in any event to be extended to a date later than 60 days before the Working Capital Termination Date. If either a Notice of Renewal is not given by the Appropriate Borrower or a Notice of Termination is given by the Issuing Bank pursuant to the immediately preceding sentence, such Standby Letter of Credit shall expire on the date on which it otherwise would have been automatically renewed; provided, however, that even in the absence of receipt of a Notice of Renewal the Issuing Bank may in its discretion, unless instructed to the contrary by the Administrative Agent or the Appropriate Borrower, deem that a Notice of Renewal had been timely delivered and in such case, a Notice of Renewal shall be deemed to have been so delivered for all purposes under this Agreement. Each Standby Letter of Credit shall contain a provision authorizing the Issuing Bank to deliver to the beneficiary of such Letter of Credit, upon the occurrence and during the continuance of an Event of Default, a notice (a "Default Termination Notice") terminating such Letter of Credit and giving such beneficiary 15 days to draw such Letter of Credit. Within the limits of the Letter of Credit Facility, and subject to the limits referred to above, each Borrower may request the issuance of Letters of Credit under this Section 2.01(d), repay any Letter of Credit Advances resulting from drawings thereunder pursuant to Section 2.03(c) and request the issuance of additional Letters of Credit under this Section 2.01(d). SECTION 2.02. Making the Advances. (a) Except as otherwise provided in Section 2.02(b) or 2.03, each Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate Advances, or the first Business Day prior to the date of the proposed Borrowing in the case of a Borrowing consisting of Base Rate Advances, by either Borrower to the Administrative Agent, which shall give to each Appropriate Lender prompt notice thereof by telex or telecopier. Each such notice of a Borrowing (a "Notice of Borrowing") shall be by telephone, confirmed immediately in writing, or telex or telecopier, in substantially the form of Exhibit B hereto, specifying therein the requested (i) name of such Borrower, (ii) date of such Borrowing, (ii) Facility under which such Borrowing is to be made, (iii) Type of Advances comprising such Borrowing, (iv) aggregate amount of such Borrowing and (v) in the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Advance. Each Appropriate Lender shall, before 11:00 A.M. (New York City time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's ratable portion of such Borrowing in accordance with the respective Commitments under the applicable Facility of such Lender and the 30 other Appropriate Lenders. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Appropriate Borrower by crediting the Appropriate Borrower's Account in same day funds; provided, however, that, in the case of any Working Capital Borrowing, the Administrative Agent shall first make a portion of such funds equal to the aggregate principal amount of any Letter of Credit Advances made by the Issuing Bank and by any other Working Capital Lender and outstanding on the date of such Working Capital Borrowing, plus interest accrued and unpaid thereon to and as of such date, available to such Issuing Bank and such other Working Capital Lenders for repayment of such Letter of Credit Advances. (b) Anything in subsection (a) above to the contrary notwithstanding, neither Borrower may select Eurodollar Rate Advances (i) for any initial Borrowing hereunder and during the period from the Effective Date to the Syndication Date (the "Syndication Period"), provided, however, that either Borrower may select Eurodollar Rate Advances for such initial Borrowing or during the Syndication Period, so long as such Borrower indemnifies the Agents and each Lender Party in accordance with Section 9.04(c) and as otherwise provided under the Loan Documents, (ii) for any Borrowing if the aggregate amount of such Borrowing is less than $1,000,000 or (iii) if the obligation of the Appropriate Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.09 or 2.10. (c) The Tranche A Advances may not be outstanding as part of more than ten separate Borrowings, the Tranche B Term Advances may not be outstanding as part of more than five separate Borrowing and the Working Capital Advances may not be outstanding as part of more than ten separate Borrowings. (d) Each Notice of Borrowing shall be irrevocable and binding on the Appropriate Borrower. In the case of any Borrowing that the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrowers shall indemnify each Appropriate Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date. (e) Unless the Administrative Agent shall have received notice from an Appropriate Lender prior to the date of any Borrowing under a Facility under which such Lender has a Commitment that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Appropriate Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and such Borrower severally agree to repay or pay to the Administrative Agent forthwith on demand such corresponding amount and to pay interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid or paid to the Administrative 31 Agent, at (i) in the case of such Borrower, the interest rate applicable at such time under Section 2.07 to Advances comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall pay to the Administrative Agent such corresponding amount, such amount so paid shall constitute such Lender's Advance as part of such Borrowing for all purposes. (f) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing. SECTION 2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit. (a) Request for Issuance. Each Letter of Credit shall be issued upon notice, given not later than 11:00 A.M. (New York City time) on the fifth Business Day prior to the date of the proposed issuance of such Letter of Credit, by a Borrower to the Issuing Bank, which shall give to the Administrative Agent and each Working Capital Lender prompt notice thereof by telex or telecopier. Each such notice of issuance of a Letter of Credit (a "Notice of Issuance") shall be by telephone, confirmed immediately in writing, or telex or telecopier, specifying therein the requested (A) name of the Borrower, (B) date of such issuance (which shall be a Business Day), (C) Available Amount of such Letter of Credit, (D) expiration date of such Letter of Credit, (E) name and address of the beneficiary of such Letter of Credit and (F) form of such Letter of Credit, and shall be accompanied by such application and agreement for letter of credit as such Issuing Bank may specify to such Borrower for use in connection with such requested Letter of Credit (a "Letter of Credit Agreement"). If (x) the requested form of such Letter of Credit is acceptable to the Issuing Bank in its sole discretion and (y) it has not received notice of objection to issuance from Lenders holding at least a majority of the Working Capital Commitments, the Issuing Bank will, upon fulfillment of the applicable conditions set forth in Article III, make such Letter of Credit available to the Appropriate Borrower at its office referred to in Section 9.02 or as otherwise agreed with such Borrower in connection with such issuance. In the event and to the extent that the provisions of any Letter of Credit Agreement shall conflict with this Agreement, the provisions of this Agreement shall govern. (b) Letter of Credit Reports. The Issuing Bank shall furnish (A) to the Administrative Agent on the first Business Day of each week a written report summarizing issuance and expiration dates of Letters of Credit issued by the Issuing Bank during the previous week and drawings during such week under all Letters of Credit issued by the Issuing Bank, (B) to each Working Capital Lender on the first Business Day of each month a written report summarizing issuance and expiration dates of Letters of Credit issued by the Issuing Bank during the preceding month and drawings during such month under all Letters of Credit issued by the Issuing Bank and (C) to the Administrative Agent and each Working Capital Lender on the first Business Day of each calendar quarter a written report setting forth the average daily aggregate Available Amount during the preceding calendar quarter of all Letters of Credit issued by the Issuing Bank. (c) Drawing and Reimbursement. The payment by the Issuing Bank of a draft drawn under any Letter of Credit shall constitute for all purposes of this Agreement the making by such Issuing Bank of a Letter of Credit Advance, which shall be a Base Rate Advance, in the amount of such draft. Upon written demand by the Issuing Bank, with a copy of such demand to the Administrative Agent, each Working Capital Lender shall purchase from the Issuing Bank, and the 32 Issuing Bank shall sell and assign to each such Working Capital Lender, such Lender's Pro Rata Share of such outstanding Letter of Credit Advance as of the date of such purchase, by making available for the account of its Applicable Lending Office to the Administrative Agent for the account of the Issuing Bank, by deposit to the Administrative Agent's Account, in same day funds, an amount equal to the portion of the outstanding principal amount of such Letter of Credit Advance to be purchased by such Lender. Promptly after receipt thereof, the Administrative Agent shall transfer such funds to the Issuing Bank. Each Borrower hereby agrees to each such sale and assignment. Each Working Capital Lender agrees to purchase its Pro Rata Share of an outstanding Letter of Credit Advance on (i) the Business Day on which demand therefor is made by the Issuing Bank, provided that notice of such demand is given not later than 11:00 A.M. (New York City time) on such Business Day, or (ii) the first Business Day next succeeding such demand if notice of such demand is given after such time. Upon any such assignment by the Issuing Bank to any Working Capital Lender of a portion of a Letter of Credit Advance, the Issuing Bank represents and warrants to such other Lender that the Issuing Bank is the legal and beneficial owner of such interest being assigned by it, free and clear of any liens, but makes no other representation or warranty and assumes no responsibility with respect to such Letter of Credit Advance, the Loan Documents or any Loan Party. If and to the extent that any Working Capital Lender shall not have so made the amount of such Letter of Credit Advance available to the Administrative Agent, such Working Capital Lender and the Borrowers severally agree to pay to the Administrative Agent forthwith on demand such amount together with interest thereon, for each day from the date of demand by the Issuing Bank until the date such amount is paid to the Administrative Agent, at the Federal Funds Rate for its account or the account of the Issuing Bank, as applicable. If such Lender shall pay to the Administrative Agent such amount for the account of the Issuing Bank on any Business Day, such amount so paid in respect of principal shall constitute a Letter of Credit Advance made by such Lender on such Business Day for purposes of this Agreement, and the outstanding principal amount of the Letter of Credit Advance made by the Issuing Bank shall be reduced by such amount on such Business Day. (d) Failure to Make Letter of Credit Advances. The failure of any Lender to make the Letter of Credit Advance to be made by it on the date specified in Section 2.03(c) shall not relieve any other Lender of its obligation hereunder to make its Letter of Credit Advance on such date, but no Lender shall be responsible for the failure of any other Lender to make the Letter of Credit Advance to be made by such other Lender on such date. SECTION 2.04. Repayment of Advances. (a) Tranche A Term Advances. On the last Business Day of each calendar quarter specified below, the Borrowers shall jointly and severally repay to the Administrative Agent for the ratable account of the Tranche A Term Lenders an aggregate outstanding principal amount of the Tranche A Term Advances (which amounts shall be reduced as a result of the application of prepayments in accordance with the priorities set forth in Section 2.06) in twelve consecutive installments, each such installment being payable on each such quarterly date during each year indicated below (such installments to aggregate for such year to the percentage set opposite such year of the outstanding Tranche A Term Advances outstanding on September 27, 2002 and to be in equal principal amounts for each such quarterly date for such year): 33 Calendar Quarter Percentage From and including the third quarter of 2002 to and 25% including the second quarter of 2003 From and including the third quarter of 2003 to and 35% including the second quarter of 2004 From and including the third quarter of 2004 to and 40% including the second quarter of 2005 provided, however, that the final principal installment shall be repaid on the Tranche A Termination Date and in any event shall be in an amount equal to the aggregate principal amount of the Tranche A Term Advances outstanding on such date. (b) Tranche B Term Advances. On the last day of each calendar quarter specified below, the Borrowers shall jointly and severally repay to the Administrative Agent for the ratable account of the Tranche B Term Lenders the aggregate outstanding principal amount of the Tranche B Term Advances (which amounts shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.06) in 27 consecutive installments, each such installment being payable on each such quarterly date during each year indicated below (such installments to aggregate for such year to the percentage set opposite such year of the Tranche B Term Advances outstanding on the Effective Date and to be in equal principal amounts for each such quarterly date for such year): Calendar Quarter Percentage From and including the third quarter of 1999 to and 1% including the second quarter of 2005 From and including the third quarter of 2005 to and 94% including the first quarter of 2006 provided, however, that the final principal installment shall be repaid on the Tranche B Termination Date and in any event shall be in an amount equal to the aggregate principal amount of the Tranche B Term Advances outstanding on such date. (c) Working Capital Advances. The Borrowers shall jointly and severally repay to the Administrative Agent for the ratable account of the Working Capital Lenders on the Working Capital Termination Date the aggregate principal amount of the Working Capital Advances then outstanding. (d) Letter of Credit Advances. (i) The Borrowers shall jointly and severally repay to the Administrative Agent for the account of the Issuing Bank on the Working Capital Termination Date the outstanding principal amount of each Letter of Credit Advance made by, and not reimbursed to, the Issuing Bank. 34 (ii) The Obligations of the Borrowers under this Agreement, any Letter of Credit Agreement and any other agreement or instrument relating to any Letter of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, such Letter of Credit Agreement and such other agreement or instrument under all circumstances, including, without limitation, the following circumstances (it being understood that any such payment by the Borrowers is without prejudice to, and does not constitute a waiver of, any rights the Borrowers might have or might acquire as a result of the payment by the Issuing Bank of any draft or the reimbursement by the Borrowers thereof): (A) any lack of validity or enforceability of any Loan Document, any Letter of Credit Agreement, any Letter of Credit or any other agreement or instrument relating thereto (all of the foregoing being, collectively, the "L/C Related Documents"); (B) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations of any Borrower in respect of any L/C Related Document or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents; (C) the existence of any claim, set-off, defense or other right that any Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for which any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction; (D) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (E) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; (F) any exchange, release or non-perfection of any Collateral or other collateral, or any release or amendment or waiver of or consent to departure from the Guaranties or any other guarantee, for all or any of the Obligations of any Borrower in respect of the L/C Related Documents; or (G) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Loan Party or a guarantor. SECTION 2.05. Termination or Reduction of the Commitments. (a) Optional. The Borrowers may, upon at least five Business Days' notice to the Administrative Agent terminate in whole or reduce in part the Unused Tranche A Term Commitments and the Unused Working Capital Commitments; provided, however, that each partial reduction of the Commitments (i) shall be in an aggregate amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) shall be made ratably among the Appropriate Lenders in accordance with 35 their Commitments with respect to such Facility. For the avoidance of doubt, the termination or reduction of the Unused Tranche A Commitments and the Unused Working Capital Commitments pursuant to the preceding sentence shall be deemed to be a termination or reduction, as applicable, in the amount of such termination or reduction of the Tranche A Term Commitments or the Working Capital Commitment, as the case may be. (b) Mandatory. The Facilities shall be automatically and permanently reduced on each date a prepayment thereof is required to be made pursuant to Section 2.06(b)(i) or (ii) in an amount equal to the amount of such prepayment, provided that such reduction of the Facilities shall be made ratably among the Appropriate Lenders in accordance with their relevant Commitments in accordance with the priorities pursuant to Section 2.06(b). SECTION 2.06. Prepayments. (a) Optional. Subject to Section 5.03(a)(ii), the Borrowers may, upon at least one Business Day's notice in the case of Base Rate Advances and three Business Days' notice in the case of Eurodollar Rate Advances, in each case to the Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrowers shall, jointly and severally prepay the outstanding aggregate principal amount of the Advances comprising part of the same Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the aggregate principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof; and (y) if any prepayment of a Eurodollar Rate Advance is made on a date other than the last day of an Interest Period for such Advance, the Borrowers shall also pay any amounts owing pursuant to Section 9.04(c). Each such prepayment shall be applied ratably first to the Term Facilities and to the installments thereof pro rata and second to the Working Capital Facility as set forth in clause (b)(iv) below. (b) Mandatory. (i) Commencing with the Fiscal Year ending December 31, 2002, the Borrowers shall, on the 90th day following the end of such Fiscal Year, jointly and severally prepay an aggregate principal amount of the Advances comprising part of the same Borrowings and, thereafter, deposit an amount in the L/C Cash Collateral Account, in an amount equal to 50% of the amount of Excess Cash Flow for such Fiscal Year. Each such prepayment shall be applied ratably first to the Term Facilities and to the installments thereof pro rata and second to the Working Capital Facility as set forth in clause (iv) below. (ii) The Borrowers shall, on the date of receipt of the Net Cash Proceeds by any Borrower or any of their Subsidiaries from (A) the sale, lease, transfer or other disposition of any assets of any Borrower or any of its Subsidiaries (other than any sale, lease, transfer or other disposition of assets pursuant to clause (i), (ii), or (iv) of Section 5.02(e)) and (B) any Extraordinary Receipt received by or paid to or for the account of any Borrower or any of their Subsidiaries and not otherwise included in clause (A) above, jointly and severally prepay an aggregate principal amount of the Advances comprising part of the same Borrowings and, thereafter, deposit an amount in the L/C Cash Collateral Account, in an amount equal to the amount of such Net Cash Proceeds. Each such prepayment shall be applied ratably first to the Term Facilities and to the installments thereof pro rata and second to the Working Capital Facility as set forth in clause (iv) below. (iii) The Borrowers shall, on each Business Day, jointly and severally pay to the Administrative Agent for deposit in the L/C Cash Collateral Account an 36 amount sufficient to cause the aggregate amount on deposit in the L/C Cash Collateral Account to equal the amount by which the aggregate Available Amount of all Letters of Credit then outstanding exceeds the Letter of Credit Facility on such Business Day. (iv) Prepayments of the Working Capital Facility made pursuant to clause (i) and (ii) above shall be first applied to prepay Letter of Credit Advances then outstanding until such Advances are paid in full, second applied to prepay Working Capital Advances then outstanding comprising part of the same Borrowings until such Advances are paid in full and third deposited in the L/C Cash Collateral Account to cash collateralize 100% of the Available Amount of the Letters of Credit then outstanding; and, in the case of prepayments of the Working Capital Facility required pursuant to clause (i) or (ii) above, the amount remaining (if any) after the prepayment in full of the Advances then outstanding and the 100% cash collateralization of the aggregate Available Amount of Letters of Credit then outstanding (the sum of such prepayment amounts, cash collateralization amounts and remaining amount being referred to herein as the "Reduction Amount") may be retained by the Borrowers and the Working Capital Facility shall be permanently reduced as set forth in Section 2.05(b). Upon the drawing of any Letter of Credit for which funds are on deposit in the L/C Cash Collateral Account, such funds shall be applied to reimburse the Issuing Bank. (v) All prepayments under this subsection (b) shall be made together with accrued interest to the date of such prepayment on the principal amount prepaid. If any payment of Eurodollar Rate Advances otherwise required to be made under this Section 2.06(b) would be made on a day other than the last day of the applicable Interest Period therefor, the Borrowers may direct the Administrative Agent to (and if so directed, the Administrative Agent shall) deposit such payment in the Cash Collateral Account until the last day of the applicable Interest Period at which time the Administrative Agent shall apply the amount of such payment to the prepayment of such Advances; provided, however, that such Advances shall continue to bear interest as set forth in Section 2.07 until the last day of the applicable Interest Period therefor. (c) Term B Opt-Out. The Administrative Agent shall promptly forward to each Term B Lender each Prepayment Notice received by it pursuant to Section 5.03(a)(ii). With respect to any prepayment of the Term Advances, the Administrative Agent shall ratably pay the Tranche A Term Lenders and the Tranche B Term Lenders; provided, however, that any Tranche B Term Lender, at its option, to the extent that any Tranche A Term Advances are then outstanding, may elect not to accept such prepayment (such Lender being a "Declining Lender"), in which event the provisions of the next sentence shall apply. Any Tranche B Term Lender may elect not to accept its ratable share of the prepayment referred to in any Prepayment Notice by giving written notice to the Administrative Agent not later than 11:00 A.M. (New York City time) on the fourth Business Day immediately preceding the scheduled Prepayment Date. On the Prepayment Date, an amount equal to that portion of the Prepayment Amount available to prepay Tranche B Term Lenders (less any amounts that would otherwise be payable to Declining Lenders) shall be applied to prepay Tranche B Term Advances owing to Tranche B Term Lenders other than Declining Lenders and any amounts that would otherwise have been applied to prepay Tranche B Term Advances owing to Declining Lenders shall instead be applied ratably to prepay the remaining Tranche A Term Advances as provided in Sections 2.06(a) and (b); provided, further that on prepayment in full of Term Advances owing to Term Lenders other than Declining Lenders, the remainder of any Prepayment Amount shall be applied ratably to prepay Tranche B Term Advances owing to Declining Lenders. 37 SECTION 2.07. Interest. (a) Scheduled Interest. The Borrowers shall jointly and severally pay interest on the unpaid principal amount of each Advance owing to each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: (i) Base Rate Advances. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (A) the Base Rate in effect from time to time plus (B) the Applicable Margin in effect from time to time, payable in arrears quarterly on the last day of each quarter during such periods and on the date such Base Rate Advance shall be Converted or paid in full. (ii) Eurodollar Rate Advances. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of (A) the Eurodollar Rate for such Interest Period for such Advance plus (B) the Applicable Margin in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full. (b) Default Interest. Upon the occurrence and during the continuance of a payment or bankruptcy Default or any Event of Default, each Borrower shall jointly and severally pay interest on (i) the unpaid principal amount of each Advance owing to each Lender, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable under the Loan Documents that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid, in the case of interest, on the Type of Advance on which such interest has accrued pursuant to clause (a)(i) or (a)(ii) above and, in all other cases, on Base Rate Advances pursuant to clause (a)(i) above. (c) Notice of Interest Period and Interest Rate. Promptly after receipt of a Notice of Borrowing pursuant to Section 2.02(a), a notice of Conversion pursuant to Section 2.09 or a notice of selection of an Interest Period pursuant to the terms of the definition of "Interest Period", the Administrative Agent shall give notice to the Appropriate Borrower and each Appropriate Lender of the applicable Interest Period and the applicable interest rate determined by the Administrative Agent for purposes of clause (a)(i) or (a)(ii) above. SECTION 2.08. Fees. (a) Commitment Fee. The Borrowers shall jointly and severally pay to the Administrative Agent for the account of the Lenders a commitment fee, from the Effective Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender, payable in arrears quarterly on the last Business Day of each calendar quarter, on the available but Unused Tranche A Term Commitment (until August 10, 2000) and the available but Unused Working Capital Commitment (until the Working Capital Termination Date) at the rate expressed as percentage set forth below opposite the 38 percentage per annum on the average daily unused portion of each Appropriate Lender's aggregate available Tranche A Term Commitments and Working Capital Commitments during such quarter: Percentage of Unused Commitments Commitment Fee >75% 1.375% >50% and <75% 1.250% >25% and <50% 1.125% <25% 0.625% provided, however, that any commitment fee accrued with respect to any of the Commitments of a Defaulting Lender during the period prior to the time such Lender became a Defaulting Lender and unpaid at such time shall not be payable by the Borrowers so long as such Lender shall be a Defaulting Lender except to the extent that such commitment fee shall otherwise have been due and payable by the Borrowers prior to such time; and provided further, however, that no commitment fee shall accrue on any of the Commitments of a Defaulting Lender so long as such Lender shall be a Defaulting Lender. (b) Letter of Credit Fees, Etc. (i) The Borrowers shall jointly and severally pay to the Administrative Agent for the account of each Working Capital Lender a commission, payable in arrears quarterly on the last Business Day of each calendar quarter, and on the earliest to occur of the full drawing, expiration, termination or cancellation of any Letter of Credit and on the Working Capital Termination Date, on such Lender's Pro Rata Share of the average daily aggregate Available Amount during such quarter of (A) all Standby Letters of Credit outstanding from time to time at a rate equal to the Applicable Margin in effect from day to day for Eurodollar Rate Advances under the Working Capital Facility and (B) all Trade Letters of Credit then outstanding at a rate equal to the Applicable Margin in effect from day to day for Eurodollar Rate Advances under the Working Capital Facility. (ii) The Borrowers shall jointly and severally pay to the Issuing Bank, for its own account, such commissions, issuance fees, fronting fees, transfer fees and other fees and charges in connection with the issuance or administration of each Letter of Credit as the Borrowers and the Issuing Bank shall agree. (c) Agents' Fees. The Borrowers shall jointly and severally pay to each Agent for its own account such fees as may from time to time be agreed between the Borrower and such Agent. SECTION 2.09. Conversion of Advances. (a) Optional. The Appropriate Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Section 2.07 and Section 2.10, Convert all or any portion of the Advances of one Type comprising the same Borrowing into Advances of the other Type; provided, however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.02(c), no Conversion of any Advances shall result in more separate 39 Borrowings than permitted under Section 2.02(c) and each Conversion of Advances comprising part of the same Borrowing under any Facility shall be made ratably among the Appropriate Lenders in accordance with their Commitments under such Facility. Each such notice of Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances to be Converted and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for such Advances. Each notice of Conversion shall be irrevocable and binding on such Borrower. (b) Mandatory. (i) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $1,000,000, such Advances shall automatically Convert into Base Rate Advances. (ii) If the Appropriate Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Administrative Agent will forthwith so notify such Borrower and the Appropriate Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a one month Eurodollar Rate Advance. (iii) Upon the occurrence and during the continuance of any Default, (x) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (y) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender Party of agreeing to make or of making, funding or maintaining Eurodollar Rate Advances or of agreeing to issue or of issuing or maintaining or participating in Letters of Credit or of agreeing to make or of making or maintaining Letter of Credit Advances (excluding, for purposes of this Section 2.10, any such increased costs resulting from (x) Taxes or Other Taxes (as to which Section 2.12 shall govern) and (y) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender Party is organized or has its Applicable Lending Office or any political subdivision thereof), then the Borrowers shall from time to time, upon demand by such Lender Party (with a copy of such demand to the Administrative Agent), jointly and severally pay to the Administrative Agent for the account of such Lender Party additional amounts sufficient to compensate such Lender Party for such increased cost; provided, however, that a Lender Party claiming additional amounts under this Section 2.10(a) agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost that may thereafter accrue and would not, in the reasonable judgment of such Lender Party, be otherwise disadvantageous to such Lender Party. A certificate as to the amount of such increased cost, and the details of the computation thereof, submitted to the Borrowers by such Lender Party, shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any 40 guideline or request from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the amount of capital required or expected to be maintained by any Lender Party or any corporation controlling such Lender Party as a result of or based upon the existence of such Lender Party's commitment to lend or to issue or participate in Letters of Credit hereunder and other commitments of such type or the issuance or maintenance of or participation in the Letters of Credit (or similar contingent obligations), then, upon demand by such Lender Party or such corporation (with a copy of such demand to the Administrative Agent), the Borrowers shall jointly and severally pay to the Administrative Agent for the account of such Lender Party, from time to time as specified by such Lender Party, additional amounts sufficient to compensate such Lender Party in the light of such circumstances, to the extent that such Lender Party reasonably determines such increase in capital to be allocable to the existence of such Lender Party's commitment to lend or to issue or participate in Letters of Credit hereunder or to the issuance or maintenance of or participation in any Letters of Credit. A certificate as to such amounts, and the details of the computation thereof, submitted to the Borrowers by such Lender Party shall be conclusive and binding for all purposes, absent manifest error. (c) If, with respect to any Eurodollar Rate Advances under any Facility, Lenders owed at least 50% of the then aggregate unpaid principal amount thereof notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Lenders of making, funding or maintaining their Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrowers and the Appropriate Lenders, whereupon (i) each such Eurodollar Rate Advance under such Facility will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrowers that such Lenders have determined that the circumstances causing such suspension no longer exist. (d) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder, then, on notice thereof and demand therefor by such Lender to the Borrowers through the Administrative Agent, (i) each Eurodollar Rate Advance under each Facility under which such Lender has a Commitment will automatically, upon such demand, Convert into a Base Rate Advance and (ii) the obligation of the Appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrowers that such Lender has determined that the circumstances causing such suspension no longer exist; provided, however, that, before making any such demand, such Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Eurodollar Lending Office if the making of such a designation would allow such Lender or its Eurodollar Lending Office to continue to perform its obligations to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances and would not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. SECTION 2.11. Payments and Computations. (a) The Borrowers shall make each payment hereunder and under the Notes, irrespective of any right of counterclaim or set-off (except as otherwise provided in Section 2.15), not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the 41 Administrative Agent at the Administrative Agent's Account in same day funds, with payments being received by the Administrative Agent after such time being deemed to have been received on the next succeeding Business Day. The Administrative Agent will promptly thereafter cause like funds to be distributed (i) if such payment by any such Borrower is in respect of principal, interest, commitment fees or any other Obligation then payable hereunder and under the Notes to more than one Lender Party, to such Lender Parties for the account of their respective Applicable Lending Offices ratably in accordance with the amounts of such respective Obligations then payable to such Lender Parties and (ii) if such payment by any such Borrower is in respect of any Obligation then payable hereunder to one Lender Party, to such Lender Party for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 9.07(d), from and after the effective date of such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender Party assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) The Borrowers hereby authorize each Lender Party and each of its Affiliates, if and to the extent payment owed to such Lender Party is not made when due hereunder or, in the case of a Lender, under the Note held by such Lender, to charge from time to time, to the fullest extent permitted by law, against any or all of the Borrower's accounts with such Lender Party or such Affiliate any amount so due. (c) All computations of interest based on the Base Rate shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or the Federal Funds Rate and of fees and Letter of Credit commissions shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, fees or commissions are payable. Each determination by the Administrative Agent of an interest rate, fee or commission hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or commitment fee, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (e) Unless the Administrative Agent shall have received notice from the Borrowers prior to the date on which any payment is due to any Lender Party hereunder that any such Borrower will not make such payment in full, the Administrative Agent may assume that any such Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each such Lender Party on such due date an amount equal to the amount then due such Lender Party. If and to the extent any such Borrower shall not have so made such payment in full to the Administrative Agent, each such Lender Party shall repay to the 42 Administrative Agent forthwith on demand such amount distributed to such Lender Party together with interest thereon, for each day from the date such amount is distributed to such Lender Party until the date such Lender Party repays such amount to the Administrative Agent, at the Federal Funds Rate. (f) If the Administrative Agent receives funds for application to the Obligations under the Loan Documents under circumstances for which the Loan Documents do not specify the Advances or the Facility to which, or the manner in which, such funds are to be applied, the Administrative Agent may, but shall not be obligated to, elect to distribute such funds to each Lender Party ratably in accordance with such Lender Party=s proportionate share of the principal amount of all outstanding Advances and the Available Amount of all Letters of Credit then outstanding, in repayment or prepayment of such of the outstanding Advances or other Obligations owed to such Lender Party, and for application to such principal installments, as the Administrative Agent shall direct. SECTION 2.12. Taxes. (a) Any and all payments by the Borrowers hereunder or under the Notes shall be made, in accordance with Section 2.11, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, (i) in the case of each Lender Party and each Agent, taxes that are imposed on its overall net income by the United States and taxes that are imposed on its overall net income (and any franchise taxes) by the state or foreign jurisdiction under the laws of which such Lender Party or such Agent, as the case may be, is organized or any political subdivision thereof and, (ii) in the case of each Lender Party, taxes that are imposed on its overall net income (and any franchise taxes) by the state or foreign jurisdiction of such Lender Party's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder or under the Notes being hereinafter referred to as "Taxes"). If the Borrowers shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender Party or any Agent, (i) the sum payable by the Borrowers shall be increased as may be necessary so that after the Borrowers and the Administrative Agent have made all required deductions (including deductions applicable to additional sums payable under this Section 2.12) such Lender Party or such Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall make all such deductions and (iii) the Borrowers shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Borrowers shall pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, performance under, or otherwise with respect to, this Agreement, the Letters of Credit or the Notes (hereinafter referred to as "Other Taxes"). (c) The Borrowers shall indemnify each Lender Party and each Agent for and hold them harmless against the full amount of Taxes and Other Taxes, and for the full amount of taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.12, imposed on or paid by such Lender Party or such Agent (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Lender Party or such Agent (as the case may be) makes written demand therefor. Any such demand shall show in reasonable detail the amount payable and the calculations used to determine such amount. 43 (d) Within 30 days after the date of any payment of Taxes, the Borrowers shall furnish to the Administrative Agent, at its address referred to in Section 9.02, the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder or under the Notes by or on behalf of the Borrowers through an account or branch outside the United States or by or on behalf of the Borrowers by a payor that is not a United States person, if the Borrowers determine that no Taxes are payable in respect thereof, the Borrowers shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at such address, an opinion of counsel acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of subsections (d) and (e) of this Section 2.12, the terms "United States" and "United States person" shall have the meanings specified in Section 7701 of the Internal Revenue Code. (e) Each Lender Party organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender Party and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender Party in the case of each other Lender Party, and from time to time thereafter as requested in writing by the Borrowers (but only so long thereafter as such Lender Party remains lawfully able to do so), provide each of the Administrative Agent and the Borrowers with two original Internal Revenue Service forms 1001, 4224 or form W-8 (and, if such Lender Party delivers a form W-8, a certificate representing that such Lender Party is not a "bank" for purposes of Section 881(c) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Borrowers and is not a controlled foreign corporation related to the Borrowers (within the meaning of Section 864(d)(4) of the Internal Revenue Code)), as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender Party is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes or, in the case of a Lender Party providing a form W-8, certifying that such Lender Party is a foreign corporation, partnership, estate or trust. If the forms provided by a Lender Party at the time such Lender Party first becomes a party to this Agreement indicate a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender Party provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such forms; provided, however, that if, at the effective date of the Assignment and Acceptance pursuant to which a Lender Party becomes a party to this Agreement, the Lender Party assignor was entitled to payments under subsection (a) of this Section 2.12 in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender Party assignee on such date. If any form or document referred to in this subsection (e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form 1001, 4224 or W-8 (or the related certificate described above), that the applicable Lender Party reasonably considers to be confidential, such Lender Party shall give notice thereof to the Borrowers and shall not be obligated to include in such form or document such confidential information. (f) For any period with respect to which a Lender Party has failed to provide the Borrowers with the appropriate form described in subsection (e) above (other than if such failure is due to a change in law occurring after the date on which a form originally was required to be provided or if such form 44 otherwise is not required under subsection (e) above), such Lender Party shall not be entitled to indemnification under subsection (a) or (c) of this Section 2.12 with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should a Lender Party become subject to Taxes because of its failure to deliver a form required hereunder, the Borrowers shall take such steps as such Lender Party shall reasonably request to assist such Lender Party to recover such Taxes. (g) Any Lender Party claiming any additional amounts payable pursuant to this Section 2.12 agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Eurodollar Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender Party, be disadvantageous to such Lender Party. SECTION 2.13. Sharing of Payments, Etc. If any Lender Party shall obtain at any time any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise, other than as a result of an assignment pursuant to Section 9.07) (a) on account of Obligations due and payable to such Lender Party hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations due and payable to such Lender Party at such time to (ii) the aggregate amount of the Obligations due and payable to all Lender Parties hereunder and under the Notes at such time) of payments on account of the Obligations due and payable to all Lender Parties hereunder and under the Notes at such time obtained by all the Lender Parties at such time or (b) on account of Obligations owing (but not due and payable) to such Lender Party hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations owing to such Lender Party at such time to (ii) the aggregate amount of the Obligations owing (but not due and payable) to all Lender Parties hereunder and under the Notes at such time) of payments on account of the Obligations owing (but not due and payable) to all Lender Parties hereunder and under the Notes at such time obtained by all of the Lender Parties at such time, such Lender Party shall forthwith purchase from the other Lender Parties such interests or participating interests in the Obligations due and payable or owing to them, as the case may be, as shall be necessary to cause such purchasing Lender Party to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender Party, such purchase from each other Lender Party shall be rescinded and such other Lender Party shall repay to the purchasing Lender Party the purchase price to the extent of such Lender Party's ratable share (according to the proportion of (i) the purchase price paid to such Lender Party to (ii) the aggregate purchase price paid to all Lender Parties) of such recovery together with an amount equal to such Lender Party's ratable share (according to the proportion of (i) the amount of such other Lender Party's required repayment to (ii) the total amount so recovered from the purchasing Lender Party) of any interest or other amount paid or payable by the purchasing Lender Party in respect of the total amount so recovered. Each Borrower agrees that any Lender Party so purchasing an interest or participating interest from another Lender Party pursuant to this Section 2.13 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such interest or participating interest, as the case may be, as fully as if such Lender Party were the direct creditor of such Borrower in the amount of such interest or participating interest, as the case may be. SECTION 2.14. Use of Proceeds. The proceeds of the Advances and issuances of Letters of Credit shall be available (and the Borrowers agree that they shall 45 use such proceeds and Letters of Credit) solely for the following: (a) in the case of the Tranche A Term Advances, (i) to pay transaction costs in connection with the negotiation, syndication, execution and delivery of the Loan Documents; (ii) the purchase of certain receivables (other than Excluded Receivables) from ICG Telecom Group, Inc. and its Subsidiaries, subject to a maximum purchase price of $50,000,000, (b) in the case of the Term Advances, to finance the cost (including, without limitation, with respect to the cost of design, development, acquisition construction, installation, improvement, transportation or integration), to acquire equipment, inventory, assets, services and related costs in connection with the Internet Service Business or Telecommunications Business (including, without limitation, acquisitions by way of acquisitions of real property, leasehold improvements, licenses, rights-of-use, Capitalized Leases, installment sales and acquisitions of the capital stock of an entity that becomes a Restricted Subsidiary to the extent of the fair market value of the equipment, inventory or assets so acquired (but excluding goodwill)) and (c) in the case of the Working Capital Facility, for working capital purposes. SECTION 2.15. Defaulting Lenders. (a) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Advance to the Appropriate Borrower and (iii) such Borrower shall be required to make any payment hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then such Borrower may, so long as no Default shall occur or be continuing at such time and to the fullest extent permitted by applicable law, set off and otherwise apply the Obligation of it to make such payment to or for the account of such Defaulting Lender against the obligation of such Defaulting Lender to make such Defaulted Advance. In the event that, on any date, the Appropriate Borrower shall so set off and otherwise apply its obligation to make any such payment against the obligation of such Defaulting Lender to make any such Defaulted Advance on or prior to such date, the amount so set off and otherwise applied by such Borrower shall constitute for all purposes of this Agreement and the other Loan Documents an Advance by such Defaulting Lender made on the date of such setoff. Such Advance shall be considered, for all purposes of this Agreement, to comprise part of the Borrowing in connection with which such Defaulted Advance was originally required to have been made pursuant to Section 2.01, even if the other Advances comprising such Borrowing shall be Eurodollar Rate Advances on the date such Advance is deemed to be made pursuant to this subsection (a). The Appropriate Borrower shall notify the Administrative Agent at any time such Borrower exercises its right of set-off pursuant to this subsection (a) and shall set forth in such notice (A) the name of the Defaulting Lender and the Defaulted Advance required to be made by such Defaulting Lender and (B) the amount set off and otherwise applied in respect of such Defaulted Advance pursuant to this subsection (a). Any portion of such payment otherwise required to be made by the Appropriate Borrower to or for the account of such Defaulting Lender which is paid by such Borrower, after giving effect to the amount set off and otherwise applied by such Borrower pursuant to this subsection (a), shall be applied by the Administrative Agent as specified in subsection (b) or (c) of this Section 2.15. (b) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to any Agent or any of the other Lender Parties and (iii) the Borrowers shall make any payment hereunder or under any other Loan Document to the Administrative Agent for the account of such Defaulting Lender, then the Administrative Agent may, on its behalf or on behalf of such other Agents or such other Lender Parties and to the fullest extent permitted by applicable law, apply at such time the amount so paid by any of such Borrowers to or for the account of such Defaulting Lender to the payment of each such Defaulted Amount to the extent required to pay such Defaulted Amount. In the event that the Administrative 46 Agent shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the other Loan Documents payment, to such extent, of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Agents or such other Lender Parties, ratably in accordance with the respective portions of such Defaulted Amounts payable at such time to the Administrative Agent, such other Agents and such other Lender Parties and, if the amount of such payment made by the Borrowers shall at such time be insufficient to pay all Defaulted Amounts owing at such time to the Administrative Agent, such other Agents and such other Lender Parties, in the following order of priority: (i) first, to the Agents for any Defaulted Amounts then owing to the Agents, ratably in accordance with such respective Defaulted Amounts then owing to the Agents; and (ii) second, to any other Lender Parties for any Defaulted Amounts then owing to such other Lender Parties, ratably in accordance with such respective Defaulted Amounts then owing to such other Lender Parties. Any portion of such amount paid by the Borrowers for the account of such Defaulting Lender remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this subsection (b), shall be applied by the Administrative Agent as specified in subsection (c) of this Section 2.15. (c) In the event that, at any one time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance or a Defaulted Amount and (iii) the Borrowers, any Agent or any other Lender Party shall be required to pay or distribute any amount hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then the Borrowers or such Agent or such other Lender Party shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow or the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this subsection (c) shall be deposited by the Administrative Agent in such account as the Administrative Agent shall designate in writing to the Borrowers and the Defaulting Lender, in the name and under the control of the Administrative Agent, but subject to the provisions of this subsection (c). The terms applicable to such account, including the rate of interest payable with respect to the credit balance of such account from time to time, shall be the Administrative Agent's standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the provisions of, this subsection (c). The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow from time to time to the extent necessary to make any Advances required to be made by such Defaulting Lender and to pay any amount payable by such Defaulting Lender hereunder and under the other Loan Documents to the Administrative Agent or any other Lender Party, as and when such Advances or amounts are required to be made or paid and, if the amount so held in escrow shall at any time be insufficient to make and pay all such Advances and amounts required to be made or paid at such time, in the following order of priority: 47 (i) first, to the Agents for any amounts then due and payable by such Defaulting Lender to the Agents hereunder, ratably in accordance with such amounts then due and payable to the Agents; (ii) second, to any other Lender Parties for any amount then due and payable by such Defaulting Lender to such other Lender Parties hereunder, ratably in accordance with such respective amounts then due and payable to such other Lender Parties; and (iii) third, to the Borrowers for any Advance then required to be made by such Defaulting Lender pursuant to a Commitment of such Defaulting Lender. In the event that any Lender Party that is a Defaulting Lender shall, at any time, cease to be a Defaulting Lender, any funds held by the Administrative Agent in escrow at such time with respect to such Lender Party shall be distributed by the Administrative Agent to such Lender Party and applied by such Lender Party to the Obligations owing to such Lender Party at such time under this Agreement and the other Loan Documents ratably in accordance with the respective amounts of such Obligations outstanding at such time. (d) The rights and remedies against a Defaulting Lender under this Section 2.15 are in addition to other rights and remedies that the Borrowers may have against such Defaulting Lender with respect to any Defaulted Advance and that any Agent or any Lender Party may have against such Defaulting Lender with respect to any Defaulted Amount. (e) Notwithstanding anything in this Section 2.15 to the contrary, upon any payment by the Borrowers hereunder or under any other Loan Documents for the account of a Defaulting Lender, the Administrative Agent and the Defaulting Lender shall treat such payment as having been applied in the manner in which the Borrower intended for purposes of calculating interest or commitment fees owed by the Borrowers. ARTICLE III CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT SECTION 3.01. Conditions Precedent to Initial Extension of Credit. The obligation of each Lender to make an Advance or of the Issuing Bank to issue a Letter of Credit on the occasion of the Initial Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent before or concurrently with the Initial Extension of Credit: 48 (a) The Administrative Agent shall have received on or before the day of the Initial Extension of Credit the following, each dated such day (unless otherwise specified), in form and substance satisfactory to the Lender Parties (unless otherwise specified) and (except for the Notes) in sufficient copies for each Lender Party: (i) The Notes payable to the Lenders or their registered assigns. (ii) A security agreement in substantially the form of Exhibit D hereto (together with each other security agreement and security agreement supplement delivered pursuant to Section 5.01(j), in each case as amended, the "Security Agreement"), duly executed by each Loan Party thereto; (A) certificates representing the Pledged Shares referred to therein accompanied by undated stock powers executed in blank and instruments evidencing the Pledged Debt indorsed in blank, (B) acknowledgment copies or stamped receipt copies of proper financing statements, duly filed on or before the day of the Initial Extension of Credit under the Uniform Commercial Code of all jurisdictions that the Administrative Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement, covering the Collateral described in the Security Agreement, (C) completed requests for information, dated on or before the date of the Initial Extension of Credit, listing the financing statements referred to in clause (B) above and all other effective financing statements filed in the jurisdictions referred to in clause (B) above that name any Loan Party as debtor, together with copies of such other financing statements, (D) evidence of the completion of all other recordings and filings of or with respect to the Security Agreement that the Administrative Agent may deem necessary or desirable in order to perfect and protect the Liens created thereby, (E) evidence of the insurance required by the terms of the Security Agreement, (F) copies of the Assigned Agreements referred to in the Security Agreement, together with a consent to such assignment, in substantially the form of Exhibit B to the Security Agreement, duly executed by each party to such Assigned Agreements other than the Loan Parties, (G) the Pledged Account Letters referred to in the Security Agreement, duly executed by each Pledged Account Bank referred to in the Security Agreement, and 49 (H) evidence that all other action that the Administrative Agent may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement have been taken (including, without limitation, receipt of duly executed payoff letters, UCC-3 termination statements and landlords' and bailees' waiver and consent agreements). (iii) A guaranty in substantially the form of Exhibit E hereto (together with each other guaranty and guaranty supplement delivered pursuant to Section 5.01(j), in each case as amended, the "Subsidiary Guaranty"), duly executed by each Subsidiary Guarantor. (iv) A guaranty duly executed by the Parent. (v) Deeds of trust, trust deeds, mortgages, leasehold mortgages and leasehold deeds of trust in form and substance satisfactory to the Administrative Agent and covering the properties listed on Schedules 4.01(v) and 4.01(w) hereto (together with the Assignments of Leases and Rents referred to therein and each other mortgage delivered pursuant to Section 5.01(j), in each case as amended, the "Mortgages"), duly executed by the appropriate Loan Party, together with: (A) evidence that counterparts of the Mortgages have been duly recorded on or before the day of the Initial Extension of Credit in all filing or recording offices that the Administrative Agent may deem necessary or desirable in order to create a valid first and subsisting Lien on the property described therein in favor of the Collateral Agent for the benefit of the Secured Parties and that all filing and recording taxes and fees have been paid, (B) fully paid American Land Title Association Lender's Extended Coverage title insurance policies (the "Mortgage Policies") in form and substance, with endorsements and in amount acceptable to the Administrative Agent, issued, coinsured and reinsured by title insurers acceptable to the Administrative Agent, insuring the Mortgages to be valid first and subsisting Liens on the real property described therein, free and clear of all defects (including, but not limited to, mechanics' and materialmen's Liens) and encumbrances, excepting only Permitted Encumbrances, and providing for such other affirmative insurance (including endorsements for future advances under the Loan Documents and for mechanics' and materialmen's Liens) and such coinsurance and direct access reinsurance as the Administrative Agent may deem necessary or desirable, (C) American Land Title Association form surveys, dated no more than 30 days before the day of the Initial Extension of Credit, certified to the Administrative Agent and the issuer of the Mortgage Policies in a manner satisfactory to the Administrative Agent by a land surveyor duly registered and licensed in the States in which the real property described in 50 such surveys is located and acceptable to the Administrative Agent, showing all buildings and other improvements, any off-site improvements, the location of any easements, parking spaces, rights of way, building set-back lines and other dimensional regulations and the absence of encroachments, either by such improvements or on to such property, and other defects, other than encroachments and other defects acceptable to the Administrative Agent, (D) engineering, soils and other reports as to the real properties described in the Mortgages, in form and substance and from professional firms acceptable to the Administrative Agent, (E) the Assignments of Leases and Rents referred to in the Mortgages, duly executed by the appropriate Loan Party, (F) such consents and agreements of lessors and other third parties, and such estoppel letters and other confirmations, as the Administrative Agent may deem necessary or desirable, (G) evidence of the insurance required by the terms of the Mortgages, (H) evidence that all other action that the Administrative Agent may deem necessary or desirable in order to create valid first and subsisting Liens on the property described in the Mortgages has been taken. (vi) Certified copies of the resolutions of the Board of Directors of each Loan Party approving the Transaction and each Transaction Document to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental and other third party approvals and consents, if any, with respect to the Transaction and each Transaction Document to which it is or is to be a party. (vii) To the extent such Secretary of State customarily provides such certificates, a copy of a certificate of the Secretary of State of the jurisdiction of incorporation of each Loan Party, dated reasonably near the date of the Initial Extension of Credit, certifying (A) as to a true and correct copy of the charter of such Loan Party and each amendment thereto on file in such Secretary's office and (B) that (1) such amendments are the only amendments to such Loan Party's charter on file in such Secretary's office and (2) such Loan Party has paid all franchise taxes, if any, to the date of such certificate and (C) such Loan Party is duly incorporated and in good standing or presently subsisting under the laws of the State of the jurisdiction of its incorporation. (viii) To the extent such Secretary of State customarily provides such certificates, a copy of a certificate of the Secretary of State of each relevant jurisdiction, dated reasonably near the date of the Initial Extension of Credit, stating that each Loan Party is duly qualified and in good standing as a foreign corporation in such State and has filed all annual reports required to be filed to the date of such certificate. 51 (ix) A certificate of each Loan Party, signed on behalf of such Loan Party by its President or a Vice President and its Secretary or any Assistant Secretary, dated the date of the Initial Extension of Credit (the statements made in which certificate shall be true on and as of the date of the Initial Extension of Credit), certifying as to (A) the absence of any amendments to the charter of such Loan Party since the date of the Secretary of State's certificate referred to in Section 3.01(a)(viii), (B) a true and correct copy of the bylaws of such Loan Party as in effect on the date on which the resolutions referred to in Section 3.01(a)(vi) were adopted and on the date of the Initial Extension of Credit, (C) the due incorporation and good standing or valid existence of such Loan Party as a corporation organized under the laws of the jurisdiction of its incorporation, and the absence of any proceeding for the dissolution or liquidation of such Loan Party, (D) the truth of the representations and warranties contained in the Loan Documents as though made on and as of the date of the Initial Extension of Credit and (E) the absence of any event occurring and continuing, or resulting from the Initial Extension of Credit, that constitutes a Default. (x) A certificate of the Secretary or an Assistant Secretary of each Loan Party certifying the names and true signatures of the officers of such Loan Party authorized to sign each Transaction Document to which it is or is to be a party and the other documents to be delivered hereunder and thereunder. (xi) Certified copies of each of the Related Documents, duly executed by the parties thereto and in form and substance satisfactory to the Lender Parties, together with all agreements, instruments and other documents delivered in connection therewith as the Administrative Agent shall request. (xii) Certificates, in substantially the form of Exhibit F hereto, attesting to the Solvency of each Loan Party before and after giving effect to the Transaction, from its Chief Financial Officer. (xiii) Evidence of insurance naming the Collateral Agent as additional insured and loss payee with such responsible and reputable insurance companies or associations, and in such amounts and covering such risks, as is satisfactory to the Lender Parties. (xiv) Certified copies of all Material Contracts of each Loan Party and its Subsidiaries as the Administrative Agent shall request. (xv) A Notice of Borrowing or Notice of Issuance, as applicable, and a Borrowing Base Certificate relating to the Initial Extension of Credit. (xvi) Such financial, business and other information regarding each Loan Party and its Subsidiaries as the Lender Parties shall have requested, including, without limitation, information as to possible contingent liabilities, tax matters, environmental matters, obligations under Plans, Multiemployer Plans and Welfare Plans, collective bargaining agreements and other arrangements with employees, audited annual financial statements dated December 31, 1998, interim financial statements dated the end of the most recent 52 fiscal quarter for which financial statements are available (or, in the event the Lender Parties' due diligence review reveals material changes since such financial statements, as of a later date within 45 days of the day of the Initial Extension of Credit), pro forma financial statements as to the Borrower and forecasts prepared by management of the Company, in form and substance satisfactory to the Lender Parties, of balance sheets, income statements and cash flow statements on a quarterly basis for the first year following the day of the Initial Extension of Credit and on an annual basis for each year thereafter until December 31, 2004. (xvii) A favorable opinion of Thelen Reid & Priest LLP, counsel for the Loan Parties, in substantially the form of Exhibit G hereto and as to such other matters as any Lender Party through the Administrative Agent may reasonably request. (xviii) Favorable opinion of Sherman & Howard, local counsel to the Loan Parties in the State of Colorado, in substantially the form of Exhibit H hereto or in such other forms as any Lender Party through the Administrative Agent may reasonably request. (b) The Lender Parties shall be satisfied with the corporate and legal structure and capitalization of each Loan Party and each of its Subsidiaries the Equity Interests in which Subsidiaries is being pledged pursuant to the Loan Documents, including the terms and conditions of the charter, bylaws and each class of Equity Interest in each Loan Party and each such Subsidiary and of each agreement or instrument relating to such structure or capitalization. (c) Before giving effect to the transactions contemplated by the Transaction Documents, there shall have occurred no Material Adverse Change since December 31, 1998. (d) There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries pending or threatened before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of any Transaction Document or the consummation of the transactions contemplated thereby. (e) All governmental and third party consents and approvals necessary in connection with the Transaction Documents shall have been obtained (without the imposition of any conditions that are not acceptable to the Lender Parties) and shall remain in effect; all applicable waiting periods in connection with the transactions contemplated by the Transaction Documents shall have expired without any action being taken by any competent authority, and no law or regulation shall be applicable in the judgment of the Lender Parties, in each case that restrains, prevents or imposes materially adverse conditions upon the Transaction or the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them. (f) The Lender Parties shall have completed a due diligence investigation of the Parent and its Subsidiaries in scope, and with results, satisfactory to the Lender Parties, and shall have been given such 53 access to the management, records, books of account, contracts and properties of the Parent and its Subsidiaries and shall have received such financial, business and other information regarding each of the foregoing persons as they shall have requested, including, without limitation, information as to possible contingent liabilities, tax matters, collective bargaining agreements and other arrangements with employees, annual financial statements dated December 31, 1998, interim financial statements dated the end of the most recent fiscal quarter for which financial statements are available (or, in the event the Lenders' due diligence review reveals material changes since such financial statements, as of a later date within 45 days of the Effective Date), pro forma consolidated financial statements as the Borrowers, the Parent and their Subsidiaries, and forecasts prepared by management of the Borrowers and the Parent, in a form satisfactory to the Lender Parties, of balance sheets and income statements, and nothing shall have come to the attention of the Lender Parties during the course of such due diligence investigation to lead them to believe that any information provided to the Lender Parties was or has become misleading, incorrect or incomplete in any material respect. (g) The Borrower shall have paid all accrued fees of the Agents and the Lender Parties and all accrued expenses of the Agents (including the accrued fees and expenses of counsel to the Administrative Agent. (h) The Related Documents shall be in full force and effect. SECTION 3.02. Conditions Precedent to Each Borrowing and Issuance and Renewal. The obligation of each Appropriate Lender to make an Advance (other than a Letter of Credit Advance made by the Issuing Bank Lender pursuant to Section 2.03(c) on the occasion of each Borrowing (including the initial Borrowing), and the obligation of the Issuing Bank to issue a Letter of Credit (including the initial issuance) or renew a Letter of Credit, shall be subject to the further conditions precedent that on the date of such Borrowing or issuance or renewal (a) the following statements shall be true and the acceptance by the Borrower of the proceeds of such Borrowing or of such Letter of Credit or the renewal of such Letter of Credit shall constitute a representation and warranty by the Borrower that both on the date of such notice and on the date of such Borrowing or issuance or renewal such statements are true): (i) the representations and warranties contained in each Loan Document are correct on and as of such date, before and after giving effect to such Borrowing or issuance or renewal and to the application of the proceeds therefrom, as though made on and as of such date, other than any such representations or warranties that, by their terms, refer to a specific date other than the date of such Borrowing or issuance or renewal, in which case as of such specific date; (ii) no Default has occurred and is continuing, or would result from such Borrowing or issuance or renewal or from the application of the proceeds therefrom; and (iii) for each Advance or issuance or renewal of any Letter of Credit, the sum of the Loan Values of the Eligible Collateral exceeds the aggregate principal amount of the Advances plus the aggregate Available Amount of all Letters of Credit to be outstanding after giving effect to such Advance or issuance or renewal, respectively; 54 and (b) the Administrative Agent shall have received (i) a Borrowing Base Certificate signed by a duly authorized officer of the Appropriate Borrower dated the date of such Borrowing or issuance or renewal; and (ii) such other approvals, opinions or documents as any Appropriate Lender through the Administrative Agent may reasonably request. SECTION 3.03. Determinations Under Section 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Lender Party shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to the Lender Parties unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender Party prior to the Initial Extension of Credit specifying its objection thereto and, if the Initial Extension of Credit consists of a Borrowing, such Lender Party shall not have made available to the Administrative Agent such Lender Party's ratable portion of such Borrowing. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrower. The Parent and each Borrower represents and warrants as follows: (a) Each Loan Party and each of its Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, (ii) is duly qualified and in good standing as a foreign corporation in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed could not be reasonably likely to have a Material Adverse Effect and (iii) has all requisite corporate power and authority (including, without limitation, all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted. All of the outstanding Equity Interests in each Borrower has been validly issued, is fully paid and non-assessable and is owned by the Parent free and clear of all Liens, except those created under the Collateral Documents. (b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list of all Subsidiaries of each Loan Party, showing as of the date hereof (as to each such Subsidiary) the jurisdiction of its incorporation, the number of shares of each class of its Equity Interests authorized, and the number outstanding, on the date hereof and the percentage of each such class of its Equity Interests owned (directly or indirectly) by such Loan Party and the number of shares covered by all outstanding options, warrants, rights of conversion or purchase and similar rights at the date hereof. All of the outstanding Equity Interests in each Loan Party's Subsidiaries has been validly issued, are fully paid and non-assessable and are owned by such Loan Party or one or more of its Subsidiaries free and clear of all Liens, except those created under the Collateral Documents. 55 (c) The execution, delivery and performance by each Loan Party of each Transaction Document to which it is or is to be a party, and the consummation of the Transaction, are within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Loan Party's charter or bylaws, (ii) violate any law, rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default or require any payment to be made under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties in such a manner as would be reasonably likely to have a Material Adverse Effect or (iv) except for the Liens created under the Loan Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which could be reasonably likely to have a Material Adverse Effect. (d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by any Loan Party of any Transaction Document to which it is or is to be a party, or for the consummation of the Transaction, (ii) the grant by any Loan Party of the Liens granted by it pursuant to the Collateral Documents, (iii) the perfection or maintenance of the Liens created under the Collateral Documents (including the first priority nature thereof) or (iv) the exercise by any Agent or any Lender Party of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, except for the authorizations, approvals, actions, notices and filings referred to herein or listed on Schedule 4.01(d) hereto, all of which have been duly obtained, taken, given or made and are in full force and effect. All applicable waiting periods in connection with the Transaction have expired without any action having been taken by any competent authority restraining, preventing or imposing materially adverse conditions upon the Transaction or the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them. (e) This Agreement has been, and each other Transaction Document when delivered hereunder will have been, duly executed and delivered by each Loan Party party thereto. This Agreement is, and each other Transaction Document when delivered hereunder will be, the legal, valid and binding obligation of each Loan Party party thereto, enforceable against such Loan Party in accordance with its terms. (f) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, including any Environmental Action, pending or threatened before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of any Transaction Document or the consummation of the Transaction. 56 (g) The Consolidated and consolidating balance sheets of the Parent and its Subsidiaries as at December 31, 1998, and the related Consolidated and consolidating statements of income and Consolidated statement of cash flows of the Parent and its Subsidiaries for the fiscal year then ended, accompanied by an unqualified opinion of KPMG Peat Marwick LLP, independent public accountants, and the Consolidated and consolidating unaudited balance sheets of the Parent and its Subsidiaries as at June 30, 1999, and the related unaudited Consolidated and consolidating statements of income and Consolidated statement of cash flows of the Parent and its Subsidiaries for the six months then ended, duly certified by the Chief Financial Officer of the Parent, copies of which have been furnished to each Lender Party, in each case fairly present, subject, in the case of said balance sheet as at June 30, 1999, and said statements of income and cash flows for the six months then ended, to year-end audit adjustments, the Consolidated and consolidating financial condition of the Parent and its Subsidiaries as at such dates and the Consolidated and consolidating results of operations of the Parent and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles applied on a consistent basis, and since December 31, 1998, there has been no Material Adverse Change. (h) The Consolidated and consolidating forecasted balance sheets, statements of income and statements of cash flows of the Parent and its Subsidiaries delivered to the Lender Parties pursuant to Section 3.01(a)(xvi) or 5.03 were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Parent's best estimate of its future financial performance. (i) Neither the Pre-Commitment Information nor any other information, exhibit or report furnished by or on behalf of any Loan Party to any Agent or any Lender Party in connection with the negotiation and syndication of the Loan Documents or pursuant to the terms of the Loan Documents contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading. (j) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance or drawings under any Letter of Credit will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. (k) Neither any Loan Party nor any of its Subsidiaries is an "investment company", or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. Neither any Loan Party nor any of its Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935, as amended. Neither the making of any Advances, nor the issuance of any Letters of Credit, nor the application of the proceeds or repayment thereof by the Borrower, nor the consummation of the other transactions contemplated by the Transaction Documents, will violate any provision of any such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. 57 (l) Neither any Loan Party nor any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction that could reasonably be expected to have a Material Adverse Effect. (m) All filings and other actions necessary or desirable to perfect and protect the security interest in the Collateral created under the Collateral Documents have been duly made or taken and are in full force and effect, and the Collateral Documents create in favor of the Collateral Agent for the benefit of the Secured Parties a valid and, together with such filings and other actions, perfected first priority security interest in the Collateral, securing the payment of the Secured Obligations, and all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken. The Loan Parties are the legal and beneficial owners of the Collateral free and clear of any Lien, except for the liens and security interests created or permitted under the Loan Documents. (n) Each Loan Party is, individually and together with its Subsidiaries, Solvent. (o) (i) No ERISA Event has occurred or is reasonably expected to occur with respect to any Plan. (ii) Schedule B (Actuarial Information) to the most recent annual report (Form 5500 Series) for each Plan, copies of which have been filed with the Internal Revenue Service and furnished to the Lender Parties, is complete and accurate and fairly presents the funding status of such Plan, and since the date of such Schedule B there has been no material adverse change in such funding status. (iii) Neither any Loan Party nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan. (iv) Neither any Loan Party nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no such Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. (p) (i) The operations and properties of each Loan Party and each of its Subsidiaries comply in all material respects with all applicable Environmental Laws and Environmental Permits, all past non-compliance with such Environmental Laws and Environmental Permits has been resolved without ongoing obligations or costs, and no circumstances exist that could be reasonably likely to (A) form the basis of an Environmental Action against any Loan Party or any of its Subsidiaries or any of their properties that could have a Material Adverse Effect or (B) cause any such property to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law. (ii) None of the properties currently or formerly owned or operated by any Loan Party or any of its Subsidiaries is listed or proposed for listing on the NPL or on the CERCLIS or any analogous foreign, state or local list 58 or is adjacent to any such property; there are no and never have been any underground or aboveground storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials are being or have been treated, stored or disposed on any property currently owned or operated by any Loan Party or any of its Subsidiaries or, to the best of its knowledge, on any property formerly owned or operated by any Loan Party or any of its Subsidiaries; there is no asbestos or asbestos-containing material on any property currently owned or operated by any Loan Party or any of its Subsidiaries; and Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries. (iii) Neither any Loan Party nor any of its Subsidiaries is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any governmental or regulatory authority or the requirements of any Environmental Law; and all Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries have been disposed of in a manner not reasonably expected to result in material liability to any Loan Party or any of its Subsidiaries. (q) (i) Neither any Loan Party nor any of its Subsidiaries is party to any tax sharing agreement other than the Tax Sharing Agreement. (ii) Except as disclosed on Schedule 4.01(q), (i) all tax returns, statements, reports and forms (including estimated tax or information returns) (collectively, the "Tax Returns") required to be filed with any taxing authority by, or with respect to, each Loan Party and their Subsidiaries have been timely filed in accordance with all applicable laws; (ii) each Loan Party and their Subsidiaries has timely paid or made adequate provision for payment of all taxes that are shown as due and payable on Tax Returns that have been so filed or that are otherwise required to be paid (including without limitation, assessments, interest and penalties) and, as of the time of filing, each Tax Return was accurate and complete and correctly reflected the facts regarding income, business, assets, operations, activities and the status of each Loan Party and their Subsidiaries (other than taxes which are being contested in good faith and for which adequate reserves are reflected on the financial statements delivered hereunder) and (iii) each Loan Party and its Subsidiaries have made adequate provision for all taxes payable by such Loan Party and its Subsidiaries for which no Tax Return has yet been filed or which are otherwise due. (iii) Set forth on Part I of Schedule 4.01(q) hereto is a complete and accurate list, as of the date hereof, of each taxable year of each Loan Party and each of its Subsidiaries and Affiliates for which Federal income tax returns have been filed and for which the expiration of the applicable statute of limitations for assessment or collection has not occurred by reason of extension or otherwise (an "Open Year"). (iv) The aggregate unpaid amount, as of the date hereof, of adjustments to the Federal income tax liability of each Loan Party and each of its Subsidiaries and Affiliates proposed by the Internal Revenue Service with respect to Open Years does not exceed $10,000,000. Set forth on Part II of Schedule 4.01(q) hereto is a complete and accurate description, as of 59 the date hereof, of each such item that separately, for all such Open Years, together with applicable interest and penalties, exceeds $1,000,000. No issues have been raised by the Internal Revenue Service in respect of Open Years that, in the aggregate, could be reasonably likely to have a Material Adverse Effect. (v) The aggregate unpaid amount, as of the date hereof, of adjustments to the state, local and foreign tax liability of each Loan Party and its Subsidiaries and Affiliates proposed by all state, local and foreign taxing authorities (other than amounts arising from adjustments to Federal income tax returns) does not exceed $10,000,000. No issues have been raised by such taxing authorities that, in the aggregate, could be reasonably likely to have a Material Adverse Effect. (r) Neither the business nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that could be reasonably likely to have a Material Adverse Effect. (s) Set forth on Schedule 4.01(s) hereto is a complete and accurate list of all Existing Debt, showing as of the date hereof the obligor and the principal amount outstanding thereunder. (t) Set forth on Schedule 4.01(t) hereto is a complete and accurate list of all Liens on the property or assets of any Loan Party or any of its Subsidiaries, showing as of the date hereof the lienholder thereof, the principal amount of the obligations secured thereby and the property or assets of such Loan Party or such Subsidiary subject thereto. (u) Set forth on Schedule 4.01(u) hereto is a complete and accurate list of all real property owned by any Loan Party or any of its Subsidiaries, showing as of the date hereof the street address, county or other relevant jurisdiction, state, record owner and book and estimated fair value thereof. Each Loan Party or such Subsidiary has good, marketable and insurable fee simple title to such real property, free and clear of all Liens, other than Liens created or permitted by the Loan Documents. (v) Set forth on Schedule 4.01(v) hereto is a complete and accurate list of all leases of real property under which any Loan Party or any of its Subsidiaries is the lessee, showing as of the date hereof the street address, county or other relevant jurisdiction, state, lessor, lessee, expiration date and annual rental cost thereof. Each such lease is the legal, valid and binding obligation of the lessor thereof, enforceable in accordance with its terms. (w) Set forth on Schedule 4.01(w) hereto is a complete and accurate list of all Investments held by any Loan Party or any of its Subsidiaries on the date hereof, showing as of the date hereof the amount, obligor or issuer and maturity, if any, thereof. (x) Set forth on Schedule 4.01(x) hereto is a complete and accurate list of all patents, trademarks, trade names, service marks and copyrights, 60 and all applications therefor and licenses thereof, of each Loan Party or any of its Subsidiaries, showing as of the date hereof the jurisdiction in which registered, the registration number, the date of registration and the expiration date. (y) Set forth on Schedule 4.01(y) hereto is a complete and accurate list of all Material Contracts of each Loan Party and its Subsidiaries, showing as of the date hereof the parties, subject matter and term thereof. Each such Material Contract has been duly authorized, executed and delivered by all parties thereto, has not been amended or otherwise modified, is in full force and effect and is binding upon and enforceable against all parties thereto in accordance with its terms, and there exists no default under any Material Contract by any party thereto. (z) Each Borrower has (i) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by suppliers, vendors and customers) that could be adversely affected by the risk that computer applications used by such Borrower or any of its Subsidiaries (or suppliers, vendors and customers) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (the "Year 2000 Problem"), (ii) developed a plan and timetable for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented that plan in accordance with such timetable. Based on the foregoing, each Borrower believes that all computer applications (including those of its suppliers, vendors and customers) that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 ("Year 2000 Compliant"), except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. ARTICLE V COVENANTS OF THE LOAN PARTIES SECTION 5.01. Affirmative Covenants. So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, each Loan Party will: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970. (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither the Loan Parties nor any of their Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained. 61 (c) Compliance with Environmental Laws. Comply, and cause each of its Subsidiaries and all lessees and other Persons operating or occupying its properties to comply, in all material respects, with all applicable Environmental Laws and Environmental Permits; obtain and renew and cause each of its Subsidiaries to obtain and renew all Environmental Permits necessary for its operations and properties; and conduct, and cause each of its Subsidiaries to conduct, any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance with the requirements of all Environmental Laws; provided, however, that neither the Loan Parties nor any of their Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances. (d) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which such Loan Party or such Subsidiary operates. (e) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its existence, legal structure, rights (charter and statutory), permits, licenses, approvals, privileges and franchises (including, without limitation, any permits, licenses, approvals, privileges and franchises issued to such Loan Party by the FCC or any PUC); provided, however, that each Borrower and its Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(d) and provided further that neither any Loan Party nor any of its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if the Board of Directors of such Loan Party or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Loan Party or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to such Loan Party, such Subsidiary or the Lender Parties. (f) Visitation Rights. At any reasonable time and from time to time, permit any of the Agents or any of the Lender Parties, or any agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, such Loan Party and any of its Subsidiaries, and to discuss the affairs, finances and accounts of such Loan Party and any of its Subsidiaries with any of their officers or directors and with their independent certified public accountants. (g) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of such Loan Party and each such Subsidiary in accordance with generally accepted accounting principles in effect from time to time. 62 (h) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (i) Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of their Affiliates on terms that are fair and reasonable and no less favorable to such Loan Party or such Subsidiary than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate. (j) Covenant to Guarantee Obligations and Give Security. Upon (x) the request of the Collateral Agent following the occurrence and during the continuance of a Default, (y) the formation or acquisition of any new direct or indirect Subsidiaries by any Loan Party or (z) the acquisition of any property by any Loan Party, and such property, in the judgment of the Collateral Agent, shall not already be subject to a perfected first priority security interest in favor of the Collateral Agent for the benefit of the Secured Parties, then each Loan Party shall, in each case at the such Loan Party's expense: (i) in connection with the formation or acquisition of a Subsidiary, within 10 days after such formation or acquisition, cause each such Subsidiary, and cause each direct and indirect parent of such Subsidiary (if it has not already done so), to duly execute and deliver to the Collateral Agent a guaranty or guaranty supplement, in form and substance satisfactory to the Collateral Agent, guaranteeing the other Loan Parties' obligations under the Loan Documents, (ii) within 10 days after such request, formation or acquisition, furnish to the Collateral Agent a description of the real and personal properties of the Loan Parties and their respective Subsidiaries in detail satisfactory to the Collateral Agent, (iii) within 15 days after such request, formation or acquisition, duly execute and deliver, and cause each such Subsidiary (other than ICG 161 and ICG Corporate Headquarters) and each direct and indirect parent of such Subsidiary (if it has not already done so) to duly execute and deliver, to the Collateral Agent mortgages, pledges, assignments, security agreement supplements and other security agreements, as specified by and in form and substance satisfactory to the Collateral Agent, securing payment of all the Obligations of the applicable Loan Party, such Subsidiary or such parent, as the case may be, under the Loan Documents and constituting Liens on all such properties, (iv) within 30 days after such request, formation or acquisition, take, and cause such Subsidiary (other than ICG 161 and ICG Corporate Headquarters) or such parent to take, whatever action (including, without limitation, the recording of mortgages, the filing of Uniform Commercial Code financing statements, the giving of notices and the endorsement of notices on title documents) may be necessary or advisable in the opinion of the Collateral Agent to vest in the Collateral Agent (or in any representative of the Collateral Agent designated by it) valid and subsisting Liens on the properties purported to be subject to the mortgages, pledges, assignments, 63 security agreement supplements and security agreements delivered pursuant to this Section 5.01(j), enforceable against all third parties in accordance with their terms, (v) within 70 days after such request, formation or acquisition, deliver to the Collateral Agent, upon the request of the Collateral Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Collateral Agent and the other Secured Parties, of counsel for the Loan Parties reasonably acceptable to the Collateral Agent as to the matters contained in clauses (i), (iii) and (iv) above (subject to customary limitations), as to such guaranties, guaranty supplements, mortgages, pledges, assignments, security agreement supplements and security agreements being legal, valid and binding obligations of each Loan Party thereto enforceable in accordance with their terms, as to the matters contained in clause (iv) above, as to such recordings, filings, notices, endorsements and other actions being sufficient to create valid perfected Liens on such properties, and as to such other matters as the Collateral Agent may reasonably request, (vi) as promptly as practicable after such request, formation or acquisition, deliver, upon the request of the Collateral Agent in its sole discretion, to the Collateral Agent with respect to each parcel of real property owned or held by the entity that is the subject of such request, formation or acquisition title reports, surveys and engineering, soils and other reports, and environmental assessment reports, each in scope, form and substance satisfactory to the Collateral Agent, provided, however, that to the extent that any Loan Party or any of its Subsidiaries shall have otherwise received any of the foregoing items with respect to such real property, such items shall, promptly after the receipt thereof, be delivered to the Collateral Agent, (vii) upon the occurrence and during the continuance of a Default, promptly cause to be deposited any and all cash dividends paid or payable to it or any of its Subsidiaries from any of its Subsidiaries from time to time into the Cash Collateral Account, and with respect to all other dividends paid or payable to it or any of its Subsidiaries from time to time, promptly execute and deliver, or cause such Subsidiary to promptly execute and deliver, as the case may be, any and all further instruments and take or cause such Subsidiary to take, as the case may be, all such other action as the Collateral Agent may deem necessary or desirable in order to obtain and maintain from and after the time such dividend is paid or payable a perfected, first priority lien on and security interest in such dividends, and (viii) at any time and from time to time, promptly execute and deliver any and all further instruments and documents and take all such other action as the Collateral Agent may deem necessary or desirable in obtaining the full benefits of, or in perfecting and preserving the Liens of, such guaranties, mortgages, pledges, assignments, security agreement supplements, intellectual property security agreement supplements and security agreements. (k) Further Assurances. (i) Promptly upon request by any Agent, or any Lender Party through the Administrative Agent, correct, and cause each of 64 its Subsidiaries promptly to correct, any material defect or error that may be discovered in any Loan Document or in the execution, acknowledgment, filing or recordation thereof, and (ii) Promptly upon request by any Agent, or any Lender Party through the Administrative Agent, do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, conveyances, pledge agreements, mortgages, deeds of trust, trust deeds, assignments, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as any Agent, or any Lender Party through the Administrative Agent, may reasonably require from time to time in order to (A) carry out more effectively the purposes of the Loan Documents, (B) to the fullest extent permitted by applicable law, subject any Loan Party's or any of its Subsidiaries' (other than ICG 161 and ICG Corporate Headquarters) properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Collateral Documents, (C) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be created thereunder and (D) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Secured Parties the rights granted or now or hereafter intended to be granted to the Secured Parties under any Loan Document or under any other instrument executed in connection with any Loan Document to which any Loan Party or any of its Subsidiaries is or is to be a party, and cause each of its Subsidiaries to do so. (l) Performance of Related Documents. Perform and observe, and cause each of its Subsidiaries to perform and observe, all of the terms and provisions of each Related Document to be performed or observed by it, maintain each such Related Document in full force and effect, enforce such Related Document in accordance with its terms, take all such action to such end as may be from time to time requested by the Administrative Agent and, upon request of the Administrative Agent, make to each other party to each such Related Document such demands and requests for information and reports or for action as any Loan Party or any of its Subsidiaries is entitled to make under such Related Document. (m) Compliance with Terms of Leaseholds. Make all payments and otherwise perform all obligations in respect of all leases of real property to which such Loan Party or any of its Subsidiaries is a party, keep such leases in full force and effect and not allow such leases to lapse or be terminated or any rights to renew such leases to be forfeited or cancelled, notify the Administrative Agent of any default by any party with respect to such leases and cooperate with the Administrative Agent in all respects to cure any such default, and cause each of its Subsidiaries to do so, except where the failure to do so either individually or in the aggregate, could not be reasonably likely to have a Material Adverse Effect. (n) Interest Rate Hedging. If the three month Eurodollar Rate exceeds 9% per annum for 15 consecutive Business Days at any time, enter into and maintain at all times thereafter, interest rate Hedge Agreements with Persons acceptable to the Administrative Agent and the Required Lenders, covering a notional amount of not less than 50% of the Commitments under all of the Facilities at such time. 65 (o) Performance of Material Contracts. Perform and observe all the terms and provisions of each Material Contract to be performed or observed by it, maintain each such Material Contract in full force and effect, enforce each such Material Contract in accordance with its terms, take all such action to such end as may be from time to time reasonably requested by the Administrative Agent and, upon request of the Administrative Agent, make to each other party to each such Material Contract such demands and requests for information and reports or for action as any Loan Party or any of its Subsidiaries is entitled to make under such Material Contract, and cause each of its Subsidiaries to do so, except, in any case, where the failure to do so, either individually or in the aggregate, could not be reasonably likely to have a Material Adverse Effect. (p) Lease Arrangements. Insure that ICG Equipment is lessor under master leases and other lease arrangements in respect of which the lease payments, together with the residual value of the property, plant and equipment subject thereto, are sufficient to pay all amounts due and payable during the term of this Agreement in respect of all Debt of the Parent and its Subsidiaries. SECTION 5.02. Negative Covenants. So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, no Loan Party shall, at any time: (a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character (including, without limitation, accounts) whether now owned or hereafter acquired, or sign or file or suffer to exist, or permit any of its Subsidiaries to sign or file or suffer to exist, under the Uniform Commercial Code of any jurisdiction, a financing statement that names any Loan Party or any of its Subsidiaries as debtor, or sign or suffer to exist, or permit any of its Subsidiaries to sign or suffer to exist, any security agreement authorizing any secured party thereunder to file such financing statement, or assign, or permit any of its Subsidiaries to assign, any accounts or other right to receive income, except: (i) Liens created under the Loan Documents; (ii) Permitted Liens; (iii) Liens existing on the date hereof or required on the Effective Date to be provided in the future and, in each case, described on Schedule 4.01(u) hereto; (iv) purchase money Liens upon or in property acquired or held by any Borrower or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or to secure Debt incurred solely for the purpose of financing the acquisition of any such property to be subject to such Liens, or Liens existing on any such property at the time of acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, however, that 66 no such Lien shall extend to or cover any property other than the property being acquired, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; and provided further that the aggregate principal amount of the Debt secured by Liens permitted by this clause (iv) shall not exceed the amount permitted under Section 5.02(b)(iii)(B) at any time outstanding; (v) Liens arising in connection with Capitalized Leases of any Borrower or any of its Subsidiaries permitted under Section 5.02(b)(iii)(C); provided that no such Lien shall extend to or cover any Collateral or assets other than the assets subject to such Capitalized Leases; (vi) Liens on property of a Person existing at the time such Person is merged into or consolidated with such Borrower or any Subsidiary of the Borrower or becomes a Subsidiary of such Borrower; provided that such Liens were not created in contemplation of such merger, consolidation or investment and do not extend to any assets other than those of the Person merged into or consolidated with such Borrower or such Subsidiary or acquired by such Borrower or such Subsidiary; and (vii) Liens in connection with Debt permitted under Section 5.02(b)(iii)(E); provided that no such Lien shall extend to or cover any Collateral other than cash and Cash Equivalents in an amount equal to the amount of such Debt. (b) Debt. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Debt, except: (i) in the case of any Borrower, (A) Debt in respect of Hedge Agreements designed to hedge against fluctuations in interest rates or foreign exchange rates incurred in the ordinary course of business and consistent with prudent business practice. (B) Debt owed to a wholly owned Subsidiary of such Borrower, which Debt (x) shall, in the case of Debt owed to a Loan Party, constitute Pledged Debt, (y) shall be on terms acceptable to the Required Lenders and (z) shall be evidenced by promissory notes in form and substance satisfactory to the Required Lenders and such promissory notes shall, in the case of Debt owed to a Loan Party, be pledged as security for the Obligations of the holder thereof under the Loan Documents to which such holder is a party and delivered to the Collateral Agent pursuant to the terms of the Security Agreement. (ii) in the case of any Subsidiary of any Borrower, Debt owed to such Borrower or to a wholly owned Subsidiary of such Borrower, provided that, in each case, such Debt (x) shall, in the case of Debt owed to a Loan Party, constitute Pledged Debt, (y) shall be on terms acceptable to the Required Lenders and (z) shall be evidenced by promissory notes in form and substance satisfactory to the Required Lenders and such promissory notes shall, in the case of Debt owed to a 67 Loan Party, be pledged as security for the Obligations of the holder thereof under the Loan Documents to which such holder is a party and delivered to the Collateral Agent pursuant to the terms of the Security Agreement; and (iii) in the case of the Parent and its Subsidiaries, (A) Debt under the Loan Documents, (B) Debt secured by Liens permitted by Section 5.02(a)(iv) not to exceed in the aggregate $25,000,000 during any consecutive 12-month period, (C) Capitalized Leases of any Borrower or any of its Subsidiaries not to exceed in the aggregate $385,000,000 at any time outstanding (taking into account any reductions in such Capitalized Leases). (D) the Existing Debt, and (E) Debt in respect of letters of credit in an aggregate principal amount at any time outstanding not to exceed $10,000,000; and (F) other unsecured Debt in an aggregate principal amount not to exceed $350,000,000 at any one time outstanding. (c) Change in Nature of Business. Make, or permit any of its Subsidiaries to make, any material change in the nature of its business as carried on at the date hereof. (d) Mergers, Etc. Merge into or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries to do any of the foregoing, except that any Subsidiary of each Borrower may merge into or consolidate with any other Subsidiary of each Borrower, provided that, in the case of any such merger or consolidation, the Person formed by such merger or consolidation shall be a wholly owned Subsidiary of each Borrower, provided further that, in the case of any such merger or consolidation to which a Subsidiary Guarantor is a party, the Person formed by such merger or consolidation shall become a Subsidiary Guarantor and provided, however, that in each case, immediately after giving effect thereto, no event shall occur and be continuing that constitutes a Default. (e) Sales, Etc., of Assets. Sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets, or grant any option or other right to purchase, lease or otherwise acquire any assets other than Inventory to be sold or leased in the ordinary course of its business, except: (i) sales or leases of Inventory in the ordinary course of its business; (ii) sales of assets for cash and Cash Equivalents and for fair value in an aggregate amount not to exceed $15,000,000 in any Fiscal Year; 68 (iii) the sale of any asset by each Borrower or any Subsidiary (other than a bulk sale of Inventory and a sale of receivables other than delinquent accounts for collection purposes only) so long as (A) the purchase price paid to each Borrower or such Subsidiary for such asset shall be no less than the fair market value of such asset at the time of such sale, (B) the purchase price for such asset shall be paid to each Borrower or such Subsidiary solely in cash and (C) the aggregate purchase price paid to each Borrower and all of its Subsidiaries for such asset and all other assets sold by each Borrower and its Subsidiaries during the same Fiscal Year pursuant to this clause (iii) shall not exceed $25,000,000; and (iv) sales of all of the outstanding capital stock of, or assets of, each of ICG Satellite Services, Inc., ICG Fiber Optic Technologies, Inc. and each of their respective Subsidiaries. provided that in the case of sales of assets pursuant to clause (iii) above, each Borrower shall, on the date of receipt by any Loan Party or any of its Subsidiaries of the Net Cash Proceeds from such sale, prepay the Advances pursuant to, and in the amount and order of priority set forth in, Section 2.06(b)(ii), as specified therein. (f) Investments in Other Persons. Make or hold, or permit any of its Subsidiaries to make or hold, any Investment in any Person, except: (i) Investments by the Parent and its Subsidiaries in their Subsidiaries outstanding on the date hereof and additional investments in wholly owned Subsidiaries of a Borrower now existing or organized hereafter, provided that any such Subsidiary has become a Subsidiary Guarantor to the extent required by Section 5.01(j). (ii) loans and advances to employees in the ordinary course of the business of each Borrower and its Subsidiaries as presently conducted in an aggregate principal amount not to exceed $1,000,000 at any time outstanding; (iii) Investments by each Borrower in Hedge Agreements permitted under Section 5.02(b)(i)(A); (iv) Investments existing on the date hereof and described on Schedule 4.01(x) hereto; (v) Investments consisting of intercompany Debt permitted under Section 5.02(b); (vi) Investments consisting of the purchase by the Borrowers of certain receivables (other than Excluded Receivables) from ICG Telecom Group, Inc. and its Subsidiaries on market terms reasonably satisfactory to the Required Lenders; and (vii) other Investments in an aggregate amount invested not to exceed $50,000,000 and Investments made solely with Equity Interests 69 of the Borrowers and their Subsidiaries provided that with respect to Investments made under this clause (vii), (1) immediately before and after giving effect thereto, no Default shall have occurred and be continuing or would result therefrom; and (2) immediately after giving effect to the acquisition of a company or business pursuant to this clause (vii), the Parent and its Subsidiaries shall be in pro forma compliance with the covenants contained in Section 5.04, calculated based on the financial statements most recently delivered to the Lender Parties pursuant to Section 5.03 and as though such acquisition had occurred at the beginning of the appropriate measurement periods for the financial covenants, as evidenced by a certificate of the Chief Financial Officer of the Parent delivered to the Lender Parties demonstrating such compliance. (g) Restricted Payments. Declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests other than of a wholly owned Subsidiary now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent Persons thereof) as such, make any distribution of assets, Equity Interests, obligations or securities to its stockholders, partners or members (or the equivalent Persons thereof) as such or permit any of its Subsidiaries to do any of the foregoing, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests in each Borrower or to issue or sell any Equity Interests therein, except that, so long as no Default shall have occurred and be continuing at the time of any action described in clause (i) or (ii) below or would result therefrom: (i) each Borrower may declare and pay dividends and distributions payable only in stock of each Borrower, (ii) the Borrowers may declare and pay cash dividends to the Parent to the extent, and only to the extent, necessary to enable the Parent to pay (a) cash interest on the Existing Debt listed on Schedule 4.01(s), and (b) cash interest on other Debt of the Parent permitted pursuant to Section 5.02(b) (iii)(B) and (F), and (iii) any Subsidiary of each Borrower may (A) declare and pay cash dividends to each Borrower, (B) declare and pay cash dividends to any other Loan Party of which it is a Subsidiary and (C) accept capital contributions from its Parent to the extent permitted under Section 5.01(f)(i). (h) Amendments of Constitutive Documents. Amend, or permit any of its Subsidiaries to amend, its certificate of incorporation or bylaws or other constitutive documents other than any such amendment that could not reasonably be expected to have a Material Adverse Effect. (i) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in (i) accounting policies or reporting practices, except as required or permitted by generally accepted accounting principles, or (ii) Fiscal Year. (j) Prepayments, Etc., of Debt. Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or 70 make any payment in violation of any subordination terms of, any Debt, except (i) the prepayment of the Advances in accordance with the terms of this Agreement and (ii) regularly scheduled or required repayments or redemptions of Existing Debt, or amend, modify or change in any manner any term or condition of any Existing Debt or Subordinated Debt if such amendment, modification or change is reasonably likely to have an adverse impact on (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of the Parent and its Subsidiaries taken as a whole, (b) the rights and remedies of any Agent or any Lender Party under any Transaction Document or (c) the ability of any Loan Party to perform its Obligations under any Transaction Document to which it is or is to be a party, or permit any of its Subsidiaries to do any of the foregoing other than to prepay any Debt payable to any Borrower. (k) Amendment, Etc., of Related Documents. Cancel or terminate any Related Document or consent to or accept any cancellation or termination thereof, amend, modify or change in any manner any term or condition of any Related Document or give any consent, waiver or approval thereunder, waive any default under or any breach of any term or condition of any Related Document, agree in any manner to any other amendment, modification or change of any term or condition of any Related Document or take any other action in connection with any Related Document that would impair the value of the interest or rights of any Loan Party thereunder or that would impair the rights or interests of any Agent or any Lender Party, or permit any of its Subsidiaries to do any of the foregoing. (l) Negative Pledge. Enter into or suffer to exist, or permit any of its Subsidiaries to enter into or suffer to exist, any agreement prohibiting or conditioning the creation or assumption of any Lien upon any of its property or assets except (i) in favor of the Secured Parties or (ii) in connection with (A) any Existing Debt, (B) any purchase money Debt permitted by Section 5.02(b)(iii)(B) solely to the extent that the agreement or instrument governing such Debt prohibits a Lien on the property acquired with the proceeds of such Debt, (C) any Capitalized Lease permitted by Section 5.02(b)(iii)(C) solely to the extent that such Capitalized Lease prohibits a Lien on the property subject thereto, (D) any Debt outstanding on the date any Subsidiary of any Borrower becomes such a Subsidiary (so long as such agreement was not entered into solely in contemplation of such Subsidiary becoming a Subsidiary of such Borrower) and (E) any governmental license, permit or other approval. (m) Partnerships, Etc. Become a general partner in any general or limited partnership or joint venture, or permit any of its Subsidiaries (other than a wholly owned special purpose Subsidiary of a Borrower formed specifically for the purpose) to do so. (n) Speculative Transactions. Engage, or permit any of its Subsidiaries to engage, in any transaction involving commodity options or futures contracts or any similar speculative transactions. (o) Formation of Subsidiaries. Organize or invest, or permit any Subsidiary to organize or invest, in any new Subsidiary unless it becomes a Subsidiary Guarantor. (p) Payment Restrictions Affecting Subsidiaries. Directly or indirectly, enter into or suffer to exist, or permit any of its 71 Subsidiaries to enter into or suffer to exist, any agreement or arrangement limiting the ability of any of its Subsidiaries to declare or pay dividends or other distributions in respect of its Equity Interests or repay or prepay any Debt owed to, make loans or advances to, or otherwise transfer assets to or invest in, the Borrower or any Subsidiary of any Borrower (whether through a covenant restricting dividends, loans, asset transfers or investments, a financial covenant or otherwise), except (i) the Loan Documents and (ii) any agreement or instrument evidencing Existing Debt. (q) Amendment, Etc., of Material Contracts. Cancel or terminate any Material Contract or consent to or accept any cancellation or termination thereof, amend or otherwise modify any Material Contract or give any consent, waiver or approval thereunder, waive any default under or breach of any Material Contract, agree in any manner to any other amendment, modification or change of any term or condition of any Material Contract or take any other action in connection with any Material Contract that would impair the value of the interest or rights of any Loan Party thereunder or that would impair the interest or rights of any Agent or any Lender Party, or permit any of its Subsidiaries to do any of the foregoing, in each case except in the ordinary course of business in a manner that would not reasonably be expected to have a Material Adverse Effect. (r) Capital Expenditures. Make, or permit any of its Subsidiaries to make, any Capital Expenditures that would cause the aggregate of all such Capital Expenditures made by the Parent and its Subsidiaries in any period set forth in Section 6.01(q) to exceed 80% of the amount allowed pursuant to Section 6.01(q) for such period: SECTION 5.03. Reporting Requirements. So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, each applicable Loan Party will furnish to the Agents and the Lender Parties: (a) Default and Prepayment Notices. (i) As soon as possible and in any event within two days after the occurrence of each Default or any event, development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of the chief financial officer of the Borrower setting forth details of such Default and the action that the Borrower has taken and proposes to take with respect thereto, and (ii) as soon as possible and in any event no later than 1:00 P.M. (New York City time) at least seven Business Days before any prepayment of Term Advances is to be made by the Borrowers pursuant to Section 2.06 (the "Prepayment Date"), written notice of the principal amount of such prepayment (the "Prepayment Amount") and the applicable Prepayment Date. Each such notice (a "Prepayment Notice") shall be by telex or telecopier or otherwise as provided in Section 9.02. (b) Annual Financials. As soon as available and in any event within 106 days after the end of each Fiscal Year, a copy of the annual audit report for such year for the Parent and its Subsidiaries, including therein Consolidated and consolidating balance sheets of the Parent and its Subsidiaries as of the end of such Fiscal Year and Consolidated and consolidating statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion acceptable to the Required Lenders of KPMG Peat 72 Marwick or other independent public accountants of recognized standing acceptable to the Required Lenders, together with (i) a certificate of the Chief Financial Officer to the Lender Parties stating that in the course of the regular audit of the business of the Parent and its Subsidiaries, which audit was conducted by such accounting firm in accordance with generally accepted auditing standards, such accounting firm has not indicated to such Chief Financial Officer that it had obtained knowledge that a Default has occurred and is continuing, or if, in the opinion of such accounting firm, a Default has occurred and is continuing, a statement as to the nature thereof, (ii) a schedule in form satisfactory to the Administrative Agent of the computations used by the Chief Financial Officer in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Section 5.04, provided that in the event of any change in GAAP used in the preparation of such financial statements, the Parent shall also provide, if necessary for the determination of compliance with Section 5.04, a statement of reconciliation conforming such financial statements to GAAP and (iii) a certificate of the Chief Financial Officer of the Parent stating that no Default has occurred and is continuing or, if a default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken and proposes to take with respect thereto. (c) Quarterly Financials. As soon as available and in any event within 50 days after the end of each of the first three quarters of each Fiscal Year, Consolidated and consolidating balance sheets of the Parent and its Subsidiaries as of the end of such quarter and Consolidated and consolidating statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous fiscal quarter and ending with the end of such fiscal quarter (except for the Consolidated statement of cash flows, which shall be on a year to date basis) and Consolidated and consolidating statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding date or period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to normal year-end audit adjustments) by the Chief Financial Officer of the Parent as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and such action that the Parent has taken and proposes to take with respect thereto and (ii) a schedule in form satisfactory to the Administrative Agent of the computations used by the Parent in determining compliance with the covenants contained in Section 5.04, provided that in the event of any change in GAAP used in the preparation of such financial statements, the Parent shall also provide, if necessary for the determination of compliance with Section 5.04, a statement of reconciliation conforming such financial statements to GAAP. (d) Annual Forecasts. As soon as available and in any event no later than January 31 of each Fiscal Year, forecasts prepared by management of the Parent, in form satisfactory to the Administrative Agent, of balance sheets, income statements and cash flow statements on a quarterly basis for such Fiscal Year and on an annual basis for each Fiscal Year thereafter until the Tranche B Termination Date. (e) Litigation. Promptly after the commencement thereof, notice of all actions, suits, investigations, litigation and proceedings before any court 73 or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Loan Party or any of its Subsidiaries of the type described in Section 4.01(f). (f) Securities Reports. Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that any Loan Party or any of its Subsidiaries sends to its stockholders, and copies of all regular, periodic and special reports, and all registration statements, that any Loan Party or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange. (g) Creditor Reports. Promptly after the furnishing thereof, copies of any statement or report furnished to any holder of Debt securities of any Loan Party or of any of its Subsidiaries pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lender Parties pursuant to any other clause of this Section 5.03. (h) Agreement Notices. Promptly upon receipt thereof, copies of all notices, requests and other documents received by any Loan Party or any of its Subsidiaries under or pursuant to any Related Document or Material Contract or instrument, indenture, loan or credit or similar agreement regarding or related to any breach or default by any party thereto or any other event that could materially impair the value of the interests or the rights of any Loan Party or otherwise have a Material Adverse Effect and copies of any amendment, modification or waiver of any provision of any Related Document or Material Contract or instrument, indenture, loan or credit or similar agreement and, from time to time upon request by the Administrative Agent, such information and reports regarding the Related Documents, the Material Contracts and such instruments, indentures and loan and credit and similar agreements as the Administrative Agent may reasonably request. (i) ERISA. (i) ERISA Events and ERISA Reports. (A) Promptly and in any event within 10 days after any Loan Party or any ERISA Affiliate knows or has reason to know that any ERISA Event has occurred, a statement of the Chief Financial Officer of the Borrower describing such ERISA Event and the action, if any, that such Loan Party or such ERISA Affiliate has taken and proposes to take with respect thereto and (B) on the date any records, documents or other information must be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of ERISA, a copy of such records, documents and information. (ii) Plan Terminations. Promptly and in any event within two Business Days after receipt thereof by any Loan Party or any ERISA Affiliate, copies of each notice from the PBGC stating its intention to terminate any Plan or to have a trustee appointed to administer any Plan. (iii) Plan Annual Reports. Promptly and in any event within 30 days after the filing thereof with the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Plan. (iv) Multiemployer Plan Notices. Promptly and in any event within five Business Days after receipt thereof by any Loan Party or any ERISA 74 Affiliate from the sponsor of a Multiemployer Plan, copies of each notice concerning (A) the imposition of Withdrawal Liability by any such Multiemployer Plan, (B) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (C) the amount of liability incurred, or that may be incurred, by such Loan Party or any ERISA Affiliate in connection with any event described in clause (A) or (B). (j) Environmental Conditions. Promptly after the assertion or occurrence thereof, notice of any Environmental Action against or of any noncompliance by any Loan Party or any of its Subsidiaries with any Environmental Law or Environmental Permit that could (i) reasonably be expected to have a Material Adverse Effect or (ii) cause any property described in the Mortgages to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law. (k) Real Property. As soon as available and in any event within 60 days after the end of each Fiscal Year, a report supplementing Schedules 4.01(w) and 4.01(x) hereto, including an identification of all owned and leased real property disposed of by each Borrower or any of its Subsidiaries during such Fiscal Year, a list and description (including the street address, county or other relevant jurisdiction, state, record owner, book value thereof and, in the case of leases of property, lessor, lessee, expiration date and annual rental cost thereof) of all real property acquired or leased during such Fiscal Year and a description of such other changes in the information included in such Schedules as may be necessary for such Schedules to be accurate and complete. (l) Insurance. As soon as available and in any event within 30 days after the end of each Fiscal Year, a report summarizing the insurance coverage (specifying type, amount and carrier) in effect for each Loan Party and its Subsidiaries and containing such additional information as any Agent, or any Lender Party through the Administrative Agent, may reasonably specify. (m) Borrowing Base Certificate. As soon as available and in any event within 10 days after the end of each month, a Borrowing Base Certificate, as at the end of the previous month, certified by the Chief Financial Officer of each Borrower. (n) Year 2000 Compliance. Promptly after each Borrower's discovery or determination thereof, notice (in reasonable detail) that any computer application (including those of its suppliers, vendors and customers) that is material to its or any of its Subsidiaries' business and operations will not be Year 2000 Compliant (as defined in Section 4.01(z)), except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect. (o) Revenue Agent Reports. Within 10 days after receipt, copies of all Revenue Agent Report (Internal Revenue Service Form 886), or other written proposals of the Internal Revenue Service, that propose, determine or otherwise set forth positive adjustments to the federal income tax liability of the affiliated group (within the meaning of Section 1504(a)(1) of the Internal Revenue Code) of which the Borrower is a member aggregating $3,000,000 or more. 75 (p) Tax Certificates. Promptly, and in any event within thirty (30) Business Days after the due date (with extensions, if properly obtained) for filing the final federal income tax return in respect of each taxable year, a certificate (a "Tax Certificate") signed by the President or the Chief Financial Officer of the Parent, stating that there has been paid to the Internal Revenue Service or other applicable taxing authority, the full amount that the affiliated group that includes the Parent and the Borrowers is required to pay in respect of federal income tax for such year and that the Parent and the Borrowers have received any amounts payable to them, that the Parent and the Borrowers have not paid amounts in respect of taxes (federal, state, local or foreign) in excess of the amounts, if any, they are required to pay under the Tax Sharing Agreement in respect of such taxable year and have received amounts, if any, due to them under the Tax Sharing Agreement for such year. (q) Other Information. Such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party or any of its Subsidiaries as any Agent, or any Lender Party through the Administrative Agent, may from time to time reasonably request. SECTION 5.04. Financial Covenants. So long as any Advance or any other Obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment hereunder, the Parent will: (a) Senior Secured Debt Service Coverage Ratio. Maintain at the end of each fiscal quarter of the Borrowers a Senior Secured Debt Service Coverage Ratio of not less than the amount set forth below for such period:
1999 2000 2001 2002 2003 2004 2005 1st Quarter N/A 2.50:1 2.75:1 2.75:1 3.00:1 3.00:1 3.00:1 2nd Quarter N/A 2.50:1 2.75:1 2.75:1 3.00:1 3.00:1 3.00:1 3rd Quarter 2.50:1 2.50:1 2.75:1 2.75:1 3.00:1 3.00:1 3.00:1 4th Quarter 2.50:1 2.50:1 2.75:1 2.75:1 3.00:1 3.00:1 3.00:1
(b) Minimum EBITDA: Maintain quarterly EBITDA of the Parent and its Subsidiaries as at the end of each fiscal quarter of the Parent of not less than the amount set forth below:
1999 2000 2001 2002 2003 2004 2005 1st Quarter N/A $36,036,000 $68,412,000 $97,000,000 $129,977,000 $144,000,000 $147,000,000 2nd Quarter N/A $42,214,000 $77,199,000 $103,000,000 $135,000,000 $144,000,000 $147,000,000 3rd Quarter $23,204,000 $48,506,000 $85,471,000 $109,000,000 $140,000,000 $145,328,000 $150,000,000 4th Quarter $29,136,000 $54,249,000 $94,183,000 $117,641,000 $144,000,000 $147,000,000 $153,738,000
(c) Maximum Senior Secured Leverage. Maintain at the end of each fiscal quarter of the Parent a Senior Secured Debt Ratio of not greater than the ratio set forth below for such fiscal quarter: 76 Fiscal Quarter Ending Ratio --------------------- ----- September 30, 1999 2.75:1 December 31, 1999 2.75:1 March 31, 2000 2.75:1 June 30, 2000 2.75:1 September 30, 2000 2:50:1 December 31, 2000 2:25:1 March 31, 2001 2:25:1 June 30, 2001 2:25:1 September 30, 2001 2:25:1 December 31, 2001 2:25:1 March 31, 2002 2:25:1 June 30, 2002 2:25:1 September 30, 2002 2:25:1 December 31, 2002 2:25:1 March 31, 2003 2:25:1 June 30, 2003 2:25:1 September 30, 2003 2:25:1 December 31, 2003 2:25:1 March 31, 2004 2:25:1 June 30, 2004 2:25:1 September 30, 2004 2:25:1 December 31, 2004 2:25:1 March 31, 2005 2:25:1 June 30, 2005 2:25:1 September 30, 2005 2:25:1 December 31, 2005 2:25:1 (d) Maximum Total Leverage. Maintain at the end of each fiscal quarter of the Parent a Parent Total Leverage Ratio of not greater than the ratio set forth below for such fiscal quarter: Fiscal Quarter Ending In Ratio ------------------------ ----- September 30, 1999 8.75:1 December 31, 1999 7.75:1 March 31, 2000 7.75:1 June 30, 2000 7.25:1 September 30, 2000 7.00:1 December 31, 2000 7.00:1 March 31, 2001 7.00:1 June 30, 2001 6.50:1 September 30, 2001 6.25:1 December 31, 2001 6.00:1 March 31, 2002 5.50:1 77 Fiscal Quarter Ending In Ratio ------------------------ ----- June 30, 2002 5.50:1 September 30, 2002 5.50:1 December 31, 2002 5.50:1 March 31, 2003 5.00:1 June 30, 2003 5.00:1 September 30, 2003 5.00:1 December 31, 2003 5.00:1 March 31, 2004 5.00:1 June 30, 2004 5.00:1 September 30, 2004 5.00:1 December 31, 2004 5.00:1 March 31, 2005 5.00:1 June 30, 2005 5.00:1 September 30, 2005 5.00:1 December 31, 2005 5.00:1 (e) Minimum Interest Coverage. Maintain at the end of each fiscal quarter of the Parent a ratio of (i) EBITDA of the Parent for the most recently ended six month period to (ii) Interest Expense of the Parent for the most recently ended six month period of not less than 3.75:1. (f) Minimum Fixed Charge Coverage. Maintain at the end of each fiscal quarter of the Parent a ratio of (i) EBITDA of the Parent for the most recently ended six month period to (ii) Fixed Charges for the most recently ended six month period of not less than the ratio set forth below for such fiscal quarter: Fiscal Quarter Ending In Ratio ------------------------ ----- June 30, 2002 0.50:1 September 30, 2002 0.50:1 December 31, 2002 0.50:1 March 31, 2003 0.75:1 June 30, 2003 0.75:1 September 30, 2003 0.75:1 December 31, 2003 0.75:1 March 31, 2004 1.10:1 June 30, 2004 1.10:1 September 30, 2004 1.10:1 December 31, 2004 1.10:1 March 31, 2005 1.10:1 June 30, 2005 1.10:1 September 30, 2005 1.10:1 December 31, 2005 1.10:1 78 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) (i) any Borrower shall fail to pay any principal of any Advance when the same shall become due and payable or (ii) any Borrower shall fail to pay any interest on any Advance, or any Loan Party shall fail to make any other payment under any Loan Document, in each case under this clause (ii) within five days after the same becomes due and payable; or (b) any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made or confirmed; or (c) any Loan Party shall fail to perform or observe any term, covenant or agreement contained in Section 2.14, 5.01(e), (f), (i), (j), (o) or (n), 5.02, 5.03(a)(i), or 5.04; or (d) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 30 days after the earlier of the date on which (i) a Responsible Officer becomes aware of such failure or (ii) written notice thereof shall have been given to the Borrower by any Agent or any Lender Party; or (e) any Loan Party or any of its Subsidiaries shall fail to pay any principal of, premium or interest on or any other amount payable in respect of any Debt of such Loan Party or such Subsidiary (as the case may be) that is outstanding in a principal amount (or, in the case of any Hedge Agreement, an Agreement Value) of at least $10,000,000 either individually or in the aggregate (but excluding Debt outstanding hereunder), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt or otherwise to cause, or to permit the holder thereof to cause, such Debt to mature; or any such Debt shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or (f) any Loan Party or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Loan Party or any of its Subsidiaries seeking to adjudicate it a 79 bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or any Loan Party or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or (g) any judgments or orders, either individually or in the aggregate, for the payment of money in excess of $10,000,000 (determined net of any applicable insurance proceeds) shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 25 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (h) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that could be reasonably likely to have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) any provision of any Loan Document after delivery thereof pursuant to Section 3.01 or 5.01(j) shall for any reason cease to be valid and binding on or enforceable against any Loan Party party to it, or any such Loan Party shall so state in writing; or (j) any Collateral Document or financing statement after delivery thereof pursuant to Section 3.01 or 5.01(j) shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority lien on and security interest in the Collateral purported to be covered thereby; or (k) a Change of Control shall occur; or (l) any ERISA Event shall have occurred with respect to a Plan and the sum (determined as of the date of occurrence of such ERISA Event) of the Insufficiency of such Plan and the Insufficiency of any and all other Plans with respect to which an ERISA Event shall have occurred and then exist (or the liability of the Loan Parties and the ERISA Affiliates related to such ERISA Event) exceeds $500,000; or (m) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan in an amount that, when aggregated with all other amounts required to be paid to Multiemployer Plans by the Loan Parties and the ERISA Affiliates as Withdrawal Liability (determined 80 as of the date of such notification), exceeds $500,000 or requires payments exceeding $100,000 per annum; or (n) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and as a result of such reorganization or termination the aggregate annual contributions of the Loan Parties and the ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such reorganization or termination occurs by an amount exceeding $500,000; or (o) any Borrowing Base Deficiency shall occur; or (p) ICG shall fail to maintain the following financial covenants: (i) Minimum Revenue. At the end of each fiscal quarter set forth below, maintain quarterly Revenue of not less than the amount set forth below for such fiscal quarter: Fiscal Quarter Ending Revenue --------------------- ------- September 30, 1999 $110,000,000 December 31, 1999 $135,000,000 March 31, 2000 $135,000,000 June 30, 2000 $180,000,000 September 30, 2000 $225,000,000 December 31, 2000 $265,000,000 March 31, 2001 $290,000,000 June 30, 2001 $330,000,000 September 30, 2001 $365,000,000 December 31, 2001 $420,000,000 March 31, 2002 $468,000,000 June 30, 2002 $502,500,000 September 30, 2002 $542,000,000 December 31, 2002 $587,500,000 March 31, 2003 $615,000,000 June 30, 2003 $675,000,000 September 30, 2003 $710,000,000 December 31, 2003 $750,000,000 March 31, 2004 $825,000,000 June 30, 2004 $835,000,000 September 30, 2004 $840,000,000 December 31, 2004 $850,000,000 March 31, 2005 $850,000,000 June 30, 2005 $850,000,000 81 Fiscal Quarter Ending Revenue --------------------- ------- September 30, 2005 $865,000,000 December 31, 2005 $885,500,000 (ii) Minimum EBITDA. At the end of each fiscal quarter set forth below, maintain EBITDA of ICG for such fiscal quarter of not less than the amount set forth below (or, in the case of (A) the fiscal quarters ending on or before March 31, 2000, EBITDA of ICG for the period from April 1, 1999 through the end of such fiscal quarter and (B) the fiscal quarter ended June 30, 2000, EBITDA of ICG for the most recently ended twelve-month period): Fiscal Quarter Ending EBITDA --------------------- ------ September 30, 1999 $22,615,000 December 31, 1999 $52,527,000 March 31, 2000 $45,435,000 June 30, 2000 $56,958,000 September 30, 2000 $53,743,000 December 31, 2000 $71,500,000 March 31, 2001 $85,679,000 June 30, 2001 $105,843,000 September 30, 2001 $121,372,000 December 31, 2001 $149,757,000 March 31, 2002 $190,000,000 June 30, 2002 $204,000,000 September 30, 2002 $220,000,000 December 31, 2002 $238,553,000 March 31, 2003 $275,000,000 June 30, 2003 $301,675,000 September 30, 2003 $316,000,000 December 31, 2003 $334,085,000 March 31, 2004 $378,992,000 June 30, 2004 $385,491,000 September 30, 2004 $390,036,000 December 31, 2004 $395,000,000 March 31, 2005 $395,000,000 June 30, 2005 $395,000,000 September 30, 2005 $400,000,000 December 31, 2005 $406,004,000 (iii) Maximum Total Leverage. At the end of each fiscal quarter set forth below, maintain an ICG Total Leverage Ratio of not greater than the ratio set forth below for such fiscal quarter: 82 Fiscal Quarter Ending Ratio --------------------- ----- June 30, 2001 8.50:1 September 30, 2001 7.50:1 December 31, 2001 6.50:1 March 31, 2002 5.00:1 June 30, 2002 5.00:1 September 30, 2002 5.00:1 December 31, 2002 5.00:1 March 31, 2003 and thereafter 4.00:1 (iv) Maximum Total Debt/Gross PP & E. At the end of each fiscal quarter set forth below, maintain a ratio of (i) Total Debt of ICG and its Subsidiaries on such date to (ii) the gross book value of the Gross PP & E on such date of not greater than the ratio set forth below for such fiscal quarter: Fiscal Quarter Ending Ratio --------------------- ----- September 30, 1999 1.50:1 December 31, 1999 1.45:1 March 31, 2000 1.40:1 June 30, 2000 1.35:1 September 30, 2000 1.30:1 December 31, 2000 1:25:1 March 31, 2001 1:25:1 June 30, 2001 1.20:1 September 30, 2001 1.15:1 December 31, 2001 1.10:1 March 31, 2002 and thereafter 1.00:1 (v) Minimum Interest Coverage. Maintain at the end of each fiscal quarter set forth below a ratio of (i) EBITDA of ICG for the most recently ended six month period to (ii) Interest Expense of ICG for the most recently ended six month period of not less than the ratio set forth below for such fiscal quarter (or, (A) in the case of the fiscal quarter ending December 31, 1999, a ratio of (i) EBITDA of ICG for the most recently ended nine month period to (ii) Interest Expense of ICG for the most recently ended nine month period and (B) in the case of the fiscal quarters ending March 31, 2000 and June 30, 2000, a ratio of (i) EBITDA of ICG for the most recently ended twelve month period to (ii) Interest Expense of ICG for the most recently ended twelve month period): Fiscal Quarter Ending Ratio --------------------- ----- September 30, 1999 1.75:1 December 31, 1999 1.75:1 March 31, 2000 1.75:1 June 30, 2000 1.75:1 83 Fiscal Quarter Ending Ratio --------------------- ----- September 30, 2000 2.25:1 December 31, 2000 2:25:1 March 31, 2001 2:25:1 June 30, 2001 2.25:1 September 30, 2001 2.25:1 December 31, 2001 2.25:1 March 31, 2002 and thereafter 2.50:1; or (q) ICG shall make, or permit any of its Subsidiaries to make, any Capital Expenditures that would cause the aggregate of all such Capital Expenditures made by ICG and its Subsidiaries in any period set forth below to exceed the amount set forth below for such period: Fiscal Quarter Ending Amount --------------------- ------ September 30, 1999 $173,000,000 December 31, 1999 229,000,000 March 31, 2000 207,000,000 June 30, 2000 202,000,000 September 30, 2000 195,000,000 December 31, 2000 190,000,000 March 31, 2001 237,000,000 June 30, 2001 229,000,000 September 30, 2001 222,000,000 December 31, 2001 213,000,000 March 31, 2002 228,280,000 June 30, 2002 228,280,000 September 30, 2002 210,720,000 December 31, 2002 210,720,000 March 31, 2003 216,060,000 June 30, 2003 216,060,000 September 30, 2003 199,440,000 December 31, 2003 199,440,000 March 31, 2004 199,680,000 June 30, 2004 199,680,000 September 30, 2004 184,320,000 December 31, 2004 184,320,000 March 31, 2005 205,670,000 June 30, 2005 205,670,000 September 30, 2005 189,850,000 December 31, 2005 189,850,000 provided, however, that if, at the end of any such period (a "Base Quarter") set forth above, the amount specified above for such Base Quarter exceeds the amount 84 of Capital Expenditures made by ICG and its Subsidiaries during such Base Quarter (the amount of such excess being the "Excess Amount"), ICG and its Subsidiaries shall be entitled to make additional Capital Expenditures in either of the two succeeding periods set forth above in an amount in the aggregate over such succeeding periods equal to the Excess Amount; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrowers, declare the Commitments of each Lender Party and the obligation of each Lender Party to make Advances (other than Letter of Credit Advances by the Issuing Bank or a Working Capital Lender pursuant to Section 2.03(c)) and of the Issuing Bank to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, (A) by notice to the Borrowers, declare the Notes, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrowers, (B) by notice to each party required under the terms of any agreement in support of which a Standby Letter of Credit is issued, request that all Obligations under such agreement be declared to be due and payable and (C) by notice to the Issuing Bank, direct the Issuing Bank to deliver a Default Termination Notice to the beneficiary of each Standby Letter of Credit issued by it, and the Issuing Bank shall deliver such Default Termination Notices; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrowers under the Federal Bankruptcy Code, (x) the Commitments of each Lender Party and the obligation of each Lender Party to make Advances (other than Letter of Credit Advances by the Issuing Bank or a Working Capital Lender pursuant to Section 2.03(c)) and of the Issuing Bank to issue Letters of Credit shall automatically be terminated and (y) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrowers. SECTION 6.02. Actions in Respect of the Letters of Credit upon Default. If any Event of Default shall have occurred and be continuing, the Administrative Agent may, or shall at the request of the Required Lenders, irrespective of whether it is taking any of the actions described in Section 6.01 or otherwise, make demand upon the Borrowers to, and forthwith upon such demand the Borrowers will, pay to the Collateral Agent on behalf of the Lender Parties in same day funds at the Collateral Agent's office designated in such demand, for deposit in the L/C Cash Collateral Account, an amount equal to the aggregate Available Amount of all Letters of Credit then outstanding. If at any time the Administrative Agent or the Collateral Agent determines that any funds held in the L/C Cash Collateral Account are subject to any right or claim of any Person other than the Agents and the Lender Parties or that the total amount of such funds is less than the aggregate Available Amount of all Letters of Credit, the Borrowers will, forthwith upon demand by the Administrative Agent or the Collateral Agent, pay to the Collateral Agent, as additional funds to be deposited and held in the L/C Cash Collateral Account, an amount equal to the excess of (a) such aggregate Available Amount over (b) the total amount of funds, if any, then held in the L/C Cash Collateral Account that the Administrative Agent or the Collateral Agent, as the case may be, determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit for which funds are on deposit in the L/C Cash Collateral Account, such funds shall be applied to reimburse the Issuing Bank or Working Capital Lenders, as applicable, to the extent permitted by applicable law. 85 ARTICLE VII PARENT GUARANTY SECTION 7.01. Guaranty. The Parent hereby unconditionally and irrevocably guarantees the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all Obligations of each other Loan Party now or hereafter existing under the Loan Documents, whether for principal, interest, fees, expenses or otherwise (such Obligations being the "Guaranteed Obligations"), and agrees to pay any and all expenses (including reasonable counsel fees and expenses) incurred by the Administrative Agent or the Lender Parties in enforcing any rights under this Guaranty. Without limiting the generality of the foregoing, the Parent0s liability shall extend to all amounts that constitute part of the Guaranteed Obligations and would be owed by each such Loan Party to the Agent or any Lender Party under the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Loan Party. SECTION 7.02. Guaranty Absolute. The Parent guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Loan Documents, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Agents or the Lenders with respect thereto. The Obligations of the Parent under this Guaranty are independent of the Guaranteed Obligations or any other Obligations of any Loan Party under the Loan Documents, and a separate action or actions may be brought and prosecuted against the Parent to enforce this Guaranty, irrespective of whether any action is brought against any other Loan Party or whether any other Loan Party is joined in any such action or actions. The liability of the Parent under this Guaranty shall be irrevocable, absolute and unconditional irrespective of, and the Parent hereby irrevocably waives any defenses it may now or hereinafter have in any way relating to, any or all of the following: (a) any lack of validity or enforceability of any Loan Document or any agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations or any other Obligations of any other Loan Party under the Loan Documents, or any other amendment or waiver of or any consent to departure from any Loan Document, including, without limitation, any increase in the Guaranteed Obligations resulting from the extension of additional credit to the Borrower or otherwise; (c) any taking, exchange, release or non-perfection of any collateral, or any taking, release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations; (d) any manner of application of collateral, or proceeds thereof, to all or any of the Guaranteed Obligations, or any manner of sale or other disposition of any collateral for all or any of the Guaranteed Obligations or any other Obligations of any other Loan Party under the Loan Documents or any other assets of any Loan Party or any of their Subsidiaries; (e) any change, restructuring or termination of the corporate structure or existence of any Loan Party or any of their Subsidiaries; or 86 (f) any other circumstance (including, without limitation, any statute of limitations) or any existence of or reliance on any representation by the Administrative Agent or any Lender Party that might otherwise constitute a defense available to, or a discharge of, the Borrower, any Subsidiary Guarantor or any other guarantor or surety. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the Guaranteed Obligations is rescinded or must otherwise be returned by the Administrative Agent or any Lender Party upon the insolvency, bankruptcy or reorganization of any Loan Party or any of their Subsidiaries or otherwise, all as though such payment had not been made. SECTION 7.03. Waiver. The Parent hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and this Guaranty and any requirement that the Administrative Agent or any Lender Party protect, secure, perfect or insure any Lien or any property subject thereto or exhaust any right or take any action against any Loan Party or any other Person or any collateral. The Parent acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by the Loan Documents and that the waiver set forth in this Section 7.03 is knowingly made in contemplation of such benefits SECTION 7.04. Subrogation. The Parent will not exercise any rights that it may now or hereafter acquire against the Borrower, any Subsidiary Guarantor or any other guarantor that arise from the existence, payment, performance or enforcement of the Parent0s Obligations under this Agreement or any other Loan Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of the Administrative Agent or any Lender Party against the Borrower, any Subsidiary Guarantor or any other guarantor or any collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from the Borrower, any Subsidiary Guarantor or any other guarantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right, unless and until all of the Obligations and all other amounts payable under this Guaranty shall have been paid in full in cash and the Commitments shall have expired or terminated. If any amount shall be paid to the Parent in violation of the preceding sentence at any time prior to the later of (i) the payment in full in cash of the Guaranteed Obligations and all other amounts payable under this Guaranty, and (ii) the later of the Tranche A Termination Date, the Tranche B Termination Date and the Working Capital Termination Date, such amount shall be held in trust for the benefit of the Administrative Agent and the Lender Parties and shall forthwith be paid to the Administrative Agent to be credited and applied to the Guaranteed Obligations and all other amounts payable under this Guaranty, whether matured or unmatured, in accordance with the terms of the Loan Documents, or to be held as collateral for any Guaranteed Obligations or other amounts payable under this Guaranty thereafter arising. If (i) the Parent shall make payment to the Administrative Agent or any Lender Party of all or any part of the Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other amounts payable under this Guaranty shall be paid in full in cash and (iii) each of the Tranche A Termination Date, the Tranche B Termination Date and the Working Capital Termination Date shall have occurred, the Administrative Agent and the Lender Parties will, at the Parent0s request and expense, execute and deliver to the Parent appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to the Parent of an interest in the Guaranteed Obligations resulting from such payment by the Parent. 87 ARTICLE VIII THE AGENTS SECTION 8.01. Authorization and Action. Each Lender Party (in its capacities as a Lender, Issuing Bank (if applicable) and on behalf of itself and its Affiliates as potential Hedge Banks) hereby appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to such Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of the Notes), no Agent shall be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lender Parties and all holders of Notes; provided, however, that no Agent shall be required to take any action that exposes such Agent to personal liability or that is contrary to this Agreement or applicable law. Each Agent agrees to give to each Lender Party prompt notice of each notice given to it by any Borrower pursuant to the terms of this Agreement. SECTION 8.02. Agents' Reliance, Etc. Neither any Agent nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, each Agent: (a) may treat the payee of any Note as the holder thereof until, in the case of the Administrative Agent, the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, or, in the case of any other Agent, such Agent has received notice from the Administrative Agent that it has received and accepted such Assignment and Acceptance, in each case as provided in Section 9.07; (b) may consult with legal counsel (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender Party and shall not be responsible to any Lender Party for any statements, warranties or representations (whether written or oral) made in or in connection with the Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Loan Document on the part of any Loan Party or to inspect the property (including the books and records) of any Loan Party; (e) shall not be responsible to any Lender Party for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; and (f) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram, telecopy or telex) believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.03. Agents and Affiliates. With respect to its Commitments, the Advances made by it and the Notes issued to it, each Agent shall have the same rights and powers under the Loan Documents as any other Lender Party and may 88 exercise the same as though it were not an Agent; and the term "Lender Party" or "Lender Parties" shall, unless otherwise expressly indicated, include each Agent in its individual capacity. Each Agent and its respective affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any Loan Party, any of its Subsidiaries and any Person that may do business with or own securities of any Loan Party or any such Subsidiary, all as if such Agent was not an Agent and without any duty to account therefor to the Lender Parties. SECTION 8.04. Lender Party Credit Decision. Each Lender Party acknowledges that it has, independently and without reliance upon any Agent or any other Lender Party and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender Party also acknowledges that it will, independently and without reliance upon any Agent or any other Lender Party and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement. SECTION 8.05. Indemnification. (a) Each Lender Party severally agrees to indemnify each Agent (to the extent not promptly reimbursed by the Borrower) from and against such Lender Party's ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against such Agent in any way relating to or arising out of the Loan Documents or any action taken or omitted by such Agent under the Loan Documents; provided, however, that no Lender Party shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct as found in a final, non-appealable judgment by a court of competent jurisdiction. Without limitation of the foregoing, each Lender Party agrees to reimburse each Agent promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Borrowers under Section 9.04, to the extent that such Agent is not promptly reimbursed for such costs and expenses by the Borrowers. (b) Each Lender Party severally agrees to indemnify the Issuing Bank (to the extent not promptly reimbursed by the Borrower) from and against such Lender Party's ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Issuing Bank in any way relating to or arising out of the Loan Documents or any action taken or omitted by the Issuing Bank under the Loan Documents; provided, however, that no Lender Party shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Issuing Bank's gross negligence or willful misconduct as found in a final, non-appealable judgment by a court of competent jurisdiction. Without limitation of the foregoing, each Lender Party agrees to reimburse the Issuing Bank promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Borrowers under Section 9.04, to the extent that the Issuing Bank is not promptly reimbursed for such costs and expenses by the Borrowers. (c) For purposes of this Section 8.05, the Lender Parties' respective ratable shares of any amount shall be determined, at any time, according to the 89 sum of (i) the aggregate principal amount of the Advances outstanding at such time and owing to the respective Lender Parties, (ii) their respective Pro Rata Shares of the aggregate Available Amount of all Letters of Credit outstanding at such time, (iii) the aggregate unused portions of their respective Term Commitments at such time and (iv) their respective Unused Working Capital Commitments at such time; provided that the aggregate principal amount of Letter of Credit Advances owing to the Issuing Bank shall be considered to be owed to the Working Capital Lenders ratably in accordance with their respective Working Capital Commitments. The failure of any Lender Party to reimburse any Agent or the Issuing Bank, as the case may be, promptly upon demand for its ratable share of any amount required to be paid by the Lender Parties to such Agent or the Issuing Bank, as the case may be, as provided herein shall not relieve any other Lender Party of its obligation hereunder to reimburse such Agent or the Issuing Bank, as the case may be, for its ratable share of such amount, but no Lender Party shall be responsible for the failure of any other Lender Party to reimburse such Agent or the Issuing Bank, as the case may be, for such other Lender Party's ratable share of such amount. Without prejudice to the survival of any other agreement of any Lender Party hereunder, the agreement and obligations of each Lender Party contained in this Section 8.05 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the other Loan Documents. SECTION 8.06. Successor Agents. Any Agent may resign at any time by giving written notice thereof to the Lender Parties and the Borrowers and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent, subject, so long as no Default has occurred and continuing, to the consent of the Borrowers, such consent not to be unreasonably withheld. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lender Parties, appoint a successor Agent, subject, so long as no Default has occurred and continuing, to the consent of the Borrowers, such consent not to be unreasonably withheld, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent and, in the case of a successor Collateral Agent, upon the execution and filing or recording of such financing statements, or amendments thereto, and such amendments or supplements to any mortgages, and such other instruments or notices, as may be necessary or desirable, or as the Required Lenders may request, in order to continue the perfection of the Liens granted or purported to be granted by the Collateral Documents, such successor Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. If within 45 days after written notice is given of the retiring Agent's resignation or removal under this Section 8.06 no successor Agent shall have been appointed and shall have accepted such appointment, then on such 45th day (i) the retiring Agent's resignation or removal shall become effective, (ii) the retiring Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Lenders shall thereafter perform all duties of the retiring Agent under the Loan Documents until such time, if any, as the Required Lenders appoint a successor Agent as provided above. After any retiring Agent's resignation or removal hereunder as Agent shall have become effective, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 90 ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Notes or any other Loan Document, nor consent to any departure by any Loan Party therefrom, shall in any event be effective unless the same shall be in writing and signed (or, in the case of the Collateral Documents, consented to) by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that (a) no amendment, waiver or consent shall, unless in writing and signed by all of the Lenders (other than any Lender Party that is, at such time, a Defaulting Lender), do any of the following at any time: (i) waive any of the conditions specified in Section 3.01 or, in the case of the Initial Extension of Credit, Section 3.02, (ii) change the number of Lenders or the percentage of (x) the Commitments, (y) the aggregate unpaid principal amount of the Advances or (z) the aggregate Available Amount of outstanding Letters of Credit that, in each case, shall be required for the Lenders or any of them to take any action hereunder, (iii) reduce or limit the obligations of any Guarantor under Section 1 of the Guaranty issued by it or release such Guarantor or otherwise limit such Guarantor's liability with respect to the Obligations owing to the Agents and the Lender Parties (other than, in the case of any Subsidiary Guarantor, to the extent permitted under the Subsidiary Guaranty), (iv) release any material portion of the Collateral in any transaction or series of related transactions or permit the creation, incurrence, assumption or existence of any Lien on any material portion of the Collateral in any transaction or series of related transactions to secure any Obligations other than Obligations owing to the Secured Parties under the Loan Documents, (v) amend Section 2.13 or this Section 9.01, (vi) increase the Commitments of the Lenders, (vii) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, (viii) postpone any date scheduled for any payment of principal of, or interest on, the Notes pursuant to Section 2.04 or 2.07 or any date fixed for payment of fees or other amounts payable hereunder, or (ix) limit the liability of any Loan Party under any of the Loan Documents and (b) no amendment, waiver or consent shall, unless in writing and signed by the Required Lenders and each Lender (other than any Lender that is, at such time, a Defaulting Lender) that has a Commitment under the Term Facilities or Working Capital Facility if such Lender is directly affected by such amendment, waiver or consent, (i) increase the Commitments of such Lender, (ii) reduce the principal of, or interest on, the Notes held by such Lender or any fees or other amounts payable hereunder to such Lender, (iii) postpone any date fixed for any payment of principal of, or interest on, the Notes held by such Lender or any fees or other amounts payable hereunder to such Lender, (iv) change the order of application of any prepayment set forth in Section 2.06 in any manner that materially affects such Lender; provided further that no amendment, waiver or consent shall, unless in writing and signed by the Issuing Bank, as the case may be, in addition to the Lenders required above to take such action, affect the rights or obligations of the Issuing Bank under this Agreement; and provided further that no amendment, waiver or consent shall, unless in writing and signed by an Agent in addition to the Lenders required above to take such action, affect the rights or duties of such Agent under this Agreement or the other Loan Documents. SECTION 9.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopy communication) and mailed (by certified mail), telecopied or delivered by hand; if to ICG Equipment, at its address at 161 Inverness Drive West, Englewood, CO 80112, facsimile: (303) 414-8883, Attention: Reggie Vegliante, with a copy to H. Don Teaque, General Counsel; if to ICG NetAhead, at its address at 161 Inverness Drive West, Englewood, CO 80112, facsimile: (303) 414-8883, Attention: Reggie Vegliante, 91 with a copy to H. Don Teague, General Counsel; if to any Initial Lender Party, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender Party, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender Party; if to the Administrative Agent or the Collateral Agent, at its address at 1 Liberty Plaza, New York, New York 10006 Attention: Kevin Cornwell; and if to the Lead Arranger at its address at 1585 Broadway, New York, New York 10036, Attention: Lucy Galbraith; or, as to any party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and other communications shall, when mailed (by certified mail), telecopied or delivered shall be effective when received by the party being notified. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or the Notes or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of an original executed counterpart thereof. SECTION 9.03. No Waiver; Remedies. No failure on the part of any Lender Party or any Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.04. Costs and Expenses. (a) Subject to the provisions of the Commitment Letter, the Borrowers agree jointly and severally to pay on demand (i) all costs and expenses of the Administrative Agent and the Collateral Agent in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents (including, without limitation, (A) all due diligence, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of counsel for such Agents with respect thereto, with respect to advising such Agents as to their rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any Loan Party or with other creditors of any Loan Party or any of its Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto) and (ii) all costs and expenses of such Agents and each Lender Party in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, or any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally (including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent and the Collateral Agent and each Lender Party with respect thereto). (b) The Borrowers agree to indemnify, defend and save and hold harmless the Administrative Agent and the Collateral Agent, each Lender Party and each of their Affiliates and their respective officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against, and shall pay on demand, any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) (i) the Facilities, the actual 92 or proposed use of the proceeds of the Advances or the Letters of Credit, the Transaction Documents or any of the transactions contemplated thereby, or (ii) the actual or alleged presence of Hazardous Materials on any property of any Loan Party or any of its Subsidiaries or any Environmental Action relating in any way to any Loan Party or any of its Subsidiaries, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 9.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors, shareholders or creditors or an Indemnified Party, whether or not any Indemnified Party is otherwise a party thereto and whether or not the Transaction is consummated. Each Borrower also agrees not to assert any claim against any Agent, any Lender Party or any of their Affiliates, or any of their respective officers, directors, employees, agents and advisors, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the Facilities, the actual or proposed use of the proceeds of the Advances or the Letters of Credit, the Transaction Documents or any of the transactions contemplated by the Transaction Documents. (c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made by any Borrower to or for the account of a Lender Party other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.06, 2.09(b)(i) or 2.10(d), acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, or by an Eligible Assignee to a Lender Party other than on the last day of the Interest Period for such Advance upon an assignment of rights and obligations under this Agreement pursuant to Section 9.07 as a result of a demand by the Borrowers pursuant to Section 9.07(a), or if the Borrowers fail to make any payment or prepayment of an Advance for which a notice of prepayment has been given or that is otherwise required to be made, whether pursuant to Section 2.04, 2.06 or 6.01 or otherwise, the Borrowers shall, upon demand by such Lender Party (with a copy of such demand to the Administrative Agent), jointly and severally pay to the Administrative Agent for the account of such Lender Party any amounts required to compensate such Lender Party for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion or such failure to pay or prepay, as the case may be, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender Party to fund or maintain such Advance. (d) If any Loan Party fails to pay when due any costs, expenses or other amounts payable by it under any Loan Document, including, without limitation, fees and expenses of counsel and indemnities, such amount may be paid on behalf of such Loan Party by the Administrative Agent or any Lender Party, in its sole discretion. (e) Without prejudice to the survival of any other agreement of any Loan Party hereunder or under any other Loan Document, the agreements and obligations of each Borrower contained in Sections 2.10 and 2.12 and this Section 9.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under any of the other Loan Documents. SECTION 9.05. Right of Set-off. Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the 93 Administrative Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Agent and each Lender Party and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Agent, such Lender Party or such Affiliate to or for the credit or the account of each Borrower against any and all of the Obligations of such Borrower now or hereafter existing under the Loan Documents, irrespective of whether such Agent or such Lender Party shall have made any demand under this Agreement or such Note or Notes and although such Obligations may be unmatured. Each Agent and each Lender Party agrees promptly to notify each Borrower after any such set-off and application; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Agent and each Lender Party and their respective Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Agent, such Lender Party and their respective Affiliates may have. SECTION 9.06. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and each Agent and the Administrative Agent shall have been notified by each Initial Lender Party that such Initial Lender Party has executed it and thereafter shall be binding upon and inure to the benefit of each Borrower, each Agent and each Lender Party and their respective successors and assigns, except that the Borrowers shall not have the right to assign their rights hereunder or any interest herein without the prior written consent of the Lender Parties. SECTION 9.07. Assignments and Participations. (a) Each Lender may and, so long as no Default shall have occurred and be continuing, if demanded by the Borrowers (following a demand by such Lender pursuant to Section 2.10 or 2.12) upon at least five Business Days' notice to such Lender and the Administrative Agent, will assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment or Commitments, the Advances owing to it and the Note or Notes held by it); provided, however, that (i) each such assignment shall be of a uniform, and not a varying, percentage of all rights and obligations under and in respect of one or more Facilities, (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender, an Affiliate of any Lender or an Approved Fund of any Lender or an assignment of all of a Lender's rights and obligations under this Agreement, the aggregate amount of the Commitments being assigned to such Eligible Assignee pursuant to such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $3,000,000 (or such lesser amount as shall be approved by the Administrative Agent and, so long as no Default shall have occurred and be continuing at the time of effectiveness of such assignment, the Borrower) under each Facility for which a Commitment is being assigned, (iii) each such assignment shall be to an Eligible Assignee, (iv) each such assignment made as a result of a demand by the Borrower pursuant to this Section 9.07(a) shall be arranged by the Borrower after consultation with the Administrative Agent and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (v) no Lender shall be obligated to make any such assignment as a result of a demand by the Borrower pursuant to this Section 9.07(a) unless and until such Lender shall have received one or more payments from either the Borrower or one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Advances owing to such 94 Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement, (vi) no such assignments shall be permitted without the consent of the Administrative Agent until the Administrative Agent shall have notified the Lender Parties that syndication of the Commitments hereunder has been completed and (vii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note or Notes subject to such assignment and a processing and recordation fee of $3,000; provided, however, that (A) such processing and recordation fee shall be $1,500 for any Person that immediately prior to such assignment was a Lender; (B) there shall be no such processing and recordation fee for any Person that immediately prior to such assignment was an Affiliate of such assigning Lender; and (C) for each such assignment made as a result of a demand by the Borrower pursuant to this Section 9.07(a), the Borrower shall pay to the Administrative Agent the applicable processing and recordation fee. (b) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender or Issuing Bank, as the case may be, hereunder and (ii) the Lender or Issuing Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights under Sections 2.10, 2.12 and 9.04 to the extent any claim thereunder relates to an event arising prior to such assignment) and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Lender's or Issuing Bank's rights and obligations under this Agreement, such Lender or Issuing Bank shall cease to be a party hereto). (c) By executing and delivering an Assignment and Acceptance, each Lender Party assignor thereunder and each assignee thereunder confirm to and agree with each other and the other parties thereto and hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender Party makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Lender Party makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon any Agent, such assigning Lender Party or any other Lender Party and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to such Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental 95 thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender or Issuing Bank, as the case may be. (d) The Administrative Agent, acting for this purpose (but only for this purpose) as the agent of the Borrower, shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lender Parties and the Commitment under each Facility of, and principal amount of the Advances owing under each Facility to, each Lender Party from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agents and the Lender Parties shall treat each Person whose name is recorded in the Register as a Lender Party hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Agent or any Lender Party at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender Party and an assignee, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrowers and each other Agent. In the case of any assignment by a Lender, within five Business Days after its receipt of such notice, the Borrowers, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it under each Facility pursuant to such Assignment and Acceptance and, if any assigning Lender has retained a Commitment hereunder under such Facility, a new Note to the order of such assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A-1, A-2 or A-3 hereto, as the case may be. (f) The Issuing Bank may assign to Eligible Assignee all of its rights and obligations under the undrawn portion of its Letter of Credit Commitment at any time; provided, however, that (i) each such assignment shall be to an Eligible Assignee and (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with a processing and recordation fee of $3,000; provided, however, that such processing and recordation fee shall be $1,500 for any Person that immediately prior to such assignment was a Lender. (g) Each Lender Party may sell participations to one or more Persons (other than any Loan Party or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Advances owing to it and the Note or Notes (if any) held by it); provided, however, that (i) such Lender Party's obligations under this Agreement (including, without limitation, its Commitments) shall remain unchanged, (ii) such Lender Party shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender Party shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrowers, the Agents and the other Lender 96 Parties shall continue to deal solely and directly with such Lender Party in connection with such Lender Party's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or release all or substantially all of the Collateral. (h) Any Lender Party may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.07, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrowers furnished to such Lender Party by or on behalf of the Borrowers; provided, however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from such Lender Party. (i) Notwithstanding any other provision set forth in this Agreement, any Lender Party may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. SECTION 9.08. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement. SECTION 9.09. No Liability of the Issuing Bank. The Borrowers assume all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Issuing Bank nor any of its officers or directors shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing Bank against presentation of documents that do not comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that the Borrowers shall have a claim against the Issuing Bank, and the Issuing Bank shall be liable to the Borrowers, to the extent of any direct, but not consequential, damages suffered by the Borrowers that the Borrowers prove were caused by (i) the Issuing Bank's willful misconduct or gross negligence as determined in a final, non-appealable judgment by a court of competent jurisdiction in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) the Issuing Bank's willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In 97 furtherance and not in limitation of the foregoing, the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. SECTION 9.10. Confidentiality. Neither any Agent nor any Lender Party shall disclose any Confidential Information to any Person without the consent of the Borrower, other than (a) to such Agent's or such Lender Party's Affiliates and their officers, directors, employees, agents and advisors and to actual or prospective Eligible Assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) as requested or required by any state, Federal or foreign authority or examiner regulating such Lender Party and (d) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to the Loan Parties received by it from such Lender Party. SECTION 9.11. Release of Collateral. Upon the sale, lease, transfer or other disposition of any item of Collateral of any Loan Party (including, without limitation, as a result of the sale, in accordance with the terms of the Loan Documents, of the Loan Party that owns such Collateral) in accordance with the terms of the Loan Documents, the Collateral Agent will, at the Borrowers' expense, execute and deliver to such Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted under the Collateral Documents in accordance with the terms of the Loan Documents. SECTION 9.12. Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York State court or, to the fullest extent permitted by law, in such Federal court. Each of the Loan Parties hereby agrees that service of all process in any such proceeding in any such court may be made by registered mail or certified mail, return receipt requested, to such Loan Party at its address provided in Section 9.02. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Loan Documents in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 9.13. Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York. 98 SECTION 9.14. Waiver of Jury Trial. Each of the Borrowers, the Agents and the Lender Parties irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to any of the Loan Documents, the Advances, the Letters of Credit or the actions of any Agent or any Lender Party in the negotiation, administration, performance or enforcement thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. ICG EQUIPMENT, INC. By /s/ H. Don Teague --------------------- Title: ICG NETAHEAD, INC. By /s/ H. Don Teague --------------------- Title: ICG SERVICES, INC. By /s/ H. Don Teague --------------------- Title: MORGAN STANLEY SENIOR FUNDING, INC., as Sole Book-Runner and Lead Arranger By /s/ Lucy H. Galbraith ------------------------ Title: Principal ROYAL BANK OF CANADA, as Administrative Agent and Collateral Agent By /s/ Stephanie Babich ------------------------ Title: Senior Manager BANK OF AMERICA, N.A., as Co-Documentation Agent By /s/ Julie Schell --------------------- Title: Vice President BARCLAYS BANK PLC as Co-Documentation Agent By /s/ Daniele Iacovone ------------------------ Title: Associate Director Initial Lenders MORGAN STANLEY SENIOR FUNDING, INC. By /s/ Lucy H. Galbraith ------------------------ Title: Principal BANK OF AMERICA, N.A. By /s/ Julie Schell ------------------------ Title: Vice President PARIBAS, LOS ANGELES AGENCY By /s/ Darlynn Ernst Kitcher -------------------------- Title: Vice President By /s/ Thomas G. Brandt -------------------------- Title: Director FINOVA CAPITAL CORPORATION By /s/ Andrew J. Pluta -------------------------- Title: Vice President FIRST UNION NATIONAL BANK By /s/ Mark L. Cook ------------------------------ Title: Senior Vice President GENERAL ELECTRIC CAPITAL CORPORATION By /s/ Thomas P. Waters ------------------------------ Title: Senior Vice President IBM CREDIT By /s/ Philip N. Morse --------------------------------------- Title: Director, Commercial Financing Americas ROYAL BANK OF CANADA By /s/ Stephanie Babich ------------------------ Title: Senior Manager STEIN ROE FLOATING RATE LIMITED LIABILITY COMPANY By /s/ Brian W. Good -------------------------- Title: Vice President PILGRIM PRIME RATE TRUST By: Pilgrim Investments, Inc., as its investment manager By /s/ Michel Prince, CFA --------------------------- Title: Vice President EX-10 13 EXHIBIT 10.12 SECURITY AGREEMENT EXECUTION COPY SECURITY AGREEMENT Dated August 12, 1999 From THE PERSONS LISTED ON THE SIGNATURE PAGES HEREOF as Grantors to ROYAL BANK OF CANADA as Collateral Agent T A B L E O F C O N T E N T S Section Page 1. Grant of Security..........................................................2 2. Security for Obligations...................................................6 3. Borrower Remains Liable....................................................6 4. Delivery and Control of Security Collateral and Account Collateral.........6 5. Maintaining the Cash Collateral Account and the L/C Cash Collateral Account....................................................................7 6. Maintaining the Pledged Accounts...........................................8 7. Investing of Amounts in the Cash Collateral Account and the L/C Cash Collateral Account.........................................................9 8. Release of Amounts.........................................................9 9. Representations and Warranties.............................................9 10. Further Assurances.......................................................11 11. As to Equipment and Inventory............................................12 12. Insurance................................................................13 13. Place of Perfection; Records; Collection of Receivables..................14 14. Voting Rights; Dividends; Etc............................................15 15. As to the Assigned Agreements............................................16 16. Payments Under the Assigned Agreements...................................17 17. Transfers and Other Liens [; Additional Shares]..........................17 18. Collateral Agent Appointed Attorney-in-Fact..............................18 19. Collateral Agent May Perform.............................................18 20. The Collateral Agent's Duties............................................18 21. Remedies.................................................................19 Section Page 22. Registration Rights......................................................20 23. Indemnity and Expenses...................................................21 [Section 24. Security Interest Absolute......................................21 [25]. Amendments; Waivers; Etc...............................................22 [26]. Addresses for Notices..................................................22 [27]. Continuing Security Interest; Assignments under the Credit Agreement...23 [28]. Release and Termination................................................23 [29]. The Mortgages..........................................................24 [30]. Governing Law..........................................................24 Schedule I - Pledged Shares [,] [and] Pledged Debt [, Pledged Security Entitlements and Pledged Commodity Contracts] Schedule II - Assigned Agreements Schedule III - Locations of Equipment and Inventory Schedule IV - Intellectual Property Schedule V - Pledged Accounts Schedule VI - Permitted Unpledged Accounts Exhibit A - Form of Security Agreement Supplement Exhibit B - Form of Pledged Account Letter Exhibit C - Form of Consent and Agreement Exhibit D - Form of Intellectual Property Security Agreement Exhibit E - Form of Intellectual Property Security Agreement Supplement ii Execution Copy SECURITY AGREEMENT SECURITY AGREEMENT dated August 12, 1999 made by the Persons listed on the signature pages hereof and the Additional Grantors (as defined in Section 23(c)) (such Persons so listed and the Additional Grantors being, collectively, the "Grantors"), to Royal Bank of Canada, as administrative agent and collateral agent (the "Collateral Agent") for the Credit Agreement referred to below PRELIMINARY STATEMENTS. (1) ICG Equipment, Inc., a Colorado corporation ("ICG Equipment") and ICG NetAhead, Inc., a Delaware corporation ("ICG NetAhead" and, together with ICG Equipment, the "Borrowers") have entered into a Credit Agreement dated as of August 12, 1999 (said Agreement, as it may be hereafter amended, supplemented or otherwise modified from time to time, being the Credit Agreement) with certain Lender Parties thereto, Royal Bank of Canada as Administrative Agent and Collateral Agent, and Morgan Stanley Senior Funding, Inc., as Sole Book-Runner and Lead Arranger. (2) Each Grantor is the owner of the shares (the "Pledged Shares") of stock set forth opposite such Grantor's name on and as otherwise described in Part I of Schedule I hereto and issued by the corporations named therein and of the indebtedness (the "Pledged Debt") described in Part II of said Schedule I and issued by the obligors named therein. (3) The Borrowers have opened a non-interest bearing cash collateral account (the "Cash Collateral Account") with ____________________ at its office at _______________, New York, New York _____, Account No. 277188-9, in the name of the Borrowers but under the sole control and dominion of the Collateral Agent and subject to the terms of this Agreement. (4) The Borrowers have opened a non-interest bearing cash collateral account (the "L/C Cash Collateral Account") with ____________________ at its office at _______________, New York, New York _____, Account No. 277187-1, in the name of the Borrowers but under the sole control and dominion of the Collateral Agent and subject to the terms of this Agreement. (5) It is a condition precedent to the making of Advances and the issuance of Letters of Credit by the Lender Parties under the Credit Agreement and the entry into Secured Hedge Agreements by the Hedge Banks from time to time that the Grantors shall have granted the assignment and security interest and made the pledge and assignment contemplated by this Agreement. (6) Each Grantor will derive substantial direct and indirect benefit from the transactions contemplated by the Loan Documents. (7) Terms defined in the Credit Agreement and not otherwise defined in this Agreement are used in this Agreement as defined in the Credit Agreement. (8) Unless otherwise defined in this Agreement or in the Credit Agreement, terms defined in Article 8 or 9 of the Uniform Commercial Code in effect in the State of New York ("N.Y. Uniform Commercial Code") are used in this Agreement as such terms are defined in such Article 8 or 9. NOW, THEREFORE, in consideration of the premises and in order to induce the Lender Parties to make Advances and issue Letters of Credit under the Credit Agreement and to induce the Hedge Banks to enter into Secured Hedge Agreements from time to time, each Grantor hereby agrees with the Collateral Agent for its benefit and the ratable benefit of the Secured Parties as follows: Section 1. Grant of Security. Each Grantor hereby assigns and pledges to the Collateral Agent for its benefit and the ratable benefit of the Secured Parties, and hereby grants to the Collateral Agent for its benefit and the ratable benefit of the Secured Parties a security interest in, the following (collectively, the "Collateral"): (a) all of such Grantor's right, title and interest, whether now owned or hereafter acquired, in and to all equipment in all of its forms, wherever located, now or hereafter existing, all fixtures and all parts thereof and all accessions thereto (including, but not limited to, telecommunications equipment) (any and all such equipment, fixtures, parts and accessions being the "Equipment"); (b) all of such Grantor's right, title and interest, whether now owned or hereafter acquired, in and to all inventory (including, but not limited to, all telecommunications equipment and goods and all ancillary equipment and goods) in all of its forms, wherever located, now or hereafter existing (including, but not limited to, (i) all raw materials and work in process therefor, finished goods thereof and materials used or consumed in the manufacture, production, preparation or shipping thereof, (ii) goods in which such Grantor has an interest in mass or a joint or other interest or right of any kind (including, without limitation, goods in which such Grantor has an interest or right as consignee) and (iii) goods that are returned to or repossessed or stopped in transit by such Grantor), and all accessions thereto and products thereof and documents therefor (any and all such inventory, accessions, products and documents being the "Inventory"); (c) all of such Grantor's right, title and interest, whether now owned or hereafter acquired, in and to all accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and other obligations of any kind, now or hereafter existing, whether or not arising out of or in connection with the sale or lease of goods or the rendering of services and whether or not earned by performance, and all rights now or hereafter existing in and to all security agreements, leases and other contracts, agreements and guarantees securing or otherwise relating to any such accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles or obligations (any and all such accounts, contract rights, chattel paper, instruments, deposit accounts, general intangibles and obligations, to the extent not referred to in clause (d), (e), (f) or (g) below, being the "Receivables", and any and all such leases, security agreements and other contracts, agreements and guarantees being the "Related Contracts"); (d) all of the following (the "Security Collateral"): 2 (i) the Pledged Shares and the certificates representing the Pledged Shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Shares; (ii) the Pledged Debt and the instruments evidencing the Pledged Debt, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Debt; (iii) all additional shares of stock from time to time acquired by such Grantor in any manner, and the certificates representing such additional shares, and all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares; (iv) all additional indebtedness from time to time owed to such Grantor and the instruments evidencing such indebtedness, and all interest, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such indebtedness; and (v) all other investment property (including, without limitation, all (A) securities, whether certificated or uncertificated, (B) security entitlements, as defined in Section 8-102(a)(17) of the N.Y. Uniform Commercial Code or, in the case of any U.S. Treasury book-entry securities, as defined in 31 C.F.R. Section 357.2, or, in the case of any U.S. federal agency book-entry securities, as defined in the corresponding U.S. federal regulations governing such book-entry securities, (C) securities accounts, (D) commodity contracts and (E) commodity accounts) in which such Grantor has or acquires from time to time any right, title or interest in any manner, and the certificates or instruments, if any, representing or evidencing such investment property, and all dividends, interest, distributions, value, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such investment property; (e) all of such Grantor's right, title and interest in and to (i) each of the agreements listed on Schedule II hereto, (ii) each additional agreement to lease goods of any type to any Person entered into by such Grantor as lessor thereunder, (iii) all other contracts, agreements and guarantees securing or otherwise relating to the agreements described in clauses (i) and (ii) above and (iv) each Hedge Agreement to which such Grantor is now or may hereafter become a party, in each case as such agreements may be amended, supplemented or otherwise modified from time to time (collectively, the "Assigned Agreements"), including, without limitation, (A) all rights of such Grantor to receive moneys due and to become due under or pursuant to the Assigned Agreements, (B) all rights of such Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Assigned Agreements, (C) claims of such Grantor for damages arising out of or for breach of or default under the Assigned Agreements and (D) the right of such Grantor to terminate the Assigned Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder (all such Collateral being the "Agreement Collateral"); 3 (f) all of the following (collectively, the "Account Collateral"): (i) the Cash Collateral Account, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing the Cash Collateral Account; (ii) the L/C Cash Collateral Account, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing the L/C Cash Collateral Account; (iii) all Pledged Accounts (as hereinafter defined), all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing the Pledged Accounts; (iv) all other deposit accounts of such Grantor, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing such deposit accounts; (v) all Collateral Investments (as hereinafter defined) from time to time and all certificates and instruments, if any, from time to time representing or evidencing the Collateral Investments; (vi) all notes, certificates of deposit, deposit accounts, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Collateral Agent for or on behalf of such Grantor in substitution for or in addition to any or all of the then existing Account Collateral; (vii) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Account Collateral; (g) all of such Grantor's right, title and interest, whether now owned or hereafter acquired, in and to the following (collectively, the "Intellectual Property Collateral"): (i) all United States, international and foreign patents, patent applications and statutory invention registrations, including, without limitation, the patents and patent applications set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by supplements to this Agreement, each such supplement being in substantially the form of Exhibit E hereto (an "IP Security Agreement Supplement"), executed and delivered by such Grantor to the Collateral Agent from time to time), together with all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof, all inventions therein, all rights therein provided by international treaties or conventions and all improvements thereto, and all other rights of any kind whatsoever of such Grantor accruing thereunder or pertaining thereto (the "Patents"); 4 (ii) all trademarks (including, without limitation, service marks), certification marks, collective marks, trade dress, logos, domain names, product configurations, trade names, business names, corporate names and other source identifiers, whether or not registered, whether currently in use or not, including, without limitation, all common law rights and registrations and applications for registration thereof, including, without limitation, the trademark registrations and trademark applications set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Collateral Agent from time to time), and all other marks registered in the U.S. Patent and Trademark Office or in any office or agency of any State or Territory of the United States or any foreign country (but excluding any United States intent-to-use trademark application prior to the filing and acceptance of a Statement of Use or an Amendment to allege use in connection therewith to the extent that a valid security interest may not be taken in such an intent-to-use trademark application under applicable law), and all rights therein provided by international treaties or conventions, all reissues, extensions and renewals of any of the foregoing, together in each case with the goodwill of the business connected therewith and symbolized thereby, and all rights corresponding thereto throughout the world and all other rights of any kind whatsoever of such Grantor accruing thereunder or pertaining thereto (the "Trademarks"); (iii) all copyrights, copyright applications, copyright registrations and like protections in each work of authorship, whether statutory or common law, whether published or unpublished, any renewals or extensions thereof, all copyrights of works based on, incorporated in, derived from, or relating to works covered by such copyrights, including, without limitation, the copyright registrations and copyright applications set forth in Schedule IV hereto including, without limitation, the trademark registrations and trademark applications set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Collateral Agent from time to time), together with all rights corresponding thereto throughout the world and all other rights of any kind whatsoever of such Grantor accruing thereunder or pertaining thereto (the "Copyrights"); (iv) all confidential and proprietary information, including, without limitation, know-how, trade secrets, manufacturing and production processes and techniques, inventions, research and development information, technical data, financial, marketing and business data, pricing and cost information, business and marketing plans and customer and supplier lists and information (the "Trade Secrets"); (v) all computer software programs and databases (including, without limitation, source code, object code and all related applications and data files), firmware, and documentation and materials relating thereto, and all rights with respect to the foregoing, together with any and all options, warranties, service contracts, program services, test rights, maintenance rights, improvement rights, renewal rights and indemnifications and any substitutions, replacements, additions or model conversions of any of the foregoing (the "Computer Software"); 5 (vi) all license agreements, permits, authorizations and franchises, whether with respect to the Patents, Trademarks, Copyrights, Trade Secrets or Computer Software, or with respect to the patents, trademarks, copyrights, trade secrets, computer software or other proprietary right of any other Person, including, without limitation, the license agreements set forth in Schedule IV hereto (as such Schedule IV may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Collateral Agent from time to time), and all income, royalties and other payments now or hereafter due and/or payable with respect thereto, subject, in each case, to the terms of such license agreements, permits, authorizations and franchises, including, without limitation, terms requiring consent to a grant of a security interest (the "Licenses"); and (vii) any and all claims for damages for past, present and future infringement, misappropriation or breach with respect to the Patents, Trademarks, Copyrights, Trade Secrets, Computer Software or Licenses, with the right, but not the obligation, to sue for and collect, or otherwise recover, such damages; and (h) all proceeds of any and all of the foregoing Collateral (including, without limitation, proceeds that constitute property of the types described in clauses (a) through (g) of this Section 1 and this clause (h) and, to the extent not otherwise included, all (i) payments under insurance (whether or not the Collateral Agent is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral and (ii) cash. Section 2. Security for Obligations. This Agreement secures, in the case of each Grantor, the payment of all Obligations of such Grantor now or hereafter existing under the Loan Documents, whether direct or indirect, absolute or contingent, and including, without limitation, any extensions, modifications, substitutions, amendments and renewals thereof, whether for principal, reimbursement obligations, interest, premiums, penalties, fees, indemnifications, contract causes of action, costs, expenses or otherwise (all such Obligations being the "Secured Obligations"). Without limiting the generality of the foregoing, this Agreement secures the payment of all amounts that constitute part of the Secured Obligations and would be owed by such Grantor to any Secured Party under the Loan Documents but for the fact that they are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving any Grantor. Section 3. Grantors Remain Liable. Anything herein to the contrary notwithstanding, (a) each Grantor shall remain liable under the contracts and agreements included in the Collateral to the extent set forth therein to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by the Collateral Agent of any of the rights hereunder shall not release any of the Grantors from any of its duties or obligations under the contracts and agreements included in the Collateral and (c) neither the Collateral Agent nor any Secured Party shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement or any other Loan Document, nor shall the Collateral Agent or any Secured Party be obligated to perform any of the obligations or duties of any of the Grantors thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. 6 Section 4. Delivery and Control of Security Collateral and Account Collateral. (a) All certificates or instruments representing or evidencing Security Collateral or Account Collateral shall be delivered to and held by or on behalf of the Collateral Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance satisfactory to the Collateral Agent. The Collateral Agent shall have the right, at any time in its discretion and without prior notice to the Grantors, to transfer to or to register in the name of the Collateral Agent or any of its nominees any or all of the Security Collateral and Account Collateral, subject only to the revocable rights specified in Section 13(a). In addition, the Collateral Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Security Collateral or Account Collateral for certificates or instruments of smaller or larger denominations. (b) With respect to any Security Collateral that constitutes a security and is not represented or evidenced by a certificate or an instrument, the applicable Grantor shall cause the issuer thereof to agree in writing with such Grantor and the Collateral Agent that such issuer will comply with instructions with respect to such security originated by the Collateral Agent without further consent of such Grantor, such agreement to be in form and substance satisfactory to the Collateral Agent. (c) With respect to any Security Collateral that constitutes a security entitlement, the applicable Grantor shall cause the securities intermediary with respect to such security entitlement either (i) to identify in its records the Collateral Agent as having such security entitlement against such securities intermediary or (ii) to agree in writing with such Grantor and the Collateral Agent that such securities intermediary will comply with entitlement orders (that is, notifications communicated to such securities intermediary directing transfer or redemption of the financial asset to which such Grantor has a security entitlement) originated by the Collateral Agent without further consent of such Grantor, such agreement to be in form and substance satisfactory to the Collateral Agent. (d) With respect to any Security Collateral that constitutes a commodity contract, the applicable Grantor shall cause the commodity intermediary with respect to such commodity contract to agree in writing with such Grantor and the Collateral Agent that such commodity intermediary will apply any value distributed on account of such commodity contract as directed by the Collateral Agent without further consent of such Grantor, such agreement to be in form and substance satisfactory to the Collateral Agent. (e) With respect to any Security Collateral that constitutes a securities account or a commodity account, the applicable Grantor will, in the case of a securities account, comply with subsection (c) of this Section 4 with respect to all security entitlements carried in such securities account and, in the case of a commodity account, comply with subsection (d) of this Section 4 with respect to all commodity contracts carried in such commodity account. Section 5. Maintaining the Cash Collateral Account and the L/C Cash Collateral Account. So long as any Advance shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment under the Credit Agreement: (a) The Borrowers will maintain the Cash Collateral Account and the L/C Cash Collateral Account with ____________________. 7 (b) It shall be a term and condition of each of the Cash Collateral Account and the L/C Cash Collateral Account, notwithstanding any term or condition to the contrary in any other agreement relating to the Cash Collateral Account or the L/C Cash Collateral Account, as the case may be, and except as otherwise provided by the provisions of Section 20, that no amount (including interest on Collateral Investments) shall be paid or released to or for the account of, or withdrawn by or for the account of, the Grantors or any other Person from the Cash Collateral Account or the L/C Cash Collateral Account, as the case may be. The Cash Collateral Account and the L/C Cash Collateral Account shall be subject to such applicable laws, and such applicable regulations of the Board of Governors of the Federal Reserve System and of any other appropriate banking or governmental authority, as may now or hereafter be in effect. Section 6. Maintaining the Pledged Accounts. So long as any Advance shall remain unpaid, any Letter of Credit shall be outstanding or any Lender Party shall have any Commitment under the Credit Agreement: (a) Each Grantor shall maintain blocked deposit accounts ("Pledged Accounts") only with banks ("Pledged Account Banks") that have entered into letter agreements in substantially the form of Exhibit B with such Grantor and the Collateral Agent ("Pledged Letters"). (b) (i) Upon the written direction of the Collateral Agent, each Grantor shall immediately instruct each Affiliate of such Grantor obligated at any time to make any payment to such Grantor for any reason (an "Obligor") to make such payment to a Pledged Account or to the Cash Collateral Account and shall pay to the Collateral Agent for deposit in the Cash Collateral Account, at the end of each Business Day, all proceeds of Collateral. (ii) After the occurrence and during the continuance of any Default and at the written direction of the Collateral Agent, each Grantor shall immediately instruct each Person who is not an Affiliate of such Grantor obligated at any time to make any payment to such Grantor for any reason to make such payment to a Pledged Account or to the Cash Collateral Account and shall pay to the Collateral Agent for deposit in the Cash Collateral Account, at the end of each Business Day, all proceeds of Collateral. (c) Each Grantor shall instruct each Pledged Account Bank to transfer to the Cash Collateral Account, at the end of each Business Day after such written direction, in same day funds, an amount equal to the credit balance of the Pledged Account in such Pledged Account Bank. (d) Upon any termination of any Pledged Account Letter or other agreement with respect to the maintenance of a Pledged Account by any Grantor or any Pledged Account Bank, the applicable Grantor shall immediately notify (i) the Collateral Agent, and (ii) all Obligors that were making payments to such Pledged Account to make all future payments to another Pledged Account or to the Cash Collateral Account. Each Grantor agrees to terminate any or all Pledged Accounts and Pledged Letters upon request by the Collateral Agent. 8 Section 7. Representations and Warranties. Each of the Grantors represents and warrants as follows: (a) All of the Equipment and Inventory are located at the places specified in Schedule III hereto, as such Schedule III may be amended from time to time pursuant to Section 9(a). The chief place of business and chief executive office of such Grantor and the office where such Grantor keeps its records concerning the Receivables, and any permitted copies of each Assigned Agreement and any permitted copies of all chattel paper that evidence Receivables, are located at the address set forth on the signature pages hereto beneath such Grantor's name. Only one copy of any item of chattel paper that evidences Receivables has been originally executed by the parties thereto and such original executed copy has been delivered to the Collateral Agent by such Grantor. Any copy of any chattel paper evidencing Receivables of which the Collateral Agent does not have sole possession has been conspicuously marked with a legend indicating (i) that such copy is not the original executed copy, (ii) that the original executed copy is in the possession of the Collateral Agent, (iii) that such chattel paper is subject to the security interest granted hereby and, (iv) such other matters as may be specified in writing from time to time by the Collateral Agent. None of the Receivables or Agreement Collateral is evidenced by a promissory note or other instrument. (b) Such Grantor is the legal and beneficial owner of the Collateral of such Grantor free and clear of any Lien, claim, option or right of others, except for the security interest created by this Agreement and other Liens permitted by the Credit Agreement. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording office, except such as may have been filed in favor of the Collateral Agent relating to this Agreement. Such Grantor has the trade names listed on Schedule IV. (c) Except for possessory interests of landlord and warehousemen, such Grantor has exclusive possession and control of the Equipment and Inventory (other than Inventory the subject of an Assigned Agreement). (d) The Pledged Shares have been duly authorized and validly issued and are fully paid and non-assessable. The Pledged Debt has been duly authorized, authenticated or issued and delivered, is the legal, valid and binding obligation of the issuers thereof and is not in default. (e) As of the date hereof, the Pledged Shares constitute the percentage of the issued and outstanding shares of stock of the issuers thereof indicated on Schedule I. As of the date hereof, the Pledged Debt is outstanding in the principal amount indicated on Schedule I. (f) All of the investment property owned by such Grantor on the date hereof is listed on Schedule I hereto. The jurisdiction (for purposes of Section 8-110(e) of the N.Y. Uniform Commercial Code) of the securities intermediary that maintains the securities account carrying the Pledged Security Entitlement is ___________. (g) The Assigned Agreements have been duly authorized, executed and delivered by all parties thereto, have not been amended or otherwise 9 modified, are in full force and effect and are binding upon and enforceable against all parties thereto in accordance with their terms. There exists no default under any Assigned Agreement by any party thereto. Each party to the Assigned Agreements (other than the applicable Grantor) and each guarantor of any such party has executed and delivered to such Grantor a consent, in substantially the form of Exhibit C, to the assignment of the Agreement Collateral to the Collateral Agent pursuant to this Agreement. Only one copy of each Assigned Agreement (other than Hedge Agreements) has been originally executed by the parties thereto and such original executed copy has been delivered to the Collateral Agent by such Grantor. Each copy of each Assigned Agreement of which the Collateral Agent does not have sole possession has been conspicuously marked with a legend indicating (i) that such copy is not the original executed copy, (ii) that the original executed copy is in the possession of the Collateral Agent, (iii) that such Assigned Agreement is subject to the security interest granted hereby, and (iv) such other matters as may be specified in writing from time to time by the Collateral Agent. (h) Such Grantor has no deposit accounts other than the Pledged Accounts listed on Schedule V and the permitted accounts listed on Schedule VI. (i) This Agreement, the pledge of the Security Collateral pursuant hereto and the pledge and assignment of the Account Collateral pursuant hereto create a valid and perfected first priority security interest in the Collateral, securing the payment of the Secured Obligations, and all filings and other actions necessary or desirable to perfect and protect such security interest have been duly taken. (j) No consent of any other Person and no authorization, approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or other third party is required either (i) for the grant by such Grantor of the assignment and security interest granted by it hereby, for the pledge by such Grantor of the Security Collateral pursuant hereto or for the execution, delivery or performance of this Agreement by such Grantor, (ii) for the perfection or maintenance of the pledge, assignment and security interest created hereby (including the first priority nature of such pledge, assignment or security interest), except for the filing of financing and continuation statements under the Uniform Commercial Code, which financing statements have been duly filed and are in full force and effect, the recordation of the Intellectual Property Security Agreements referred to in Section 12(f) with the U.S. Patent and Trademark Office and the U.S. Copyright Office, which Agreements have been duly recorded and are in full force and effect and the actions described in Section 4 with respect to Security Collateral, which actions have been taken and are in full force and effect, or (iii) for the exercise by the Collateral Agent of its voting or other rights provided for in this Agreement or the remedies in respect of the Collateral pursuant to this Agreement, except as may be required in connection with the disposition of any portion of the Security Collateral by laws affecting the offering and sale of securities generally. (k) The Inventory has been produced by such Grantor in compliance with all requirements of the Fair Labor Standards Act. (l) As to itself and its Intellectual Property Collateral: 10 (i) The rights of such Grantor in or to the Intellectual Property Collateral do not conflict with, misappropriate or infringe upon the intellectual property rights of any third party, and no claim has been asserted that the use of such Intellectual Property Collateral does or may infringe upon the intellectual property rights of any third party. (ii) Such Grantor is the exclusive owner of the entire and unencumbered right, title and interest in and to the Intellectual Property Collateral and is entitled to use all such Intellectual Property Collateral without limitation, subject only to the license terms of the Licenses. (iii) The Intellectual Property Collateral set forth on Schedule IV hereto includes all of the patents, patent applications, trademark registrations and applications, copyright registrations and applications and Licenses owned by such Grantor. (iv) The Intellectual Property Collateral is subsisting and has not been adjudged invalid or unenforceable in whole or part, and to the best of such Grantor's knowledge, is valid and enforceable. Such Grantor is not aware of any uses of any item of Intellectual Property Collateral that could be expected to lead to such item becoming invalid or unenforceable. (v) Such Grantor has made or performed all filings, recordings and other acts and has paid all required fees and taxes to maintain and protect its interest in each and every item of Intellectual Property Collateral in full force and effect throughout the world, and to protect and maintain its interest therein including, without limitation, recordations of any of its interests in the Patents and Trademarks with the U.S. Patent and Trademark Office and in corresponding national and international patent offices, and recordation of any of its interests in the Copyrights with the U.S. Copyright Office and in corresponding national and international copyright offices. Such Grantor has used proper statutory notice in connection with its use of each patent, trademark and copyright of the Intellectual Property Collateral. (vi) No action, suit, investigation, litigation or proceeding has been asserted or is pending or (to such Grantor's knowledge) threatened against such Grantor (i) based upon or challenging or seeking to deny or restrict the use of any of the Intellectual Property Collateral, or (ii) alleging that any services provided by, processes used by, or products manufactured or sold by, such Grantor infringe upon or misappropriate any patent, trademark, copyright or any other proprietary right of any third party. To the best of such Grantor's knowledge, no Person is engaging in any activity that infringes upon or misappropriates the Intellectual Property Collateral or upon the rights of such Grantor therein. Except as set forth on Schedule IV hereto, such Grantor has not granted any license, release, covenant not to sue, non-assertion assurance, or other right to any Person with respect to any part of the Intellectual Property Collateral. The consummation of the transactions contemplated by the Transaction Documents will not result in the termination or impairment of any of the Intellectual Property Collateral. 11 (vii) With respect to each material License: (A) such License is valid and binding and in full force and effect and represents the entire agreement between the respective licensor and licensee with respect to the subject matter of such License; (B) such License will not cease to be valid and binding and in full force and effect on terms identical to those currently in effect as a result of the rights and interest granted herein, nor will the grant of such rights and interest constitute a breach or default under such License or otherwise give the licensor or licensee a right to terminate such License; (C) such Grantor has not received any notice of termination or cancellation under such License; (D) such Grantor has not received any notice of a breach or default under such License, which breach or default has not been cured; (E) such Grantor has not granted to any other third party any rights, adverse or otherwise, under such License; and (F) neither such Grantor nor any other party to such License is in breach or default in any material respect, and no event has occurred that, with notice or lapse of time or both, would constitute such a breach or default or permit termination, modification or acceleration under such License, except for such events that could not reasonably be expected to have a Material Adverse Effect. (viii) To the best of such Grantor's acknowledge, (A) none of the Trade Secrets of such Grantor has been used, divulged, disclosed or appropriated to the detriment of such Grantor for the benefit of any other Person other than such Grantor; (B) no employee, independent contractor or agent of such Grantor has misappropriated any trade secrets of any other Person in the course of the performance of his or her duties as an employee, independent contractor or agent of such Grantor; and (C) no employee, independent contractor or agent of such Grantor is in default or breach of any term of any employment agreement, non-disclosure agreement, assignment of inventions agreement or similar agreement or contract relating in any way to the protection, ownership, development, use or transfer of such Grantor's Intellectual Property Collateral in any material respect. Section 8. Further Assurances. (a) Each Grantor agrees that from time to time, at the expense of such Grantor, such Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Collateral Agent may reasonably request (including, without limitation, procuring third party consents), in order to perfect and protect any pledge, assignment or security interest granted or purported to be granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, such Grantor will: (i) mark conspicuously each document included in the Inventory, each chattel paper included in the Receivables, each Related Contract, each Assigned Agreement and, at the request of the Collateral Agent, each of its records pertaining to the Collateral with a legend, in form and substance satisfactory to the Collateral Agent, indicating that such document, chattel paper, Related Contract, Assigned Agreement or Collateral is subject to the security interest granted hereby; (ii) if any Collateral shall be evidenced by a promissory note or other instrument or chattel paper, deliver and pledge to the Collateral Agent hereunder such note or instrument or chattel paper duly indorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to the Collateral Agent; and (iii) execute and file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as the Collateral Agent may request, in order to 12 perfect and preserve the pledge, assignment and security interest granted or purported to be granted by such Grantor hereunder; (iv) deliver and pledge to the Collateral Agent for benefit of the Secured Parties certificates representing Pledged Shares accompanied by undated stock powers executed in blank; and (v) deliver to the Collateral Agent evidence that all other action that the Collateral Agent may deem reasonably necessary or desirable in order to perfect and protect the security interest created by such Grantor under this Agreement has been taken. (b) Each Grantor hereby authorizes the Collateral Agent to file one or more financing or continuation statements, and amendments thereto, relating to all or any part of the Collateral without the signature of such Grantor where permitted by law. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law. (c) Each Grantor will furnish to the Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Collateral Agent may reasonably request, all in reasonable detail. (d) Each Grantor shall execute only one copy of each Assigned Agreement and of any chattel paper and shall deliver to the Collateral Agent, forthwith upon execution thereof, such original executed copy, together with all other documents ancillary thereto or delivered by the relevant parties in connection therewith. Such Grantor shall mark each copy of any Assigned Agreement and any chattel paper which is not in the sole possession of the Collateral Agent with a conspicuous legend indicating (i) that such copy is not the original executed copy, (ii) that the original executed copy is in the possession of the Collateral Agent, (iii) that such Assigned Agreement or chattel paper is subject to the security interest granted hereby, and (iv) such other matters as may be specified in writing from time to time by the Collateral Agent. Section 9. As to Equipment and Inventory. (a) Each Grantor shall keep its Equipment and Inventory (other than Inventory sold in the ordinary course of business) at the places therefor specified in Section 7(a) or, upon 30 days' prior written notice to the Collateral Agent, at such other places in a jurisdiction where all action required by Section 8 shall have been taken with respect to the Equipment and Inventory (and, upon the taking of such action in such jurisdiction, Schedule III hereto shall be automatically amended to include such other places). (b) Each Grantor shall cause its Equipment to be maintained and preserved in the same condition, repair and working order as when new, ordinary wear and tear excepted, and in accordance with any manufacturer's manual, and shall forthwith, or in the case of any loss or damage to any of such Equipment as quickly as practicable after the occurrence thereof, make or cause to be made all repairs, replacements and other improvements in connection therewith that are necessary or desirable to such end. Each Grantor shall promptly furnish to the Collateral Agent a statement respecting any loss or damage to any of the Equipment or Inventory of such Grantor. (c) Each Grantor shall pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, its Equipment and Inventory. In producing the Inventory, each Grantor shall comply with all requirements of the Fair Labor Standards Act. 13 Section 10. Insurance. (a) Each Grantor shall, at its own expense, maintain insurance with respect to its Equipment and Inventory in such amounts, against such risks, in such form and with such insurers, as shall be satisfactory to the Collateral Agent from time to time. Each policy for property insurance shall provide for all losses to be paid on behalf of the Collateral Agent and such Grantor as their interests may appear, and each policy for property damage insurance shall provide for all losses (except for losses of less than $5,000,000 per occurrence) to be paid directly to the Collateral Agent. Each such policy shall in addition (i) name such Grantor and the Collateral Agent as insured parties thereunder (without any representation or warranty by or obligation upon the Collateral Agent) as their interests may appear, (ii) contain the agreement by the insurer that any loss thereunder shall be payable to the Collateral Agent notwithstanding any action, inaction or breach of representation or warranty by such Grantor, (iii) provide that there shall be no recourse against the Collateral Agent for payment of premiums or other amounts with respect thereto and (iv) provide that at least 10 days' prior written notice of cancellation or of lapse shall be given to the Collateral Agent by the insurer. Each Grantor shall, if so requested by the Collateral Agent, deliver to the Collateral Agent original or duplicate policies of such insurance and, as often as the Collateral Agent may reasonably request, a report of a reputable insurance broker with respect to such insurance. Further, each Grantor shall, at the request of the Collateral Agent, duly exercise and deliver instruments of assignment of such insurance policies to comply with the requirements of Section 8 and cause the insurers to acknowledge notice of such assignment. (b) Reimbursement under any liability insurance maintained by any Grantor pursuant to this Section 10 may be paid directly to the Person who shall have incurred liability covered by such insurance. In case of any loss involving damage to Equipment or Inventory when subsection (c) of this Section 10 is not applicable, the applicable Grantor shall make or cause to be made the necessary repairs to or replacements of such Equipment or Inventory as deemed desirable in the reasonable opinion of the Grantor, and any proceeds of insurance maintained by such Grantor pursuant to this Section 10 shall be paid to such Grantor as reimbursement for the costs of such repairs or replacements. (c) Upon the occurrence and during the continuance of any Default or the actual or constructive total loss (in excess of $5,000,000 per occurrence) of any Equipment or Inventory, all insurance payments in respect of such Equipment or Inventory shall be paid to and applied by the Collateral Agent as specified in Section 20(b). Section 11. Place of Perfection; Records; Collection of Receivables. (a) Each Grantor shall keep its chief place of business and chief executive office and the office where it keeps its records concerning the Collateral, and any copies of the Assigned Agreements not required to be delivered to the Collateral Agent hereunder and any copies of all chattel paper not required to be delivered to the Collateral Agent hereunder that evidence Receivables, at the location therefor specified in Section 7(a) or, upon 30 days' prior written notice to the Collateral Agent, at such other locations in a jurisdiction where all actions required by Section 8 shall have been taken with respect to the Collateral of such Grantor. Each Grantor will hold and preserve such records, Assigned Agreements and chattel paper and will permit representatives of the Collateral Agent at any time during normal business hours upon reasonable notice to inspect and make abstracts from such records, Assigned Agreements and chattel paper. If the jurisdiction of the securities intermediary that maintains the security account carrying the Pledged Security Entitlements shall change from that jurisdiction specified in Section 7(f), the applicable Grantor shall promptly notify the Collateral Agent of such change and of such new jurisdiction. 14 (b) Except as otherwise provided in this subsection (b), each Grantor shall continue to collect, at its own expense, all amounts due or to become due such Grantor under the Receivables in the manner such Grantor currently collects such amounts. In connection with such collections made in respect of Receivables owing from a Person being an affiliate of such Grantor, such Grantor may take (and, at the Collateral Agent's direction, shall take) such action as such Grantor or the Collateral Agent may reasonably deem necessary or advisable to enforce or expedite collection of the Receivables; provided, however, that the Collateral Agent shall have the right at any time, upon written notice to such Grantor of its intention to do so, to notify the Obligors under any Receivables of the assignment of such Receivables to the Collateral Agent and to direct such Obligors to make payment of all amounts due or to become due to such Grantor thereunder directly to the Collateral Agent or its designee and, upon such notification and at the expense of such Grantor, to enforce collection of any such Receivables directly against the relevant Obligor, and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. In connection with such collections made in respect of Receivables owing from a Person not an affiliate of such Grantor, such Grantor may take (and, at the Collateral Agent's direction, shall take), after the occurrence and during the continuance of any Default, such action as such Grantor or the Collateral Agent may reasonably deem necessary or advisable to enforce or expedite collection of the Receivables; provided, however, that the Collateral Agent shall have the right at any time after the occurrence and during the continuance of any Default, upon written notice to such Grantor of its intention to do so, to notify the Obligors under any Receivables of the assignment of such Receivables to the Collateral Agent and to direct such Obligors to make payment of all amounts due or to become due to such Grantor thereunder directly to the Collateral Agent or its designee and, upon such notification and at the expense of such Grantor, to enforce collection of any such Receivables directly against the relevant Obligor, and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. After receipt by such Grantor of the notice from the Collateral Agent referred to in the proviso to the preceding sentences, (i) all amounts and proceeds (including instruments) received by such Grantor in respect of the Receivables shall be received in trust for the benefit of the Collateral Agent hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Collateral Agent in the same form as so received (with any necessary indorsement) and (ii) such Grantor shall not adjust, settle or compromise the amount or payment of any Receivable, release wholly or partly any Obligor thereof, or allow any credit or discount thereon. (c) No Grantor will permit or consent to the subordination of its right to payment under any of the Receivables or the Related Contracts to any other indebtedness or obligations of the Obligor thereof. SECTION 12. As to Intellectual Property Collateral. (a) With respect to each item of its Intellectual Property Collateral, each Grantor agrees to take, at its expense, all necessary steps, including, without limitation, in the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authority, to (i) maintain the validity and enforceability of each such item of Intellectual Property Collateral and maintain each such item of Intellectual Property Collateral in full force and effect, and (ii) pursue the registration and maintenance of each patent, trademark, or copyright registration or application, now or hereafter included in the Intellectual Property Collateral of such Grantor, including, without limitation, the payment of required fees and taxes, the filing of responses to office actions issued by the U.S. Patent and Trademark Office, the U.S. 15 Copyright Office or other governmental authorities, the filing of applications for renewal or extension, the filing of affidavits under Sections 8 and 15 of the U.S. Trademark Act, the filing of divisional, continuation, continuation-in-part, reissue and renewal applications or extensions, the payment of maintenance fees and the participation in interference, reexamination, opposition, cancellation, infringement and misappropriation proceedings. No Grantor shall, without the written consent of the Collateral Agent, discontinue use of or otherwise abandon any Intellectual Property Collateral, or abandon any right to file an application for letters patent, trademark, or copyright, unless such Grantor shall have previously determined that such use or the pursuit or maintenance of such Intellectual Property Collateral is no longer desirable in the conduct of such Grantor's business and that the loss thereof would not be reasonably likely to have a Material Adverse Effect, in which case, such Grantor will give prompt notice of any such abandonment to the Collateral Agent. (b) Each Grantor agrees promptly to notify the Collateral Agent if such Grantor learns (i) that any item of the Intellectual Property Collateral may have become abandoned, placed in the public domain, invalid or unenforceable, or of any adverse determination or development regarding such Grantor's ownership of any of the Intellectual Property Collateral or its right to register the same or to keep and maintain and enforce the same, or (ii) of any adverse determination or the institution of any proceeding (including, without limitation, the institution of any proceeding in the U.S. Patent and Trademark Office or any court) regarding any item of the Intellectual Property Collateral. (c) In the event that any Grantor becomes aware that any item of the Intellectual Property Collateral is being infringed or misappropriated by a third party, such Grantor shall promptly notify the Collateral Agent and shall take such actions, at its expense, as such Grantor or the Collateral Agent deems reasonable and appropriate under the circumstances to protect such Intellectual Property Collateral, including, without limitation, suing for infringement or misappropriation and for an injunction against such infringement or misappropriation. (d) Each Grantor shall use proper statutory notice in connection with its use of each item of its Intellectual Property Collateral. No Grantor shall do or permit any act or knowingly omit to do any act whereby any of its Intellectual Property Collateral may lapse or become invalid or unenforceable or placed in the public domain. (e) Each Grantor shall take all steps which it or the Collateral Agent deems reasonable and appropriate under the circumstances to preserve and protect each item of its Intellectual Property Collateral, including, without limitation, maintaining the quality of any and all products or services used or provided in connection with any of the Trademarks, consistent with the quality of the products and services as of the date hereof, and taking all steps necessary to ensure that all licensed users of any of the Trademarks use such consistent standards of quality. (f) With respect to its Intellectual Property Collateral, each Grantor agrees to execute an agreement, in substantially the form set forth in Exhibit D hereto (an "Intellectual Property Security Agreement"), for recording the security interest granted hereunder to the Collateral Agent in such Intellectual Property Collateral with the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authorities necessary to perfect the security interest hereunder in such Intellectual Property Collateral. 16 (g) Each Grantor agrees that, should it obtain an ownership interest in any item of the type set forth in Section 1(g) which is not on the date hereof a part of the Intellectual Property Collateral (the "After-Acquired Intellectual Property"), (i) the provisions of Section 1 shall automatically apply thereto, (ii) any such After-Acquired Intellectual Property and, in the case of trademarks, the goodwill of the business connected therewith or symbolized thereby, shall automatically become part of the Intellectual Property Collateral subject to the terms and conditions of this Agreement with respect thereto, (iii) such Grantor shall give prompt written notice thereof to the Collateral Agent in accordance herewith and (iv) such Grantor shall execute and deliver to the Collateral Agent an IP Security Agreement Supplement covering such After-Acquired Intellectual Property as "Additional Collateral" thereunder and as defined therein, and shall record such IP Security Agreement Supplement with the U.S. Patent and Trademark Office, the U.S. Copyright Office and any other governmental authorities necessary to perfect the security interest hereunder in such After-Acquired Intellectual Property. Section 13. Voting Rights; Dividends; Etc. (a) So long as no Event of Default shall have occurred and be continuing: (i) Each Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to its Security Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the other Loan Documents; provided, however, that such Grantor shall not exercise or refrain from exercising any such right if, in the Collateral Agent's judgment, such action would have a material adverse effect on the value of the Security Collateral or any part thereof. (ii) Each Grantor shall be entitled to receive and retain any and all dividends, interest and other distributions paid in respect of its Security Collateral; provided, however, that any and all (A) dividends, interest and other distributions paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, such Security Collateral, (B) dividends and other distributions paid or payable in cash in respect of such Security Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus and (C) cash paid, payable or otherwise distributed in respect of principal of, or in redemption of, or in exchange for, any Security Collateral shall be, and shall be forthwith delivered to the Collateral Agent to hold as, Security Collateral and shall, if received by such Grantor, be received in trust for the benefit of the Collateral Agent, be segregated from the other property or funds of such Grantor and be forthwith delivered to the Collateral Agent as Security Collateral in the same form as so received (with any necessary indorsement). (iii) The Collateral Agent shall execute and deliver (or cause to be executed and delivered) to each Grantor all such proxies and other 17 instruments as such Grantor may reasonably request for the purpose of enabling such Grantor to exercise the voting and other rights that it is entitled to exercise pursuant to paragraph (i) above and to receive the dividends or interest payments that it is authorized to receive and retain pursuant to paragraph (ii) above. (b) Upon the occurrence and during the continuance of a Default or an Event of Default: (i) All rights of each Grantor (x) to exercise or refrain from exercising the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to Section 13(a)(i) shall, upon notice to such Grantor by the Collateral Agent, cease and (y) to receive the dividends, interest and other distributions that it would otherwise be authorized to receive and retain pursuant to Section 13(a)(ii) shall automatically cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall thereupon have the sole right to exercise or refrain from exercising such voting and other consensual rights and to receive and hold as Security Collateral such dividends, interest and other distributions. (ii) All dividends, interest and other distributions that are received by each Grantor contrary to the provisions of paragraph (i) of this Section 13(b) shall be received in trust for the benefit of the Collateral Agent, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Collateral Agent as Security Collateral in the same form as so received (with any necessary indorsement). Section 14. As to the Assigned Agreements. (a) Each Grantor shall at its expense: (i) perform and observe all the terms and provisions of the Assigned Agreements to be performed or observed by it, maintain the Assigned Agreements in full force and effect, enforce the Assigned Agreements in accordance with their terms and take all such reasonable action to such end as may be from time to time requested by the Collateral Agent; and (ii) furnish to the Collateral Agent promptly upon receipt thereof copies of all notices, requests and other documents received by such Grantor under or pursuant to the Assigned Agreements, and from time to time (A) furnish to the Collateral Agent such information and reports regarding the Collateral as the Collateral Agent may reasonably request and (B) upon request of the Collateral Agent make to each other party to any Assigned Agreement such demands and requests for information and reports or for action as such Grantor is entitled to make thereunder. (b) Each Grantor agrees that it shall not: (i) cancel or terminate any Assigned Agreement or consent to or accept any cancellation or termination thereof, except in the ordinary course of business and in a manner that would not reasonably be expected to have a Material Adverse Effect; (ii) amend or otherwise modify any Assigned Agreement or give any consent, waiver or approval thereunder; 18 (iii) waive any default under or breach of any Assigned Agreement; or (iv) take any other action in connection with any Assigned Agreement that would materially impair the value of the interest or rights of such Grantor thereunder or that would materially impair the interest or rights of any Secured Party. (c) Each Grantor hereby consents on its behalf and on behalf of its Subsidiaries to the assignment and pledge to the Collateral Agent for benefit of the Secured Parties of each Assigned Agreement to which it is a party by any other Grantor hereunder. Section 15. Payments Under the Assigned Agreements. Each Grantor agrees, and has effectively so instructed each other party to each Assigned Agreement, that all payments due or to become due under or in connection with such Assigned Agreement shall be made in accordance with the terms of the consents referred to in Section 7(g) above. Section 16. Transfers and Other Liens; Additional Shares. (a) Each Grantor agrees that it shall not (i) other than in accordance with the Loan Documents, sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, any of the Collateral, except sales of Inventory in the ordinary course of business, or (ii) create or suffer to exist any Lien upon or with respect to any of the Collateral except for the pledge, assignment and security interest created by this Agreement. (b) Each Grantor agrees that it shall (i) cause each issuer of the Pledged Shares not to issue any stock or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to such Grantor, and (ii) pledge hereunder, immediately upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock or other securities of each issuer of the Pledged Shares. Section 17. Collateral Agent Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints the Collateral Agent such Grantor's attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, from time to time in the Collateral Agent's discretion, to take any action and to execute any instrument that the Collateral Agent may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation: (a) to obtain and adjust insurance required to be paid to the Collateral Agent pursuant to Section 10, (b) to ask for, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral, (c) to receive, indorse and collect any drafts or other instruments, documents and chattel paper, in connection with clause (a) or (b) above, and 19 (d) to file any claims or take any action or institute any proceedings that the Collateral Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce compliance with the terms and conditions of any Assigned Agreement or the rights of the Collateral Agent with respect to any of the Collateral. Section 18. Collateral Agent May Perform. If any Grantor fails to perform any agreement contained herein, the Collateral Agent may itself perform, or cause performance of, such agreement, and the expenses of the Collateral Agent incurred in connection therewith shall be payable by such Grantor under Section 22(b). Section 19. The Collateral Agent's Duties. The powers conferred on the Collateral Agent hereunder are solely to protect the Secured Parties' interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral, as to ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not any Secured Party has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in its possession if such Collateral is accorded treatment substantially equal to that which it accords its own property. (b) Anything contained herein to the contrary notwithstanding, the Collateral Agent may from time to time, when the Collateral Agent deems it to be necessary, appoint one or more subagents (each a "Subagent") for the Collateral Agent hereunder with respect to all or any part of the Collateral. In the event that the Collateral Agent so appoints any Subagent with respect to any Collateral, (i) the assignment and pledge of such Collateral and the security interest granted in such Collateral by each Grantor hereunder shall be deemed for purposes of this Security Agreement to have been made to such Subagent, in addition to the Collateral Agent, for the ratable benefit of the Secured Parties, as security for the Secured Obligations of such Grantor, (ii) such Subagent shall automatically be vested, in addition to the Collateral Agent, with all rights, powers, privileges, interests and remedies of the Collateral Agent hereunder with respect to such Collateral, and (iii) the term "Collateral Agent," when used herein in relation to any rights, powers, privileges, interests and remedies of the Collateral Agent with respect to such Collateral, shall include such Subagent; provided, however, that no such Subagent shall be authorized to take any action with respect to any such Collateral unless and except to the extent expressly authorized in writing by the Collateral Agent. Section 20. Remedies. If any Event of Default shall have occurred and be continuing: (a) The Collateral Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party upon default under the N.Y. Uniform Commercial Code (whether or not the N.Y. Uniform Commercial Code applies to the affected Collateral) and also may (i) require any of the Grantors to, and each Grantor hereby agrees that it will at its expense and upon request of the Collateral Agent forthwith, assemble all or part of the Collateral as directed by the Collateral Agent and make it available to the Collateral Agent at a place to be designated by the Collateral Agent that is reasonably convenient to both parties and 20 (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, and upon such other terms as are commercially reasonable; (iii) occupy any premises owned or leased by any of the Grantors where the Collateral or any part thereof is assembled or located for a reasonable period in order to effectuate its rights and remedies hereunder or under law, without obligation to such Grantor in respect of such occupation; and (iv) exercise any and all rights and remedies of any of the Grantors under or in connection with the Assigned Agreements, the Receivables and the Related Contracts or otherwise in respect of the Collateral, including, without limitation, any and all rights of such Grantor to demand or otherwise require payment of any amount under, or performance of any provision of, the Assigned Agreements, the Receivables and the Related Contracts. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (b) All cash proceeds received by the Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Collateral Agent, be held by the Collateral Agent as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to the Collateral Agent pursuant to Section 22) in whole or in part by the Collateral Agent for the ratable benefit of the Secured Parties against, all or any part of the Secured Obligations in such order as the Collateral Agent shall elect. Any surplus of such cash or cash proceeds held by the Collateral Agent and remaining after payment in full of all the Secured Obligations shall be paid over to the applicable Grantor or to whomsoever may be lawfully entitled to receive such surplus. (c) All payments received by each Grantor under or in connection with any Assigned Agreement or otherwise in respect of the Collateral shall be received in trust for the benefit of the Collateral Agent, shall be segregated from other funds of such Grantor and shall be forthwith paid over to the Collateral Agent in the same form as so received (with any necessary indorsement). (d) The Collateral Agent may, without notice to any Grantor except as required by law and at any time or from time to time, charge, set-off and otherwise apply all or any part of the Secured Obligations against the Cash Collateral Account or the L/C Cash Collateral Account or any part thereof. (e) In the event of any sale or other disposition of any of the Intellectual Property Collateral of any Grantor, the goodwill of the business connected with and symbolized by any Trademarks subject to such sale or other disposition shall be included therein, and such Grantor shall supply to the Collateral Agent or its designee such Grantor's know-how and expertise, and documents and things relating to any Intellectual Property 21 Collateral subject to such sale or other disposition, and such Grantor's customer lists and other records and documents relating to such Intellectual Property Collateral and to the manufacture, distribution, advertising and sale of products and services of such Grantor. Section 21. Registration Rights. With respect to Security Collateral issued by entities (controlled by a Grantor) where the securities are registered under Section 12(b) or 12(g) of the Securities Act of 1934, if the Collateral Agent shall determine to exercise its right to sell all or any of the Security Collateral pursuant to Section 20, each Grantor agrees that, upon request of the Collateral Agent, such Grantor will, at its own expense: (a) execute and deliver, and cause each issuer of the Security Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of the Collateral Agent, advisable to register such Security Collateral under the provisions of the Securities Act of 1933, as from time to time amended (the "Securities Act"), to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished and to make all amendments and supplements thereto and to the related prospectus that, in the opinion of the Collateral Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (b) use its best efforts to qualify the Security Collateral under the state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Security Collateral, as requested by the Collateral Agent; (c) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement that will satisfy the provisions of Section 11(a) of the Securities Act; (d) provide the Collateral Agent with such other information and projections as may be necessary or, in the opinion of the Collateral Agent, advisable to enable the Collateral Agent to effect the sale of such Security Collateral; and (e) do or cause to be done all such other acts and things as may be necessary to make such sale of the Security Collateral or any part thereof valid and binding and in compliance with applicable law. The Collateral Agent is authorized, in connection with any sale of the Security Collateral pursuant to Section 19, to deliver or otherwise disclose to any prospective purchaser of the Security Collateral (i) any registration statement or prospectus, and all supplements and amendments thereto, prepared pursuant to clause (a) above, (ii) any information and projections provided to it pursuant to clause (d) above and (iii) any other information in its possession relating to the Security Collateral. 22 Section 22. Indemnity and Expenses. (a) Each Grantor agrees to indemnify the Collateral Agent from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses or liabilities resulting from the Collateral Agent's gross negligence or willful misconduct as determined by a final judgment of a court of competent jurisdiction. (b) Each Grantor will upon demand pay to the Collateral Agent the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that the Collateral Agent may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of the Collateral Agent or the Secured Parties hereunder or (iv) the failure by such Grantor to perform or observe any of the provisions hereof. Section 23. Amendments; Waivers; Etc. (a) No amendment or waiver of any provision of this Agreement, and no consent to any departure by any Grantor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Collateral Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. (b) No failure on the part of the Collateral Agent to exercise, and no delay in exercising any right, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. (c) Upon the execution and delivery by any Person of a security agreement supplement in substantially the form of Exhibit A hereto (each a "Security Agreement Supplement"), (i) such Person shall be referred to as an "Additional Grantor" and shall be and become a Grantor, and each reference in this Agreement to "Grantor" shall also mean and be a reference to such Additional Grantor and (ii) the Schedules attached to each Security Agreement Supplement shall be incorporated into and become a part of and supplement Schedules I through VI hereto, and the Collateral Agent may attach such Schedules as supplements to such Schedules, and each reference to such Schedules shall mean and be a reference to such Schedules, as supplemented pursuant hereto. Section 24. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing (including telecopy communication) and, mailed (by certified mail), telecopied, or delivered by hand to the Borrowers or to the Collateral Agent, as the case may be, in each case addressed to such Person at its address specified in the Credit Agreement or, as to any other Grantor at its address set forth below the name of such Grantor on the signature pages hereto, or to the Security Agreement Supplement to which it is a party, as the case may be, or as to any party, either party, at such other address as shall be designated by such party in a written notice to each other party complying as to delivery with the terms of this Section. All such notices and other communications shall, when mailed (by certified mail), telecopied, or delivered shall be effective when received by the party being notified. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement, any Security Agreement Supplement hereto, or of any Schedule hereto to be executed and delivered hereunder shall be effective as delivery of an original executed counterpart hereto. 23 Section 25. Continuing Security Interest; Assignments under the Credit Agreement. This Agreement shall create a continuing security interest in the Collateral and shall (a) remain in full force and effect until the later of (i) the payment in full in cash of the Secured Obligations and (ii) the later of the Tranche A Termination Date, the Tranche B Termination Date, and the Working Capital Termination Date, (b) be binding upon each Grantor, its successors and assigns and (c) inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Collateral Agent, the Secured Parties and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c), any Lender Party may assign or otherwise transfer all or any portion of its rights and obligations under the Credit Agreement (including, without limitation, all or any portion of its Commitment, the Advances owing to it and the Note or Notes held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, in each case as provided in Section 9.07 of the Credit Agreement. Section 26. Release and Termination. (a) Upon any sale, lease, transfer or other disposition of any item of Collateral in accordance with the terms of the Loan Documents (other than sales of Inventory in the ordinary course of business), the Collateral Agent will, at the applicable Grantor's expense, execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted hereby; provided, however, that (i) at the time of such request and such release no Default shall have occurred and be continuing, (ii) the applicable Grantor shall have delivered to the Collateral Agent, at least ten Business Days prior to the date of the proposed release, a written request for release describing the item of Collateral and the terms of the sale, lease, transfer or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a form of release for execution by the Collateral Agent and a certification by such Grantor to the effect that the transaction is in compliance with the Loan Documents and as to such other matters as the Collateral Agent may request and (iii) the proceeds of any such sale, lease, transfer or other disposition required to be applied in accordance with Section 2.05 of the Credit Agreement shall be paid to, or in accordance with the instructions of, the Collateral Agent at the closing. (b) Upon the later of (i) the payment in full in cash of the Secured Obligations, and (ii) the later of the Tranche A Termination Date, the Tranche B Termination Date, and the Working Capital Termination Date, the pledge, assignment and security interest granted hereby shall terminate and all rights to the Collateral shall revert to the applicable Grantor. Upon any such termination, the Collateral Agent will, at the applicable Grantor's expense, execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination. Section 27. Investing of Amounts in the Cash Collateral Account and the L/C Cash Collateral Account. If requested by a Borrower, the Collateral Agent will, subject to the provisions of Section 20, from time to time (a) invest amounts on deposit in the Cash Collateral Account and the L/C Cash Collateral Account in such Cash Equivalents (as to which all action required by Section 8 shall have been taken) as such Borrower may select and the Collateral Agent may approve and (b) invest interest paid on the Cash Equivalents referred to in clause (a) above, and reinvest other proceeds of any such Cash Equivalents that may mature or be sold, in each case in such Cash Equivalents (as to which all actions required by Section 8 shall have been taken) as such Borrower may select and the Collateral Agent may approve (the Cash Equivalents referred to in clauses (a) and (b) above being collectively "Collateral Investments"). Interest and proceeds that are not invested or reinvested in Collateral Investments as 24 provided above shall be deposited and held in the Cash Collateral Account or the L/C Cash Collateral Account, as the case may be. Section 28. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement. Section 29. The Mortgages. In the event that any of the Collateral hereunder is also subject to a valid and enforceable Lien under the terms of any Mortgage and the terms of such Mortgage are inconsistent with the terms of this Agreement, then with respect to such Collateral, the terms of such Mortgage shall be controlling in the case of fixtures and leases, letting and licenses of, and contracts and agreements relating to the lease of real property, and the terms of this Agreement shall be controlling in the case of all other Collateral. Section 30. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, except to the extent that the validity or perfection of the security interest hereunder, or remedies hereunder, in respect of any particular Collateral are governed by the laws of a jurisdiction other than the State of New York. 25 IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. ICG EQUIPMENT, INC. By /s/ H. Don Teague --------------------- Title: Address: 161 Inverness Drive West Englewood, CO 80112 ICG NETAHEAD, INC. By /s/ H. Don Teague --------------------- Title: Address: 161 Inverness Drive West Englewood, CO 80112 Schedule I PLEDGED SHARES AND PLEDGED DEBT Part I
Percentage of Stock Certificate Number Outstanding Stock Issuer Class of Stock Par Value No(s) of Shares Shares - - -------------------------------------------------------------------------------------------------- NIL NIL NIL NIL NIL NIL
Part II Original Principal Debt Issuer Description of Debt Debt Certificate No(s). Final Maturity Amount - - ---------------------------------------------------------------------------------------------- NIL NIL NIL NIL NIL
Schedule II ASSIGNED AGREEMENTS Please see attached lists. Schedule III LOCATIONS OF EQUIPMENT AND INVENTORY Locations of Equipment & Inventory: see attached list Schedule IV to the Security Agreement PATENTS, TRADEMARKS AND TRADE NAMES, COPYRIGHTS AND LICENSES Grantor Patents Country Patent No. Applic. No. Filing Date Issue Date - - -------------------------------------------------------------------------------- NONE. Trademarks and Reg. Applic. Filing Issue Grantor Trade Names Country Mark No. No. Date Date - - -------------------------------------------------------------------------------- NONE. Filing Issue Grantor Copyrights Country Title Reg. No. Applic. No. Date Date - - -------------------------------------------------------------------------------- NONE. Grantor Licenses Title Date Parties - - -------------------------------------------------------------------------------- ORDINARY COURSE OF BUSINESS SOFTWARE AGREEMENTS. Schedule V PLEDGED ACCOUNTS Name and Address of Bank Grantor Account Number NIL NIL NIL Schedule VI PERMITTED UNPLEDGED ACCOUNTS Name and Address Account of Bank Number Please see attached list. Exhibit A to the Security Agreement FORM OF SECURITY AGREEMENT SUPPLEMENT [Date of Security Agreement Supplement] Royal Bank of Canada, as the Collateral Agent for the Secured Parties referred to in the Credit Agreement referred to below 1585 Broadway New York, New York Attn: ___________________ ICG Equipment, Inc. ICG NetAhead, Inc. Ladies and Gentlemen: Reference is made to (i) the Credit Agreement dated as of August 12, 1999 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), among ICG Equipment, Inc., a Colorado corporation, ICG NetAhead, Inc., a Delaware corporation, the Lender Parties party thereto, Royal Bank of Canada, as collateral agent (together with any successor collateral agent appointed pursuant to Article VII of the Credit Agreement, the "Collateral Agent"), and Royal Bank of Canada, as administrative agent for the Lender Parties, and (ii) the Security Agreement dated August 12, 1999 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Security Agreement") made by the Grantors from time to time party thereto in favor of the Collateral Agent for the Secured Parties. Terms defined in the Credit Agreement or the Security Agreement and not otherwise defined herein are used herein as defined in the Credit Agreement or the Security Agreement. Section 1. Grant of Security. The undersigned hereby assigns and pledges to the Collateral Agent for the ratable benefit of the Secured Parties, and hereby grants to the Collateral Agent for the ratable benefit of the Secured Parties, a security interest in, all of its right, title and interest in and to all of the Collateral of the undersigned, whether now owned or hereafter acquired by the undersigned, wherever located and whether now or hereafter existing or arising, including, without limitation, the property and assets of the undersigned set forth on the attached supplemental schedules to the Schedules to the Security Agreement. Section 2. Security for Obligations. The pledge and assignment of, and the grant of a security interest in, the Collateral by the undersigned under this Security Agreement Supplement and the Security Agreement secures the payment of all Obligations of the undersigned now or hereafter existing under or in respect of the Loan Documents, whether direct or indirect, absolute or contingent, and whether for principal, reimbursement obligations, interest, premiums, penalties, fees, indemnifications, contract causes of action, costs, expenses or otherwise. Without limiting the generality of the foregoing, this Security Agreement Supplement and the Security Agreement secures the payment of all amounts that constitute part of the Secured Obligations and that would be owed by the undersigned to any Secured Party under the Loan Documents but for the fact that such Secured Obligations are unenforceable or not allowable due to the existence of a bankruptcy, reorganization or similar proceeding involving the undersigned or any Grantor. Section 3. Supplements to Security Agreement Schedules. The undersigned has attached hereto supplemental Schedules I, II, III, IV, V, VI and VII to Schedules I, II, III, IV, V, VI and VII, respectively, to the Security Agreement, and the undersigned hereby certifies, as of the date first above written, that such supplemental schedules have been prepared by the undersigned in substantially the form of the equivalent Schedules to the Security Agreement and are complete and correct in all material respects. Section 4. Representations and Warranties. The undersigned hereby makes each representation and warranty set forth in Section 7 of the Security Agreement (as supplemented by the attached supplemental schedules) to the same extent as each other Grantor. Section 5. Obligations Under the Security Agreement. The undersigned hereby agrees, as of the date first above written, to be bound as a Grantor by all of the terms and provisions of the Security Agreement to the same extent as each of the other Grantors. The undersigned further agrees, as of the date first above written, that each reference in the Security Agreement to an "Additional Grantor" or a "Grantor" shall also mean and be a reference to the undersigned. Section 6. Governing Law. This Security Agreement Supplement shall be governed by, and construed in accordance with, the laws of the State of New York. Very truly yours, [NAME OF ADDITIONAL GRANTOR] By_______________________________ Title: Address for notices: _______________________ _______________________ _______________________ Exhibit B FORM OF PLEDGED ACCOUNT LETTER _______________, 19__ [Name and address of Pledged Account Bank] ICG Equipment, Inc. ICG NetAhead, Inc. Gentlemen/women: Reference is made to [deposit account no. __________] [the certain deposit accounts listed on Schedule I hereto] into which certain monies, instruments and other properties are deposited from time to time and deposit account no. __________ (collectively, the "Pledged Account") maintained with you by ____________________ (the "Grantor"). Pursuant to the Security Agreement dated August 12, 1999 (the "Security Agreement"), the Grantor has granted to Royal Bank of Canada, as collateral agent (the "Agent") for the Lender Parties referred to in the Credit Agreement dated as of August 12, 1999 (the "Credit Agreement") with ICG Equipment, Inc., and ICG NetAhead, Inc., a security interest in certain property of the Grantor, including, among other things, the following (the "Account Collateral"): the Pledged Account, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing the Pledged Account, all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Account Collateral and all proceeds of any and all of the foregoing Account Collateral and, to the extent not otherwise included, all (i) payments under insurance (whether or not the Collateral Agent is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Account Collateral and (ii) cash. It is a condition to the continued maintenance of the Pledged Account with you that you agree to this letter agreement. By signing this letter agreement, you acknowledge notice of, and consent to the terms and provisions of, the Security Agreement and confirm to the Collateral Agent that the description of the Pledged Account set forth on Schedule V of the Security Agreement is correct and that you have received no notice of any other pledge or assignment of the Pledged Account. Further, you hereby agree with the Collateral Agent that: (a) Notwithstanding anything to the contrary in any other agreement relating to the Pledged Account, the Pledged Account is and will be subject to the terms and conditions of the Security Agreement, will be maintained solely for the benefit of the Collateral Agent, will be entitled "Royal Bank of Canada, as Collateral Agent, Re: [name of the Grantor]" and will be subject to written instructions only from an officer of the Collateral Agent. (b) You will collect mail from the Pledged Account on each of your business days at times that coincide with the delivery of mail thereto. (c) You will follow your usual operating procedures for the handling of any remittance received in the Pledged Account that contains restrictive endorsements, irregularities (such as a variance between the written and numerical amounts), undated or postdated items, missing signatures, incorrect payees, etc. (d) You will endorse and process all eligible checks and other remittance items not covered by paragraph (c) and deposit such checks and remittance items in the Pledged Account. (e) You will maintain a record of all checks and other remittance items received in the Pledged Account and, in addition to providing the Grantor with photostats, vouchers, enclosures, etc. of such checks and remittance items on a daily basis, furnish to the Collateral Agent (i) a monthly statement of the Pledged Account and (ii) a daily collection and check float report, to be transmitted electronically to the Collateral Agent at: 1585 Broadway, New York, New York, Attention: __________. (f) You will transfer, in same day funds, on each of your business days, [after you have received written notice from the Collateral Agent that a Default has occurred under the Credit Agreement] all amounts collected from the Pledged Account on such day to the following account (the "Cash Collateral Account"): ICG Equipment, Inc. ICG NetAhead, Inc. Account No. __________ ______________________ ______________, New York, New York _____ Attention: ____________________ Each such transfer of funds shall neither comprise only part of a remittance nor reflect the rounding off of any funds so transferred. (g) All transfers referred to in paragraph (f) above shall be made by the undersigned irrespective of, and without deduction for, any counterclaim, defense, recoupment or set-off and shall be final, and the undersigned will not seek to recover from the Collateral Agent for any reason any such payment once made. (h) All service charges and fees with respect to the Pledged Account shall be payable by the Grantor, and deposited checks returned for any reason shall not be charged to the Pledged Account. (i) The Collateral Agent shall be entitled to exercise any and all rights of the Grantor in respect of the Pledged Account in accordance with the terms of the Security Agreement, and the undersigned shall comply in all respects with such exercise. You hereby represent and warrant that the person executing this letter agreement on your behalf is duly authorized to do so. No amendment or waiver of any provision of this letter agreement, nor consent to any departures by you or the Grantor herefrom, shall be effective unless the same shall be in writing as signed by you, the Grantor and the Collateral Agent. 2 This letter agreement shall be binding upon you and your successors and assigns and shall inure to the benefit of the Collateral Agent, the Secured Parties and their successors, transferees and assigns. You may terminate this letter agreement only upon thirty days' prior written notice to the Grantor and the Collateral Agent. Upon such termination you shall close the Pledged Account and transfer all funds in the Pledged Account to the Cash Collateral Account. After any such termination, you shall nonetheless remain obligated promptly to transfer to the Cash Collateral Account all funds and other property received in respect of the Pledged Account. This letter agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this letter agreement by telecopier shall be effective as delivery of an original executed counterpart of this letter agreement. Please indicate your acknowledgment of and agreement to the provisions of this letter agreement by signing in the appropriate space provided below and returning this letter agreement to Royal Bank of Canada, 1585 Broadway, New York, New York, Telecopier No.: (212) ___-____, Attention: ________________. If you elect to deliver this letter agreement by telecopier, please arrange for the executed original to follow by next-day courier. This letter agreement shall be governed by and construed in accordance with the laws of the State of New York. Very truly yours, [NAME OF GRANTOR] By: Title: Royal Bank of Canada, as Collateral Agent By: Title: Acknowledged and agreed to as of the date first above written: [NAME OF BANK] By: Title: 3 Exhibit C to the Security Agreement FORM OF CONSENT AND AGREEMENT The undersigned hereby acknowledges notice of, and consents to the terms and provisions of, the Security Agreement dated August 12, 1999 (the "Security Agreement", the terms defined therein being used herein as therein defined) from ____________________ (the "Grantor") to Royal Bank of Canada as collateral agent (the "Collateral Agent") for the Lender Parties referred to therein, and hereby agrees with the Collateral Agent that: (a) The undersigned will make all payments to be made by it under or in connection with the __________ Agreement dated _______________, 19__ (the "Assigned Agreement") between the undersigned and the Grantor directly to the Cash Collateral Account or otherwise in accordance with the instructions of the Collateral Agent. (b) All payments referred to in paragraph (a) above shall be made by the undersigned irrespective of, and without deduction for, any counterclaim, defense, recoupment or set-off and shall be final, and the undersigned will not seek to recover from the Collateral Agent or any Lender Party for any reason any such payment once made. (c) The Collateral Agent shall be entitled to exercise any and all rights and remedies of the Grantor under the Assigned Agreement in accordance with the terms of the Security Agreement, and the undersigned shall comply in all respects with such exercise. (d) The undersigned has not and will not, without the prior written consent of the Collateral Agent, (i) assign, cancel or terminate the Assigned Agreement or consent to or accept any assignment, cancellation or termination thereof, or (ii) amend or otherwise modify the Assigned Agreement, or (iii) consent to any assignment of the Assigned Agreements to any Person other than the Collateral Agent for the Secured Parties. (e) In the event of a default by the Grantor in the performance of any of its obligations under the Assigned Agreement, or upon the occurrence or non-occurrence of any event or condition under the Assigned Agreement which would immediately or with the passage of any applicable grace period or the giving of notice, or both, enable the undersigned to terminate or suspend its obligations under the Assigned Agreement, the undersigned shall not terminate the Assigned Agreement until it first gives written notice thereof to the Collateral Agent and permits the Grantor and the Collateral Agent the period of time afforded to the Grantor under the Assigned Agreement to cure such default. (f) The undersigned shall deliver to the Collateral Agent, concurrently with the delivery thereof to the Grantor, a copy of each notice, request or demand given by the undersigned pursuant to the Assigned Agreement. (g) Except as specifically provided in this Consent and Agreement, neither the Collateral Agent nor any other Secured Party shall have any liability or obligation under the Assigned Agreement as a result of this Consent and Agreement, the Security Agreement or otherwise. In order to induce the Lender Parties to make Advances and issue Letters of Credit under the Credit Agreement and the Hedge Banks to enter into Secured Hedge Agreements from time to time, the undersigned repeats and reaffirms for the benefit of the Secured Parties the representations and warranties made by it in the Assigned Agreement. This letter agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this letter agreement by telecopier shall be effective as delivery of an original executed counterpart of this letter agreement. This Consent and Agreement shall be binding upon the undersigned and its successors and assigns, and shall inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Collateral Agent, the Lender Parties and their successors, transferees and assigns. This Consent and Agreement shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the undersigned has duly executed this Consent and Agreement as of the date set opposite its name below. Dated: _______________, 19__ [NAME OF OBLIGOR] By: Title: 3 Exhibit D to the Security Agreement FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT This INTELLECTUAL PROPERTY SECURITY AGREEMENT (as amended, amended and restated, supplemented or otherwise modified from time to time, the "IP Security Agreement") dated August 12, 1999, is made by the Persons listed on the signature pages hereof (collectively, the "Grantors") in favor of Royal Bank of Canada, as collateral agent (the "Collateral Agent") for the Secured Parties (as defined in the Credit Agreement referred to below). WHEREAS, __________________________, a ________ corporation, has entered into a Credit Agreement dated as of August 12, 1999 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), with Royal Bank of Canada, as Administrative Agent, Royal Bank of Canada, as Collateral Agent, and the Lender Parties party thereto. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as defined in the Credit Agreement. WHEREAS, as a condition precedent to the making of Advances and the issuance of Letters of Credit by the Lender Parties under the Credit Agreement and the entry into Secured Hedge Agreements by the Hedge Banks from time to time, each Grantor has executed and delivered that certain Security Agreement made by the Grantors to the Collateral Agent dated August 12, 1999 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Security Agreement"). WHEREAS, under the terms of the Security Agreement, Grantors have granted a security interest in, among other property, certain intellectual property of the Grantors to the Collateral Agent for the ratable benefit of the Secured Parties, and have agreed as a condition thereof to execute this IP Security Agreement covering such intellectual property for recording with the U.S. Patent and Trademark Office, the United States Copyright Office and other governmental authorities. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Grantor agrees as follows: SECTION 1. Grant of Security. Each Grantor hereby grants to the Collateral Agent for the ratable benefit of the Secured Parties a security interest in and to all of such Grantor's right, title and interest in and to the following (the "Collateral"): (i) The United States, international, and foreign patents, patent applications and patent licenses set forth in Schedule A hereto (as such Schedule A may be supplemented from time to time by supplements to the Security Agreement and this IP Security Agreement, each such supplement being in substantially the form of Exhibit G to the Security Agreement (an "IP Security Agreement Supplement"), executed and delivered by such Grantor to the Collateral Agent from time to time), together with all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof, and all rights therein provided by international treaties or conventions (the "Patents"); (ii) The United States and foreign trademark and service mark registrations, applications, and licenses set forth in Schedule B hereto (as such Schedule B may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Collateral Agent from time to time), (the "Trademarks"); (iii) The copyrights, United States and foreign copyright registrations and applications and copyright licenses set forth in Schedule C hereto (as such Schedule C may be supplemented from time to time by IP Security Agreement Supplements executed and delivered by such Grantor to the Collateral Agent from time to time) (the "Copyrights"); (iv) any and all claims for damages for past, present and future infringement, misappropriation or breach with respect to the Patents, Trademarks and Copyrights, with the right, but not the obligation, to sue for and collect, or otherwise recover, such damages; and (v) any and all proceeds of the foregoing. SECTION 2. Recordation. Each Grantor authorizes and requests that the Register of Copyrights, the Commissioner of Patents and Trademarks and any other applicable government officer record this IP Security Agreement. SECTION 3. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 4. Grants, Rights and Remedies. This IP Security Agreement has been entered into in conjunction with the provisions of the Security Agreement. Each Grantor does hereby acknowledge and confirm that the grant of the security interest hereunder to, and the rights and remedies of, the Collateral Agent with respect to the Collateral are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated herein by reference as if fully set forth herein. IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. [NAME OF BORROWER] By Name: Title: Address for Notices: 161 Inverness Drive West Englewood, CO 80112 2 [NAME OF GRANTOR] By Name: Title: Address for Notices: [NAME OF GRANTOR] By Name: Title: Address for Notices: [ETC.] [IS AN ACKNOWLEDGMENT FORM NECESSARY?] 3 Exhibit E to the Security Agreement FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT SUPPLEMENT This INTELLECTUAL PROPERTY SECURITY AGREEMENT SUPPLEMENT (this "IP Security Agreement Supplement") dated ________, ____, is made by the Person listed on the signature page hereof (the "Grantor") in favor of Royal Bank of Canada, as collateral agent (the "Collateral Agent") for the Secured Parties (as defined in the Credit Agreement referred to below). WHEREAS, __________________________, a ________ corporation, has entered into a Credit Agreement dated as of August 12, 1999 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), with Royal Bank of Canada, as Administrative Agent, Royal Bank of Canada, as Collateral Agent, and the Lender Parties party thereto. Terms defined in the Credit Agreement and not otherwise defined herein are used herein as defined in the Credit Agreement. WHEREAS, pursuant to the Credit Agreement, the Grantor and certain other Persons have executed and delivered that certain Security Agreement made by the Grantor and such other Persons to the Collateral Agent dated August 12, 1999 (as amended, amended and restated, supplemented or otherwise modified from time to time, the "Security Agreement"). To create a short form version of the Security Agreement covering certain intellectual property of the Grantor and such other Persons for recording with the U.S. Patent and Trademark Office, the United States Copyright Office and other governmental authorities, the Grantor and such other Persons have executed and delivered that certain Intellectual Property Security Agreement made by the Grantor and such other Persons to the Collateral Agent dated ________, ______ (as amended, amended and restated, supplemented or otherwise modified from time to time, the "IP Security Agreement"). WHEREAS, under the terms of the Security Agreement and the IP Security Agreement, the Grantor has granted a security interest in the Additional Collateral (as defined in Section 1 below) of the Grantor to the Collateral Agent for the ratable benefit of the Secured Parties and has agreed as a condition thereof to execute this IP Security Agreement Supplement for recording with the U.S. Patent and Trademark Office, the United States Copyright Office and other governmental authorities. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Grantor agrees as follows: SECTION 1. Confirmation of Grant of Security. The Grantor hereby acknowledges and confirms the grant of a security interest to the Collateral Agent for the ratable benefit of the Secured Parties under the Security Agreement and the IP Security Agreement in and to all of the Grantor's right, title and interest in and to the following (the "Additional Collateral"): (i) The United States, international, and foreign patents, patent applications, and patent licenses set forth in Schedule A hereto, together with all reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof, and all rights therein provided by international treaties or conventions (the "Patents"); (ii) The United States and foreign trademark and service mark registrations, applications, and licenses set forth in Schedule B hereto (the "Trademarks"); (iii) The copyrights, associated United States and foreign copyright registrations and applications and copyright licenses set forth in Schedule C hereto (the "Copyrights"); (iv) any and all claims for damages for past, present and future infringement, misappropriation or breach with respect to the Patents, Trademarks and Copyrights, with the right, but not the obligation, to sue for and collect, or otherwise recover, such damages; and (v) any and all proceeds of the foregoing. SECTION 2. Supplement to Security Agreement and IP Security Agreement. Schedule V to the Security Agreement and Schedule[s] [A,] [B and] [C] to the IP Security Agreement are each, effective as of the date hereof, hereby supplemented to add to such Schedules the Additional Collateral. SECTION 3. Recordation. The Grantor authorizes and requests that the Register of Copyrights, the Commissioner of Patents and Trademarks and any other applicable government officer to record this IP Security Agreement. IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly executed and delivered by its officer thereunto duly authorized as of the date first above written. [NAME OF GRANTOR] By Name: Title: Address for Notices: 161 Inverness Drive West Englewood, CO 80112 [IS AN ACKNOWLEDGMENT FORM NECESSARY?] 2 EX-27 14 FDS SUMMARY FINANCIAL INFORMATION
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF ICG COMMUNICATIONS, INC. AND SUBSIDIARIES FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 234,713 30,646 182,400 20,823 67 449,503 1,299,116 195,747 1,797,017 160,264 1,790,270 491,933 0 471 (645,921) 1,797,017 0 221,985 0 113,107 195,606 8,103 98,746 (179,920) 0 (209,965) (8,762) 193,029 0 (25,698) (0.55) 0
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