20020516Application(Part 2).pdf

Petition Date.Such amounts are included in reorganization expenses in the accompanying consolidated statement of
operations.Accretion and prefered dividends on preferedsecurities of subsidiaries recorded through the Petition Date for
the year ended December 31,2000 consist of the accretion of issuance costs,discount and preferred security dividend
accruals for the 6 3/4%Preferred Securities,the 14%Preferred Stock and the 14 '/4%Preferred Stock.Pursuant to the
Company's Plan of Reorganization,the Company's preferred securities will be deemed to be cancelled and extinguished on
the Effective Date.
Net income from discontinued operadons
Net income from discontinued operations was $4.3 million in 2000.Net income from discontinued operations for
2000 primarily consists of adjustments to the gain (loss)on disposal of Network and Satellite Services in 1999.There were
no discontinued operations in 2001.
Cumuladve effect of change in accounting principle
Cumulative effect of change in accounting principle for revenue from installation services of $7.4 million for
2000 is due to the change in accounting as a result of the adoption of SAB 101 on October 1,2000 applied retroactively
from January 1,2000.
Accretion and dividends of 8%Series A Convertible PreferredStock to liquidationvalue and related dividends
Accretion and dividends of 8%Series A Convertible Preferred Stock to liquidation value and related dividends is
comprised of the dividends and the accretion to liquidation value of the 8%Series A Convertible Preferred Stock of $158.2
million during 2000.The decrease is due to the bankruptcy proceedings.Recording of the accretion and related dividends
ceased as of the Petition Date.Pursuant to the Plan,the Company's preferred securities will be deemed to be cancelled and
extinguished on the Effective Date.
Charge for beneficialconversion feature of8%Series A Convertible PreferredStock
Charge for beneficial conversion of 8%Series A Convertible Preferred Stock during 2000 relates to the charge to
additional paid-in capital of $159.3 million of the proceeds of the 8%Series A Convertible Preferred Stock which is the
intrinsic value of the beneficial conversion feature of the convertible preferred securities.The beneficial conversion feature
was recognized immediately as a return to the preferred shareholders during 2000 as the 8%Series A Convertible Preferred
Stock is immediately convertible into shares of ICG common stock.
YEAR 2000 COMPARED TO YEAR 1999
Revenue
Year Ended December 31,
1999 2000
$%$%
($values in thousands)
Dial-Up $62,381 13 154,343 26
Point-to-Point Broadband 161,850 34 176,499 29
Corporate Services 112,490 23 128,378 22
Reciprocal Compensation 142,505 30 139,063 23
Total Revenue $479,226 y 598.283 y
Total revenue increased 25%to $598.3 million in 2000 compared with 1999.Dial-Up revenues increasedsignificantlytoaccountfor26%of the revenue generated in 2000.The contribution of reciprocal compensation as a
percent of total revenue declined from 30%in 1999 to 23%in 2000 due primarily to growth in other revenue sources.
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Dial-Uprevenue increased 147%to $154.3 million in 2000 from $62.4 million in 1999.The increase in revenue is
primarily attributable to growth in customer access ports in service of more than 100%as well as an increase in revenue
received per port of more than 10%.The increase in revenue per port is due to a higher percentage of Intemet remote
access service ("IRAS")ports in 2000.The increase in revenue was partially offset by approximately S30 million in senrice
credits issued to certain IRAS customers in the third and fourth quarten of 2000.The credits were issued as a result of
network performance problems that affected those customers'service.In addition,the Company did not recognize
approximately $5.5 million of Dial-Up revenue otherwise earned due to concems regarding the ultimate collection of
billings for such service.
Point-to-Point Broadband revenue,which includes switched access and SS7 revenues,increased 9%to $176.5
million in 2000 from $161.9 million in 1999.The increase is primarily due to a 20%increase in Point-to-Point Broadband
service revenue from growth in facilities and services provided,partially offset by a 24%decrease in switched access and
SS7 revenue.Switched access and SS7 services generated approximately 20%of the revenues in this revenue category in
2000.Switched access revenue decreased primarilydue to the expected attrition of switched access customers.
Corporate Services revenue increased 14%from $112.5 million in 1999 to $128.4 million in 2000.The increase is
attributable to an increase of approximately 25%in the number of access lines offset by a decrease in revenue per line.The
decrease in revenue per line is primarilythe result of a decline in long distance revenue.
Reciprocal compensation revenue declined slightly from $142.5 million in 1999 to $139.1 million in 2000.
Reciprocal compensation revenue is primarily earned under interconnection agreements with ILECs for terminating localtrafficbutalsoincludesrevenuefromtransportandterminationofothertrafficfortheILECs.Reciprocal compensation is
charged based on a rate per minute of use (MOU).Reciprocal compensation MOU increased approximately 50%in 2000
from 1999 as the number of ports and access lines increased,which was offset by a decline in the average rate per MOU of
approximately 30%.In 2000,the Company negotiated new interconnection agreements with several ILECs.These
agreements assured the recognition and receipt of compensation for terminating ISP traffic but at rates lower than the
Company had historically received.The Company anticipates that due to changes in the regulatory environment,reciprocal
compensation revenue earned after 2003 will not be significant.
Operating costs
Total operating costs increased from $238.9 million in 1999 to $440.1 million in 2000,an 84%increase.
Operating costs increased as a percentage of revenue from 50%in 1999 to 74%in 2000.Operating costs consist primarily
of payments to ILECs,other CLECs,and long distance carriers for the use of network facilities to support Dial-Up,voice,
Point-to-Point Broadband,switched access and long distance services as well as internal network operating costs,right of
way fees and other operating costs.Internal network operating costs include the cost of engineering and operations
personnel dedicated to the operations and maintenance of the network.Operating costs have increased as a percentage of
revenue due to the amount of service credits issued to IRAS customers,as noted above,and as a result of the number of
lines leased in 2000.ICG incurred incremental costs associated with the advanced deployment of leased lines in expansion
cities to accommodate customer requirements,resultmg in an increase in operating expenses as a percent of revenue.Those
lines were provisioned using either ILEC or other CLEC capacity to meet customer demand.The Company is in the
process of terminating circuits that are not generating revenue and,as a result,has experienced a significant reduction in
operating costs in 2001.
Selling,generaland administradve erpenses (SG&A)
Total SG&A expenses increased from $179.7 million in 1999 to $199.5 million in 2000,an 11%increase.SG&A
expenses as a percentage of revenue decreased from 38%in 1999 to 33%in 2000.The increase in SG&A is attributable to
increases in salaries and benefits and other expenses incurred to support the rapid expansion the Company was
experiencing in the first three quarters of 2000.Average full-time employees ("FTE")did not change significantly in 2000from1999.The number of FTEs reached 3,160 at the end of the third quarter of 2000 before decreasing to 2,054 as of the
end of the year.The increase in salaries and benefits is primarilyattributable to the compensation plan implemented in late
1999 and early 2000.The compensation plan was designed to allow the Company to attract high quality talent required to
support the Company's growth and to increase retention.SG&A expenses have been significantly reduced in 2001.
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Bad debt expense
The provision for 1999 meluded approximately S45 million to recognize as uncollectible,revenue earned under
interconnection agreements deemed uncollectible as a result of unfavorable regulatory rulings.The Company recorded a
provision for uncollectible accounts in 2000 of approximately $29 million and $53 million in the third and fourth quartersof2000,respectively.Of those amounts,approximately $6 million and $13 million related to reciprocal compensation for
the third and fourth quarters of 2000,respectively.This increase in the provisionin 2000 was attributable to (i)customers
in the ISP and Internet space that were unable to pay for service,(ii)the resolution of billing disputes,(iii)customers that
stopped or deferred payments for services as the Company entered bankruptcy and (iv)reduction in the resources which the
Company could affordto expend to enforce the payment of reciprocal compensation under the interconnection agreements.
Depreciation and amonization
Depreciation and amortization increased from $174.2 million in 1999 to $318.8 million in 2000.The increase is
primarily due to increased investment in depreciable assets resulting from the expansion of the Company's networks and
services in the last half of 1999 and first half of 2000,as well as a reduction in the overall weighted-average useful life of
depreciable assets in service.ICG recently invested a larger portion of its plant and equipment in assets with shorter lives
such as routers and computers.
Other,net
Other,net operating costs and expenses increased from $0.4 million in 1999 to $4.1 million in 2000.Other,net
operating costs and expenses consists of $1.3 million of deferred compensation from an arrangement with its former chief
executive officer in 1999 and 2000.In addition,the Company recorded a gain of $0.9 million in 1999 and a loss of $2.8
million in 2000 forthe disposal of miscellaneous long-livedassets.
Interest expense
Interest expense increased from $212.4 million in 1999 to $233.6 million in 2000.The increase in interest expense
is due to the increase in debt balances under the Senior Facility and Senior discount notes through the Petition Date.Interest
on debt subject to compromise ceased to accrue as of the Petition Date.Contractual interest that was not recorded due to thebankruptcyproceedingstotaled$30.3 million for the period from the Petition Date through December 31,2000.Included
in interest expense for 1999 and 2000 was $197.2 million and $175.8 million of noncash interest,respectively.Additionally,interest expense is net of interest capitalized related to construction in progress of $9.0 million and $7.0millionduring1999and2000,respectively.
Interest income
Interest income increased from $16.3 million in 1999 to $23.8 million in 2000.Interest income of $1.4 million
earned in 2000 as a result of the bankruptcy filing was classified as reorganization expenses.The increase is attributable totheincreaseincash,cash equivalents and short-term investments resulting from the cash proceeds to the Company of the
8%Series A Convertible Preferred Stock.The amount of interest income attributable to increased cash balances durmg the
bankruptcy proceedings was not material.
Other expense,net,includingrealized gains and losses on marketable tradingsecmities costs
Other expense,net increased from $2.5 million in 1999 to $15.2 million in 2000.The 2000 amount primanly
relates to the loss on the investment in Teligent,partially offset by a gain on litigation settlement.Other expense,net in
1999 consists of litigation settlement costs offset by a gain on the sale of the common stock of MindSpring.
Reorganization expenses
Reorganization expenses of $53.9 million in 2000 consist of costs associated with the bankruptcy proceedings that
are not directly attributable to the on-going operations of the Company.Such costs include $36.5 million for the write-offofdeferredfinancingandofferingcosts,$9.6 million for severance and employee retention costs,$6.3 million in
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professional fees,$2.3 million in lease cancellation charges and 50.6 million of other costs,offset by 51.4 million of
interest income earned as a result of the Company's bankruptcy filing.
Accretion and preferreddividends on preferredsecurities ofsubsidiaries
Accretion of costs and preferred dividends on preferedsecurities of subsidiaries decreased from $61.9 million in
1999 to $60.0 million in 2000.The decrease is due primarily to the bankruptcy proceedings.The accretion of the preferred
dividends and amortization of offeringcosts on all preferred securities which ceased as of the Petition Date.The Company
fully accreted the discount and fully wrote-off the offering costs associated with the prefered stock subsequent to the
Petition Date.Such amounts are included in reorganization expenses in the accompanying consolidated statement of
operations.Accretion and preferred dividends on preferred securities of subsidiaries recorded during 1999 and through the
Petition Date for the year ended December 31,2000 consist of the accretion of issuance costs and the accrual of the
preferred securities associated with the 6 3/40 0 Exchangeable Limited Liability Company Preferred Securities Mandatorily
Redeemable 2009 (the "6 */4%Preferred Securities"),the 14%Exchangeable Preferred Stock Mandatorily Redeemable
2008 and the 14 '/4°/o Exchangeable Preferred Stock Mandatorily Redeemable 2009.
Net income from discontinued operadons
Net income from discontinued operations was $36.8 million and S4.3 million in 1999 and 2000,respectively.Net
income for 1999 consists of the net income and gain from the sale of Satellite Services,partially offset by the net loss from
operations and loss on disposal of Network Services.Net income from discontinued operations for 2000 primarily consists
of adjustments to the gain (loss)on disposal of Networkand Satellite Services.
Extraordinarygain on the sales ofoperations ofNETCOM
The Company reported an extraordinary gam on the sales of operations of NETCOM during 1999 of $195.5
million,net of income taxes of $2.0 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 $34.7 million of deferred sales
proceeds from the sale of certain of the domestic operating assets and liabilities of NETCOM to MindSpring.The deferred
proceeds were recognized on a periodic basis over the term of the Company's network capacity agreement with
MindSpring.
Cumuladve effect of change in accounting pänciple
Cumulative effect of change in accounting principle for revenue from installation services of $7.4 million for
2000 is due to the change in accounting as a result of the adoption of SAB 101 on October 1,2000 applied retroactively
from January 1,2000.
Accretion and dividends of 8%Senes A Convertible PreferredStock to liquidation value and related dividends
Accretion and dividends of 8%Series A Convertible Preferred Stock to liquidation value and related dividends is
comprised of the dividends and the accretion to liquidation value of the 8%Series A Convertible Preferred Stock of $158.2
million during 2000.
Charge for beneficialconversion featureof8%Series A Convertible PreferredStock
Charge for beneficial conversion of 8%Series A Convertible Preferred Stock during 2000 relates to the charge to
additional paid-in capital of $159.3 million of the proceeds of the 8%Series A Convertible Preferred Stock which is the
intrinsic value of the beneficial conversion feature of the convertible preferred securities.The beneficial conversion feature
was recognized immediately as a return to the preferred shareholders during 2000 as the 8%Series A Convertible Preferred
Stock is immediately convertible into shares of ICG common stock.
46
QUARTERLY RESULTS
The following table presents selected unaudited operating results for three-month quarterly periods durmg theyearsendedDecember31,2000 and 2001.The Company believes that all necessary adjustments have been included in theamountsstatedbelowtopresentfairlythequarterlyresultswhenreadinconjunctionwiththeCompany's consolidatedfinancialstatementsandrelatedfootnotesincludedelsewhereinthisAnnualReport.Results of operations for any particularquarterarenotnecessarilyindicativeofresultsofoperationsforafullyearorpredictiveoffutureperiods.
Operating loss for the fourth quarter of 2001 was significantly higher than the preceding quarters m 2001 dueprimarilytorecordingtheprovisionforimpairmentoflong-livedassets of $27.9 million and deferred compensation of $2.4millioninthisquarter.This was partially offset by a reduction in operating costs and selling,general and administrativeexpensesinthefourthquarterascomparedtoprecedingquarters.The Company recorded net income of $25.8 million inthethirdquanerof2001ascomparedtonetlossesineachoftheotherquartersduetotherecordingofagainonsettlementwithmajorcustomenandvendorsof$36.3 million in the third quarter of2001.
Revenue for the third and fourth quarters of 2000 was lower,and operating loss higher,due primarily to servicecreditsissuedfornetworkserviceproblems,increases in the provisionfor uncollectible accounts,the non-recognition ofrevenuefromcertainISPcustomersandtheassetimpairnent.Service credits issued to IRAS customers totaledapproximately$17 million and $13 million in the third and fourth quarters of 2000,respectively.The Company recorded aprovisionforuncollectibleaccountsofapproximately$29 million and $53 million in the third and fourth quarten of2000,respectively.Of those amounts,approximately $6 million and $13 million related to reciprocal compensation for the thirdandfourthquartersof2000,respectively.In addition,during the fourth quarter of 2000,the Company did not recogmzeapproximately$5.5 million of Dial-Up revenue due to concerns regarding the ultimate collection of billings.Finally,theCompanyrecordedanimpairmentoflong-livedassets of $1.7 billion during the fourth quarter of2000.
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The following table summarizes the Company's unaudited quarterly results of operations and statistical data for
2000 and 2001,respectively:
2000 2001
Three Months Ended Three Months Ended
March 31 June 30 Sept.30 Dec.31 March 31 June 30 Sept.30 Dec.31
(in thousands,except per share amounts and statistical data)
Statement of OperationsData:
Revenue(I)$157.408 $174,704 $145,257 $120,914 $136,397 $121,252 $124,071 $118,276
Operating loss (45,614)(51,826)(159,113)(1,893,564)(22,921)(13,787)(4,561)(26,759)
Income (loss)from continuing
operations (121,450)(124,612)(237,246)(2,007,188)(53,357)(33,321)25,764 (51,751)
Net income from discontinued
operations ---736 -3,606 --
Net income (loss)(121,450)(123,876)(237,246)(2,010,945)(53,357)(33,321)25,764 (51,751)
Net income (loss)attributable to
common stockholders $(121.450)$(297.617)$(254.520)$(2.137.458)$(53.357)$(33.321)$25,764 $(51.751)
Income (loss)per share from
coctinuing operations -basic
and diluted $(2.52)$(2.56)$(4.58)S (39.97)$(1.02)$(.64)$.48 $(.96)
Weighted average number of
shares outstanding -basic and
diluted 48,189 48,723 51,782 50,184 52.067 52,118 53,158 53.629
Other Data:
Net cash provided(used)by
operating activities $(7,234)$110,313 $36,084 $(16,680)$(61,644)$24,290 $-3,940 $1,433
Net cash provided(used)by
investing activities (121,468)(253,990)(186,516)4,355 (5,011)(1,536)2,033 (13,0051
Net cash provided(used)by
financing activities 66,207 599,036 (129,412)(7,387)(1,803)(15,980)(1,822)(1,288)
EBITDA(2)19,417 22,438 (57,637)(109,990)(6,861)9,969 15,648 20,876
Capital expenditures of
continuing operations(3)214,907 347,461 319,209 92,007 7,898 8,778 6,357 18,430
Statistical Data(4):
Full time employees 2,930 2,975 3,160 2,054 1,476 1,422 1,389 1,368
Telecom services:
Access lines in service,in
thousands(5)905 1,113 1,074 950 778 719 789 742
Buildings connected:
On-net 1,046 924 936 925 925 881 902 901
Hybrid 7,746 8.228 8,584 8,659 8,151 7,264 6,315 5.727
Total buildings connected 8,792 9,152 9,520 9,584 9,076 8,145 7,217 6,628
Operational switches:
Circuit 35 43 47 47 44 44 43 43
ATM 24 24 24 26 26 27 26 27
Frame relay 16 ---
Total operational switches 75 67 71 73 70 71 69 70
Regional fiberroute miles(6):
Operational 4,807 4,767 4,816 5,577 5,577 5,577 5,542 5,542
Under construction -495 508 -----
Regional fiberstrand miles(7):
Operational 177,103 184,064 192,422 166,498 166,498 166,498 165,847 165,847
Under construction -12,254 14,891 -----
Collocations with ILECs 183 188 188 160 160 160 148 161
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(1)On October 10,2000,the Company adopted SAB 101,Revenue Recognition in Financial Statements.As required
by GAAP,the Company has reflected the effects of the change in accounting principle as if such change had been
adopted as of January 1,2000.This resulted in the following changes in revenue amounts previously in the
Company's 2000 quarterly reports on Forms 10-Q:an increase to revenue of approximately $0.1 million for the
first quarter,a decrease to revenue of approximately $1.0 million for the second quarter and an increase to
revenue of approximately $0.5 million forthe third quarter.
(2)See note 3 under "Selected Financial Data"for the definition of EBITDA.
(3)See note 4 under "SelectedFinancialData"forthe definitions of capital expenditures of continuing operations.
(4)Amounts presented are for three-month periods ended,or as of the end of the period presented.
(5)Access lines in service include lines provisioned through the Company's switch and through resale and other
agreements with various local exchange carriers.Through December 31,2000,access lines provisioned include
intemal and other non-revenue generating access lines.Starting with March 31,2001,access lines in service
include only provisioned lines generating revenue.As of December 31,2000 the provisioned lines generating
revenue were approximately 940,000.
(6)Regional fiber route miles refer to the number of miles of regional fiber optic cable,including leased fiber.As of
December 31,2001,the Company had 5,542 regional fiber route miles.Regional fiber route miles under
construction represent fiber under construction that is expected to be operational within six months.
(7)Regional fiber strand miles refer to the number of regional fiber route miles,including leased fiber,along a
telecommunications path multiplied by the number of fiber strands along that path.As of December 31,2001,the
Company had 165,847 regional fiber strand miles,of which 45,445 regional fiber strand miles were leased under
operating leases.Regional fiber strand miles under construction represent fiberunder construction that is expected
to be operational within six months.
NET OPERATING LOSS CARRYFORWARDS
As of December 31,2001,the Company had federal net operating loss ("NOL")carryfonvards of approximately
$1.56 billion,which expire in varying amounts through 2021.Due to the provisions of Internal Revenue Code ("Code")
sections 108,382 and certain other Code and Treasury Regulations,it is anticipated the major portion of the NOLs will be
reduced by cancellation of indebtedness and that a change in ownership will occur as a result of the Plan.If the Plan results
in the issuance of new stock and or the cancellation of existing stock,the remaining amount NOLs (if any)will be limited
on the amount that can be utilized each year.
NEW ACCOUNTING STANDARDS
In June 2001,the FASB issued SFAS No.141,"Business Combinations"and SFAS No.142,"Goodwill and Other
Intangible Assets".SFAS 141 requires companies to reflect intangible assets apart from goodwill and supercedes previous
guidance related to business combinations.SFAS 142 eliminates amortization of goodwill and amoitization of all
intangible assets with indefinite useful lives.However,SFAS 142 also requires annual impairment testing of goodwill and
indefmite-livedintangible assets.These statements are required to be adopted by the Company on January 1,2002 and is
effective for any acquisition entered into after July 1,2001.Adoption of this pronouncement as of December 31,2001
would not have a material effect on current or future financial results.
In June 2001,the FASB issued SFAS No.143,"Accounting for Asset Retirement Obligations."This statement
deals with the costs of closing facilities and removing assets.SFAS No.143 requires entities to record the fair value of a
legal liability for an asset retirement obligation in the period it is incurred.This cost is initially capitalized and amortized
over the remaining life of the underlying asset.Once the obligation is ultimately settled,any difference between the final
cost and the recorded liability is recognized as a gain or loss on disposition.SFAS No.143 is effective starting in 2003.
49
Adoption of this pronouncement as of December 31,2001 would not have a material impact on current or future fmancial
results.
In October 2001,the FASB issued SFAS No.144,"Accounting for the Impairment or Disposal of Long-lived
Assets."SFAS No.144 supersedes SFASNo.121,"Accounting forthe Impairment of Long-LivedAssets and for Assets to
be Disposed of'and certain provisions of APB Opinion 30,"Reporting the Results of Operations-Reportingthe Effects of
Disposal of a Segment of a Business,and Extraordinary,Unusual and Infrequently Occurring Events and Transactions."
SFAS No.144 develops one accounting model for long-livedassets that are to be disposed of by sale.SFAS No.144
requires that long-livedassets that are to be disposed of by sale be measured at the lower of book value or fair value less
cost to sell.Additionally,SFAS No.144 expands the scope of discontinued operations to include all components of an
entity with operations that (i)can be distinguished from the rest of the entity and (ii)will be eliminated from the ongoing
operations of the entity in a disposal transaction.SFAS No.144 is effective starting in 2002.Adoption of this
pronouncement as of December 31,2001 would not have a material impact on current or future financial results.
RECIPROCAL COMPENSATION
The Company records reciprocal compensation and carrier access revenue in accordance with regulatory authority
approval and pursuant to interconnection agreements with incumbent local exchange carriers ("ILECs")for the transport
and termination of traffic originated by ILEC customers,including Intemet traffic.Disputed billings are not recognized as
revenue until realization is assured.
Due to changes in the regulatory environment and as a means of gaining certainty with respect to the continued
collection of reciprocal compensation revenue in the first half of 2000,the Company negotiated voluntary settlement
agreements with certain of its ILEC customers that providefor the payment of reciprocal compensation for terminating
Intemet bound traffic,but at rates lower than the Company had historically received.The Company anticipates that due to
changes in the regulatory environment,reciprocal compensation revenue eamed after 2003 will not be significant.
The Company has,as of December 31,2001,a net receivable of approximately $14 million for reciprocal
compensation revenue.Approximately $9 million has been acknowledged as due by certain LECs,but payment is being
withheld pending resolution of line cost disputes.The Company received cash of approximately $61 million during the
year ended December 31,2001,from certain ILECs for terminating local and toll traffic.
The Company has recognized revenue of approximately $143 million,$139 million and $64 million in each of the
three years ended December 31,2001,respectively,for terminating local and toll traffic.Revenue for the year ended
December 31,1999 includes approximately $22 million for the tandem switching and common transport rate elements.
ICG ceased,effective July 1,1999,recognition of these rate elements as revenue until cash receipts were either received or
the uncertainty of receipt had been removed (such as the execution of a binding agreement).
The Company has as of December 31,2001 a net receivable balance of carrier access revenue of approximately
$3 million.Approximately $22 million of carrier access revenue was recognized during the year ended December 31,2001.
ITEM 7A.QUANTTTATTiŒAND QTIALITATTiŒ DISCLOSITRES AROTIT MARKET RTSK
The Company's financial position and cash flows are subject to a variety of risks in the nornal 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 Facility and Credit Agreement.
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The Company invests primarily in high-grade,short-tern investments that 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.As of December 31,2001,the Company had approximately $146.6 million in cash,cash equivalents and
short-term investments available for sale,at a weighted average fixed interest rate of 4%.A hypothetical 40 basis point
fluctuation in market rates of interest would not cause a material change in the fair value of the Company's investment in
marketable securities at December 31,2001,and accordingly,would not cause a material impact on the Company's
financial position,results of operations or cash flows.
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 the change in the prime
rate.No additional borrowings are available under the Senior Facility.The Company is continuing to make interest only
payments which are affected by fluctuations in the prime rate.As of December 31,2001,the Company had $84.6 million
outstanding under the Senior Facility.A hypothetical change in annual interest rate of 1%per annum would result m a
change in interest expense of approximately $846,000.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company appear on page F-1 of this Annual Report.The fmancial
statement schedule required under Regulation S-X is filed pursuant to Item 14 of this Annual Report,and appears on page
S-1 of this Annual Report.
Selected quarterly fmancial data required under this Item is included under Item 7,Management's Discussion and
Analysis of Financial Condition and Results of Operations.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOTTNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSTTRE
None.
51
PART III
ITEM 10.DTRECTORS AND EXECUTTVF,OFFICERS OF REGISTR ANT
DIRECTORS AND OFFICERSOF ICG COMMUNICATIONS,INC.
Set forth below are the names and certain information about the directors of the Company as of April 9,2002:
Name Age Position
William J.Laggett(1)(3)(5)72 Vice-Chairman of the Board of Directors
William S.Beans,Jr.(1)36 Director
J.Shelby Bryan(1)56 Director
John U.Moorhead II(1)(2)(3)(5)49 Director
Leontis Teryazos(1)(2)(3)(4)(5)59 Director
Walter Threadgill(1)(2)(3)(4)(5)56 Director
(1)Upon approval of the Company's Plan of Reorganization the current directors will be removed and replaced by
new directors appointed by Cerberus Capital Management,L.P.and certain other members of the Creditors'
Committee.
(2)Member of Audit Committee.
(3)Member of Compensation Committee.
(4)Member of Stock Option Committee.
(5)Member of Special Executive Committee.
William J Laggett has been Vice-Chairman of the Board of Directors since June 1999.Prior to such time,he was
Chairman of the Board of Directors from June 1995 and a Director from January 1995.Mr.Laggett was the President of
Centel Cellular Company from 1988 until his retirement in 1993.From 1970 to 1988,Mr.Laggett held a variety of
management positions with Centel Corporation,including Group Vice President-Products Group,President-Centel
Services,and Senior Vice President-Centel Corporation.Prior to joining Centel,Mr.Laggett worked for New York
Telephone Company.
William S.Beans Jr.has been a Director since April 2000.Mr.Beans also served as President and Chief
Operating Officer from January 2000 to December 2000.Prior thereto,Mr.Beans was Executive Vice President and
President of Network Services from June 1999 to April 2000.Before joining the Company,Mr.Beans held several
positions in Teleport Communications Group,Inc.,a divisionof AT&T Local Services.He was National Vice President-
Operations from November 1997 until June 1999,Vice President Customer Care/Customer Service from October 1995 toNovember1997andVicePresidentofNetworkDevelopmentfromSeptember1993toOctober1995.
J.Shelby Brvan has been a Director since May 1995.Prior thereto,he served as President,Chief ExecutiveOfficerandDirectorfromMay1995throughAugust22,2000 and as Chairman of the Board of Directors and ChiefExecutiveOfficerfromJune1999throughAugust22,2000.Mr.Bryan has over 20 years of experience in the
telecommunications industry,primarily in the cellular business.He co-founded Millicom Intemational Cellular S.A.,apubliclyownedcorporationprovidingcellularserviceinternationally,served as its President and Chief Executive Officerfrom1985to1994andservedasaDirectorthroughMay1998.
John U.Moorhead TT has been a Director since June 1998 and is Managing Director of C.E.Unterberg Towbin.
From 1991 until April 2001 Mr.Moorhead was Managing Director of VM Equity Partners a firm he co-founded.Prior to
founding VM Equity Partners,Mr.Moorhead worked for eight years as a senior executive in investment banking,first atEFHuttonandthenatLehmanBrotherswherehewasSeniorVicePresidentandDirectoroftheNewBusinessGroupof
Lehman Brothers'investment banking divisionfrom 1987 to 1990.Mr.Moorhead serves on the Board of Directors of
52
SEMX Inc.,a NASDAQ National Market company that provides specialty materials and services to the microelectronic
and semiconductor industries.
T.eontis Teryazos has been a Director of ICG since June 1995.Mr.Teryazos is President of Letmic Management
Inc.,a fmancial advisory firm that specializes in working with early stage telecommunications and health care companies.
Mr.Teryazos also serves on the Board of Directors of Aurelium Biopharma,Inc.,and QR Canada Capital Inc.(QRI/CDNX),a publicly traded Canadian Venture Capital company.Mr.Teryazos is also President and CEO of QR
Canada Capital Inc.Mr.Teryazos is also head of Letmic Management Reg'd,a Montreal real estate developer.Mr.
Teryazos is a graduate of Cornell University in 1965 and the TaftSchool,Watertown,Connecticut in 1961.
Walter Threadgill has been a Director since December 1997 and is the Managing General Partner of Atlantic
Coastal Ventures,L.P.Mr.Threadgill also serves on the Board of Directors of Aveda Systems,Inc.and previously served
on the Board of Directors of Ravisent Technologies,Inc.Previously,Mr.Threadgill was the President and ChiefExecutiveOfficerofMultimediaBroadcastInvestmentCorporation.He has held positions as Divisional Vice President of Fiducialy
Trust Company in New York and as Senior Vice President and Chief Operating Officer of United National Bank in
Washington,D.C.Mr.Threadgill chaired the Presidential Small Business AdvisoryCommittee and served the National
Association of Investment Companies as Director,Treasurer and Legislative Committee Chairman.Mr.Threadgill is a
member of the Federal Communications Bar Association.
EXECUTIVE OFFICERSOF ICG COMMUNICATIONS,INC.
The current executive officers of the Company are as follows:
Name Age Position
Randall E.Curran 47 Chief Executive Officer
Richard E.Fish,Jr.36 Executive Vice President and ChiefFinancial Officer
Michael D.Kallet 48 Executive Vice President -Operations and ChiefTechnology Officer
Bernard L.Zuroff 46 Executive Vice President,General Counsel and Secretary
Randall E Curran has been Chief Executive Officer since September 2000.Prior thereto,Mr.Curran wasChairnan,President and ChiefExecutive Officer of Thermadyne Holdings Corporation ("Thernadyne").From 1995 to
2000,Mr.Curran also held several other executive positions at Thermadyne including ChiefOperating Officerand ChiefFinancialOfficer.Prior to joining Thermadyne,Mr.Curran held various finance positions with Cooper Industries,Inc.,McGraw-Edison Co.,and Arthur Andersen &Co.
Richard F Fish.Jr has been Executive Vice President and ChiefFinancial Officersince December 2000.Prior tothisposition,Mr.Fish was Senior Vice President of Finance since September 1999.Before joining the Company,Mr.Fish
was Director-Access Management with AT&T Corp.from 1998 to 1999.AT&T Corp.acquired Teleport Communications
Group,Inc.in 1998 where Mr.Fish was Director-Operations since 1995.
Michael D.Kallet has been Executive Vice President -Operations and Chief Technology Officer since
December 2000 and was Executive Vice President,Products and Strategic Development since July 1999.Prior thereto,he
was Senior Vice President of Products and Services from December 1995.He has been General Manager and Chief
Operations Officer of ICG NetAhead,Inc.,a subsidiary of the Company,since February 1999.Prior to joining the
Company,he held several positions in the technology industry,including positions at IBM,Computer Support Corporation,Walker Interactive and Software Publishing Corporation (Harvard Graphics).
Bernard L.Zuroff has been Executive Vice President,General Counsel and Secretary since October 2000.Prior tothisposition,Mr.Zuroff was Assistant General Counsel and Corporate Attorney since July 1996.Before joining theCompany,he had eleven years of experience as an attorney with Gorsuch Kirgis,L.L.C.,the Resolution Trust CompanyandInfotel,Inc.
There are no family relationships between any current director or officeror any other current director or officer.
53
SECTION 16(a)BENEFICIAL OWNERSHIPREPORTING COMPLIANCE
Section 16(a)of the Securities Exchange Act of 1934 requires our directors and executive officers to file with the
Securities Exchange Commission reports regarding their ownership and changes in ownership of our stock.ICG believes
that during 2001 its directors and executive officers complied with all Section 16(a)filing requirements.
ITEM 11.EXECTITIVE COMPENSATTON
EXECUTIVE OFFICER COMPENSATION
The following table provides certain summary infornation concerning compensation paid or acemed by the
Company and its subsidiaries for the fiscal years ended December 31,2001,2000 and 1999.Included are:the Company's
ChiefExecutive Officerduring the fiscal year ended December 31,2001;together with the other executive officers;and
two individuals who were not serving as executive officers at the end of fiscal year 2001 (the "Named Officers").
Summary Compensation Table
Long-term
Annual Compensation Compensation
Other Annual Securities All Other
Name and Principal Fiscal Compensation Underlying Compensation
Position Year Salarv ($)Bonus (S)($)Options ($)
Randall E.Curran 2001 900,000 900,000")391,734'2)--
ChiefExecutive Officer 2000 225,000 -18,7860)--
1999 -----
Richard E.Fish,Jr.2001 258,462 241,000(4)17,100'"--
Executive Vice President 2000 168,654 80,630'"19,563">60,000 -
-ChiefFinancial Officer 1999 47,115 11,5143'3,668*30,000 -
Michael D.Kallet 2001 350,000 466,000"°)17,2750"-1,610"
Executive Vice President 2000 283,924"207,020""88,0680"88,905 30,092"6)
-Operations and Chief 1999 240,154 136,838 19,288""55,000 -
Technology Officer
Bernard L.Zuroff 2001 210,769 118,000""17,100'2°)--
Executive Vice President 2000 140,000 51,83700 16,928'22)33,300 -
-General Counsel 1999 111,950"27,640(24)8,416""3,300 -
John V.Colgan 2001 193,654 137,792'26)14,10062"--
Sr.Vice President -2000 171,923 79,070'2"21,648'2"56,750 23,961°°'
Finance and Controller 1999 149,519 34,989""17,06432'5,000 -
Williams S.Beans,Jr.2001 ----736,762 *
Former President and 2000 467,981(34)326,193""103,454"100,000 7,173'3
Chief Operating Officer 1999 134,615 46,875 164,394""750,000 2,625"
HarryR.Herbst 2001 ----450,777(40)
Former ChiefFinancial 2000 359,615 241,635(41)35,68342'9,066 169,337*
Officer 1999 325,000 195,692 16,853(44)90,000 -
(1)Consists of amounts for 2001 incentive bonus which was paid in 2002.
(2)Consists of $6,111 for car allowance;$383,887 for taxable relocation expenses and $1,736 of non-taxable
relocation expenses.
54
(3)Consists of Mr.Curran's housing,travel and car allowances as providedfor in his employment agreement.
(4)Consists of 5160,000 for retention bonus and $81,000 for 2001 incentive bonus which was paid in 2002.
(5)Consists of512,000 for car allowance and $5,100 for Company contributions to 401(k)plan.
(6)Consists of $40,630 incentive bonus and $40,000 retention bonus.
(7)Consists of $6,000 for car allowance,513,563 for Company contributions to 401(k)plan and 401(k)Wraparound
Deferred Compensation Plan.
(8)Consists of $1,514 incentive bonus and $10,000 sign-on bonus.
(9)Consists of $1,268 for car allowance and $2,400 for Company contributions to 401(k)plan.
(10)Consists of $340,000 for retention bonus and $126,000 for 2001 incentive bonus which was paid in 2002.
(11)Consists of $12,000 for car allowance,$1,563 for relocation expenses and $3,712 for Company contributions to
401(k)plan.
(12)Consists of executive life insurance premiums.
(13)Consists of $283,462 in annual salary and $462 of retroactive salary that was paid in 2000.
(14)Consists of $122,020 incentive bonus and $85,000 retention bonus.
(15)Consists of $12,000 for car allowance,$59,197 relocation payment and $16,871 for Company contributions to
401(k)plan and 401(k)Wraparound DeferredCompensation Plan.
(16)Consists of $1,610 for executive life insurance payments and $28,482 for distribution of amounts under the
Company's 401(k)Wraparound Deferred Compensation Plan.
(17)Consists of $239,615 in annual salary and $539 of retroactive salary that was paid in 1999.
(18)Consists of $3,000 for car allowance and $16,288 for Company contributions to 401(k)plan and 401(k)
Wraparound Deferred Compensation Plan.
(19)Consists of $52,000 for retention bonus and $66,000 for 2001 incentive bonus which was paid in 2002.
(20)Consists of $12,000 for car allowance and $5,100 for Company contributions to 401(k)plan.
(21)Consists of $38,837 incentive bonus and $13,000 retention bonus.
(22)Consists of $7,500 for car allowance and $9,428 for Company contributions to 401(k)plan.
(23)Consists of $111,103 in annual salary and $846 ofretroactivesalary that was paid in 1999.
(24)Consists of $2,500 reward and recognition bonus and $25,140 incentive bonus.
(25)Consists of Company contributions to 401(k)plan.
(26)Consists of $80,000 for retention bonus and $57,792 for 2001 incentive bonus which was paid in 2002.
(27)Consists of $9,000 for car allowance and $5,100 for Company contributions to 401(k)plan.
(28)Consists of quarterly bonus of $59,070 and retention bonus of $20,000.
(29)Consists of $9,000 for car allowance and $12,648 for Company contributions to 401(k)plan and 401(k)
Wraparound Deferred Compensation Plan.
(30)Consists of $4,712 of accrued for and unused vacation and $19,249 for distribution of amounts under the
Company's 401(k)Wraparound Deferred Compensation Plan.
(31)Consists of $34,874 for quarterly bonus and $115 for reward and recognition bonus.
(32)Consists of $6,000 for car allowance and $11,064 for Company contributions to 401(k)Wraparound Deferred
Compensation Plan.
(33)Consists of forgiveness of $100,000 loan;$583,702 in severance payments and $53,060 in accrued and unused
vacation.
(34)Consists of $448,077 in annual salary and $19,904 in retroactive salary that was paid in 2000.
(35)Consists of $183,793 incentive bonus and $142,400 retention bonus.
(36)Consists of $35,724 for car allowance,$35,200 for relocation expenses and $32,530 for Company contributions to
401(k)plan and 401(k)Wraparound Deferred Compensation Plan.
(37)Consists of executive life insurance payments.
(38)Consists of $7,800 for car allowance,$156,379 for relocation expenses and $215 for non-taxable relocation
expenses.
(39)Consists of taxable interest on loan.
(40)Consists of $385,817 in severance payments;$64,960 of accrued and unused vacation.
(41)Consists of quarterly bonuses of $51,635,retention bonus of $60,000 and reward and recognition bonus of
$130,000.
(42)Consists of $8,400 for car allowance and $27,283 for Company contributions to 401(k)plan and 401(k)
Wraparound DeferredCompensation Plan.
(43)Consists of amounts distributed under the Company's 401(k)Wraparound Deferred Compensation Plan
55
(44)Consists of $8.400 for car allowance,Company contributions to 40 l (k)Wraparound Deferred Compensation Plan .
in the amount of $7,793 and $660 for group term life insurance payments.
Option/SAR Grants in Last Fiscal Year
The Company granted no stock appreciation rights nor did it grant any stock options during the year ended
December 31,2001 to the Named Officers.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
No options were exercised by the Named Officers during the year ended December 31,2001.Further,while the
Company's common stock is trading on certain over-the-countermarkets,the shares are believed by management to carry
no value and will be cancelled if the Company's Plan of Reorganization is approved.
DIRECTOR COMPENSATION
The Company compensates its non-employee directors for attendance at meetings of the Board of Directors or a
committee of the Board of Directors as follows:$4,000 for attendance at a meeting in person,plus reimbursement of
expenses,and $1,500 for participation in a telephonic meeting;providedthat when meetings of the Board of Directors
and/or one or more committees are held on the same day,the non-employee directors are entitled to be compensated only
for one such meeting.In addition,the Vice-Chairman of the Board of Directors,Mr.Laggett,receives an annual fee of
$80,000 payable in quarterly installments and Messrs.Moorhead,Teryazos and Threadgill receive an annual fee of
$60,000 payable in quarterly installments.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company and its subsidiaries have employment agreements with Randall E.Curran,Richard E.Fish,Jr.,
Michael D.Kallet,Bernard L.Zuroff,Robert Athey,Brian Cato,Darlinda Coe,John V.Colgan,KimberlyGordon,Gayle
Landis,Gary Lindgren,and James F.Smith.
In July 2001,the Bankruptcy Court approved the terms of an amended employment agreement for Mr.Curran.
The amended agreement provides for the continued employment of Mr.Curran on a month-to-month term at an annual
base salary of $900,000 which may be increased from tune to time in accordance with normal business practices of the
Company.Subject to the Company achieving certain financial targets established by the Company's Board and the Special
Committee,the amended agreement also provides for a performance bonus of up to $900,000 for fiscal year 2001 and for
performance bonuses in subsequent years in amounts of up to twelvemonths'base salary at the rate then in effect based
upon perfornancetargets to be established at the discretion of the Company's Board or the compensation committee
thereof.Mr.Curran will also be eligible to receive a reorganization bonus of up to twelve months'base salary in the event
that a plan of reorganization for the Company is consummated and confirmed in its currently pending Chapter 11 case,
depending on the timing thereof,or if there is a sale of all or substantially all of the Company's assets.In addition,Mr.
Curran is entitled to benefits as are generally providedto the Company's senior executives including reimbursement of
reasonable out-of-pocket expenses incurred on behalf of the Company.If the amended agreement is terminated by the
Company for any reason other than Mr.Curran's death,disability,or for cause,or is terminated by Mr.Curran for good
reason,Mr.Curran will receive a lump sum severance in an amount equal to fifteen months'base salary at the rate then in
effect.If Mr.Curran's employment is terminated in the case of death,his estate will receive an amount equal to twelve
months'base salary.
The Company's employment agreements with Richard E.Fish,Jr.,Michael D.Kallet,Bernard L.Zuroff,Robert
Athey,Brian Cato,Darlinda Coe,John V.Colgan,Kimberly Gordon,Gayle Landis,Gary Lindgren,and James F.Smith
providefor base salaries and such other benefits as are generally providedto senior executives,including reimbursement of
reasonable out-of-pocket expenses incurred on behalfof the Company.Mr.Kallet's agreement also provides for a bonus
payment if Mr.Kallet is actively employed upon either:(a)the consummation of a sale of all or substantially all of the
Company's assets;or (b)the date a reorganization plan is confirmed.These employment agreements may be terminated by
the Company with or without cause or by the employee upon the occurrence of a constructive dismissal.If an agreement is
terminated by the Company for any reason other than the employee's death,disability or for cause,or if there is a
56
constructive dismissal,the employee will receive an amount equal to twelve months'salaty at the rate then in effect.50%
will be paid in a lump sum within 15 days of termination and the remaining 50%is payable in twelve installments
commencmg 30 days after ternination.If the employee obtains new employment within such twelve-month period,the
severance is subject to mitigation on a dollar for dollar basis.If the employee's employment is terminated in the case of
death,his/her estate will receive an amount equal to three months'base salary.Messrs.Kallet,Zuroff,Athey,Cato,Ms.
Coe,Mr.Colgan,Ms.Gordon,Ms.Landis,and Messrs.Lindgren and Smith are also subject to a ten-year confidentiality
covenant and a one-year non-interference commitment followingtermination of employment.
Compensation Committee Interlocks and Tusider Participation
The Compensation Committee consists of three non-employee Directors:William J.Laggett,Vice-Chairman of
the Board of Directors,Leontis Teryazos and Walter Threadgill.
Board Compensation Committee Reporton Executive Compensation
The Compensation Committee of the Board of Directors evaluates compensation levels of senior management as
well as the various factors that affect the compensation of the Company's highest paid officers.Duringthe pendancy of the
Company's bankruptcy,all major issues regarding compensation have been decided by the Special Executive Committee
of the Board of Directors.The Compensation Committee established the existing executive compensation program to
encourage and reward management's efforts to strengthen the Company's business.The Company operates in a
competitive marketplace and needs to retain well-qualifiedexecutive talent.Executive compensation is reviewed regularly
to ensure compliance within existing guidelines and for competitiveness in the marketplace.
The Company has employment agreements with certain of its executive officers.See "Executive Employment
Agreements"for descriptions of those agreements.All senior management is compensated with base salaries that are
intended to compensate executives for their ongoing leadership skills and management responsibility.As a result of the
Company's filing for Chapter 11 bankruptcyprotection,the Company implemented a retention bonus program designed to
stabilize and retain the existing workforce.Payments under the retention bonus program were made in installments,the
final payment of which was made in the second quarter of 2001.Subsequently,the Company implemented an incentive
bonus program under which eligible employees,including executive management,received bonuses for the third and
fourth quarters of2001.Such bonuses were dependent upon Company performance and were paid in 2002.See "Summary
Compensation Table"for the defmition ofNamed Officers and the bonuses paid to them.
The Compensation Committee has reviewed the compensation of the Company's executive officers and has
concluded that their compensation is reasonable and appropriate.The Compensation Committee continually evaluates the
compensation of the Company's executive officers,including an assessment of compensation reports for comparable
companies and for the telecommunications industry.The Compensation Committee believes that maintaining suitable
executive compensation programs is necessary to support the future progress of the Company and its successful emergence
frombankruptcy.
William J.Laggett
Leontis Teryazos
Walter Threadgill
(Members of the Compensation Committee)
ConsultingArrangements
The Company's agreement with William S.Beans,Jr.provided for,among other things,Mr.Beans'resignation of
employment as of February 4,2001.Mr.Beans received severance pay of $528,895,as well as continued participation in
the Company's welfare benefit plans for a period of one (1)year.Mr.Beans continued as a consultant during this payment
period and is currently a director.The Company also forgave a $100,000 loan that was made to Mr.Beans in 1999.
STOCK PERFORMANCE GRAPH
The Company has not included a performance graph as the Company's stock has been delisted.
57
ITEM 12.SECURTTY OWNERSHIP OF CERTATN RENEFICIAL OWNERS ANT)MANAGEMENT
CERTAIN BENEFICIAL OWNERS
To the best of the Company's knowledge,based on filings with the Securities and Exchange Commission.the
following are the only persons who own beneficially five percent or more of the Company's votingsecurities outstanding,
as of April 9,2002.If the Company's Plan of Reorganization is approved,however,all the preferred and common stock
will be canceled.
Percent of
Series A Percent of
Series A Preferred Common Common
Name and Address of Beneficial Owner Preferred Stock(1)Stock(2)Stock(3)Stock(4)
IDT Investments,Inc.(5)
520 Broad Street
Newark,New Jersey 07102 73,000 97.4%38,098,994 41.5%
(1)The Series A Preferred Stock includes the 8%Series A-1 ConvertiblePreferred Stock due 2015 (the "Series A-1
Preferred Stock"),the 8%Series A-2 Convertible Preferred Stock due 2015 (the "Series A-2 Preferred Stock")
and the 8%Series A-3 Convertible Preferred Stock due 2015 (the "Series A-3 Preferred Stock").Except in
relation to director appointment rights,the powers,preferences and relative,participating,optional and other
special rights of the Series A-1 Preferred Stock,the Series A-2 Preferred Stock and the Series A-3 Preferred Stock
are identical.
(2)Based on 75,000 shares of Series A Preferred Stock outstanding as of April 9,2002.
(3)Amounts include shares of Common Stock issuable upon conversion of the Series A Preferred Stock and upon
exercise of warrants.This holder reported all amounts on a Schedule 13D on May 4,2001.
(4)Based on 53,706,777 shares of Common Stock issued and outstanding as of April 9,2002,plus shares of
Common Stock issuable to such beneficial owner upon conversion or exercise of Preferred Stock and warrants,as
the case may be.All share percentages assume that each respective beneficial owner has converted its shares of
Series A Preferred Stock,if any,into Common Stock and has exercised its warrants to purchase shares of
Common Stock,if any.
(5)On April 18,2001 IDT issued 7,500 shares of Class B Common Stock and 30,000 shares of Class A Convertible
Preferred Stock in exchange for 50,000 shares of the 8%Series A-1 Convertible Preferred Stock and warrants to
purchase an aggregate of 6,666,667 shares of ICG Common Stock pursuant to the terms of the Stock Exchange
Agreement dated April 18,2001 between IDTI,IDTC,IDT America,Corp,225 Old NB Road,Inc.,226 Old NB
Road,Inc.,60 Park Place Holding Company,Inc.,Liberty Media Corporation,Microwave Holdings,L.L.C.,and
TP Management.Pursuant to the terms of the Certificate of Designation,each share of the Series A-1 Convertible
Preferred Stock was automatically converted to a share ofthe 8%Series A-3 Convertible Preferred Stock.
On May 2,2001 IDT issued 8,188 shares of Series B Convertible Preferred Stock in exchange for 23,000 shares
of the 8%Series A-2 Convertible Preferred Stock and warrants to purchase an aggregate of 3,066,667 shares of
ICG Common Stock pursuant to the terms of the Stock Exchange Agreement dated May 2,2001 between IDTI,
IDTC,IDT America,IDT Ventures,Inc.,HM4 Teligent QualifiedFund,LLC,HM4 Teligent Private Fund,LLC,
NM 4-SBS Teligent Coinvestors,LLC,HM PG-IV Teligent,LLC,HM 4-EQ Teligent Coinvestors,LLC,HM4
ICG Qualified Fund,LLC,HM4 ICG Private Fund,LLC,HM PG-IV ICG,LLC,HM 4-SBS ICG Coinvestors,
LLC,and HM 4-EQ ICG Coinvestors,LLC.Pursuant to the terms of the Certificate ofDesignation,each share of
Series A-2 Convertible Preferred Stock was automatically converted to a share of the 8%Series A-3 Convertible
Preferred Stock.All information is based on a Schedule 13D filed by IDT with the SEC.
58
OWNERSHIPOF MANAGENŒNT
The following table sets forth,as of April 9,2002.the number of shares of ICG voting securities owned by all
Named Officers,directors and nominees of ICG individuallyand as a group.The persons named in the table below have
sole voting and investment power with respect to all of the shares of ICG voting securities owned by them,unless
otherwise noted.If the Company's Plan of Reorganization is approved,however,all Common Stock will be canceled.
Amount/Nature
of Beneficial Percent
Name of Beneficial Owner Ownership_(1)
William J.Laggett(2)
Vice Chairman of the Board ofDirectors 157,797 *
Randall E.Curran
ChiefExecutive Officer -*
Richard D.Fish,Jr.(3).
Executive Vice President,ChiefFinancial Officer 14,060 *
Michael D.Kallet(4)
Executive Vice President -Operations and ChiefTechnology Officer 156,961 *
Bernard L.Zuroff(5)
Executive Vice President,General Counsel &Secretary 14,782 *
John Colgan(6)
Senior Vice President,Finance and Controller 41,496 *
Harry R.Herbst(7)
Former ChiefFinancial Officer 4,198 *
William S.Beans,Jr.(8)
Director,formerPresident 8,361 *
J.Shelby Bryan(9)
Chairman Director,former ChiefExecutive Officerand Vice Chairman of the Board of
Directors 58,763 *
John U.Moorhead II(10)
Director 72,500 *
Leontis Teryazos(11)
Director 152,500 *
Walter Threadgill(12)
Director 82,500 *
All Named Officers and directors as a group (12 persons)763,918 1.42%
*Less than one percent of the outstanding shares of Common Stock.
(1)Based on 53,706,777 issued and outstanding shares of Common Stock on April 9,2002,plus shares of Common
Stock that may be acquired by the person or group indicated pursuant to any options and warrants exercisable,or
59
pursuant to the conversion of any outstanding shares of the Company's Preferred Stock,or pursuant to any shares
vesting under the Company's 401(k)Plan,within 60 days.
(2)Includes 157,797 shares of ICG Common Stock that may be acquired pursuant to the exercise of outstanding
stock options.
(3)Includes 360 shares of ICG Common Stock held by a 401(k)plan in Mr.Fish's name,13,500 shares of ICG
Common Stock that may be acquired pursuant to the exercise of outstanding stock options,and 200 shares
beneficially owned by Mr.Fish and his wife in joint tenancy with rights of survivorship.
(4)Includes 1,139 shares of ICG Common Stock held by a 401(k)plan in Mr.Kallet's name,977 shares of ICG
Common Stock held in ICG's Employee Stock Purchase Plan and 154,845 shares of ICG Common Stock that
may be acquired pursuant to the exercise of outstanding stock options.
(5)Includes 875 shares of ICG Common Stock held by a 401(k)plan in Mr.Zuroffs name,1,089 shares of ICG
Common Stock held in ICG'sEmployee Stock Purchase Plan and 12,818 shares of ICG Common Stock that may
be acquired pursuant to the exercise of outstanding stock options.
(6)Includes 3,523 shares of Common Stock held by a 401(k)plan in Mr.Colgan's name,2,485 shares of Common
Stock held in ICG's Employee Stock Purchase Plan,and 35,488 shares of ICG Common Stock that may be
acquired pursuant to the exercise of outstanding stock options.
(7)Includes 680 shares of Common Stock held by an IRA in Mr.Herbst's name and 3,518 shares of Common Stock
beld in ICG's Employee Stock Purchase Plan.
(8)Includes 8,361 shares of ICG Common Stock held by a 401(k)plan in Mr.Beans's name.
(9)Includes 58,763 shares of ICG Common Stock held by a 401(k)plan in Mr.Bryan's name.
(10)Includes 72,500 shares of ICG Common Stock that may be acquired pursuant to the exercise of outstanding stock
options.
(11)Includes 152,500 shares of ICG Common Stock that may be acquired pursuant to the exercise of outstanding
stock options.
(12)Includes 82,500 shares of ICG Common Stock that may be acquired pursuant to the exercise of outstanding stock
options.
ITEM 13.CERT ATN RELATIONSITTPSAND RET ATED TRANSACTIONS
None.
60
PART IV
ITEM 14.EXHIRTTS.FINANCIAL STATEMENT SCHEDITI E AND REPORT ON FORM 8-K
(A)(1)FINANCIAL STATEMENTS
The followingfmancial statements are included in Item 8 ofPart II:
Page
Independent Auditors'Report F-2
Consolidated Balance Sheets,December 31,2000 and 2001 F-3
Consolidated Statements of Operations,Years Ended December 31,1999,2000 and 2001 F-5
Consolidated Statements of Stockholders'Deficit,Years Ended December 31,1999,2000 and
2001 F-7
Consolidated Statements ofCash Flows,Years Ended December 31,1999,2000 and 2001 F-8
Notes to Consolidated Financial Statements F-11
(2)FINANCIAL STATEMENT SCHEDULE
The followingFinancial Statement Schedule is submitted herewith:
Independent Auditors'Report S-1
Schedule II:Valuation and Qualifying Accounts S-2
(3)LIST OF EXHIBITS
(2)Plan of Acquisition,Reorganization,Arrangement,Liquidation or Succession
2.1:Plan of Arrangement under Section 192 of the Canada Business Corporations Act.
[Incorporated by reference to Exhibit 2.1 to Registration Statement on Form S-4 of ICG
Communications,Inc.,File No.333-4226].
2.2 Joint Plan of Reorganization of ICG Communications,Inc.and Its Affiliated Debtors and
Debtors in Possession [Incorporated by reference to Exhibit 2.2 to ICG Communications,
Inc.'s Current Report on Form 8-K dated December 19,2001].
2.3 Disclosure Statement with Respect to Joint Plan of Reorganization of ICG Communications,
Inc.and Its AffiliatedDebtors and Debtors in Possession [Incorporated by reference to Exhibit
2.3 to ICG Communications,Inc.'s Cunent Report on Form 8-K dated December 19,2001].
(3)CorporateOrganization
3.1:Certificate of Incorporation of ICG Communications,Inc.dated April 11,1996.[Incorporated
by reference to Exhibit 3.1 to Registration Statement on Form S-4 of ICG Communications,
Inc.,File No.333-4226].
3.2:By-laws of ICG Communications,Inc.[Incorporated by reference to Exhibit 3.2 to
Registration Statement on Form S-4 ofICG Communications,Inc.,File No.333-4226].
3.3:Agreement and Plan of Reorganization by and among ICG Communications,Inc.,ICG
Canadian Acquisition,Inc.,ICG Holdings (Canada),Inc.and ICG Holdings (Canada)Co.,
dated November 4,1998.[Incorporated by reference to Exhibit 3.3 to ICG Communications,
Inc.'s Annual Report on Form 10-K forthe year ended December 31,1998.]
3.4:Order of Amalgamation between ICG Holdings (Canada),Inc.and ICG Holdings (Canada)
Co.,dated December 22,1998.[Incorporated by reference to Exhibit 3.4 to ICG
Communications,Inc.'s Annual Report on Form 10-K for the year ended December 31,1998.]
3.5:Memorandum and Articles of Association of ICG Holdings (Canada)Co.filed with the
Registrar of Joint Stock Companies,Halifax,Nova Scotia.[Incorporated by reference to
Exhibit 3.5 to ICG Communications,Inc.'s Annual Report on Form 10-K for the year ended
December 31,1998.]
61
(4)Instruments Defining the Rights of Security Holders,Including Indentures
4.1:Note Purchase Agreement,dated as of July 14,1995,among the Registrant,IntelCom Group
(U.S.A.),Inc.,Morgan Stanley Group Inc.,Princes Gate Investors,L.P.,Acorn Partnership I,
L.P.,PGI Investments Limited,PGI Investments Limited,PGI Sweden AB,and Gregor von
Opel and Morgan Stanley Group,Inc.,as Agent for the Purchasers [Incorporated by reference
to Exhibit 4.1 to Form 8-K of IntelCom Group Inc.,dated July 18,1995].
4.2:Warrant Agreement,dated as of July 14,1995,among the Registrant,the Committed
Purchasers,and IntelCom Group (U.S.A.),Inc.,as Warrant Agent [Incorporated by reference
to Exhibit 4.2 to Form 8-K of IntelCom Group Inc.,dated July 18,1995].
4.3:First Amended and Restated Articles of Incorporation of ICG Holdings,Inc.[Incorporated by
reference to Exhibit 3.1 to Registration Statement on Form S-4 of IntelCom Group (U.S.A.),
Inc.,File No.333-04569].
4.4:Indenture,dated August 8,1995,among IntelCom Group (U.S.A.)Inc.,IntelCom Group Inc.
and Nonvest Bank Colorado,National Association [Incorporated by reference to Exhibit 4.6 to
Registration Statement on Form S-4 of IntelCom Group (U.S.A.)Inc.,File Number 33-96540].
4.5:Indenture,dated April 30,1996,among IntelCom Group (U.S.A.)Inc.,IntelCom Group Inc.
and Norwest Bank Colorado,National Association [Incorporated by reference to Exhibit 4.14
to Registration Statement on Form S-4 of IntelCom Group (U.S.A.)Inc.,File No.333-04569].
4.6:Indenture,dated March 11,1997,among ICG Holdings,Inc.,ICG Communications,Inc.and
Nonvest Bank Colorado,National Association [Incorporated by reference to Exhibit 4.15 to
Registration Statement on Form S-4 of ICG Communications,Inc.,File No.333-24359].
4.7:Written Action of the Manager of ICG Funding,LLC,dated as of September 24,1997,with
respect to the terms of the 6 '/4%Exchangeable Limited Liability Company Preferred
Securities [Incorporated by reference to Exhibit 4.8 to Registration Statement on Form S-3 of
ICG Funding,LLC,File No.333-40495].
4.8:Amended and Restated Limited Liability Company Agreement of ICG Funding,LLC,dated as
of September 23,1997 [Incorporated by reference to Exhibit 4.4 to Registration Statement on
Form S-3 of ICG Funding,LLC,File No.333-40495].
4.9:Indenture,between ICG Services,Inc.and Norwest Bank Colorado,National Association,
dated as of February 12,1998 [Incorporated by reference to Exhibit 4.4 to Registration
Statement on Form S-4 ofICG Services,Inc.,File No.333-51037].
4.10:Indenture,between ICG Services,Inc.and Norwest Bank Colorado,National Association,
dated as of April 27,1998 [Incorporated by reference to Exhibit 4.4 to Registration Statement
on Form S-4 of ICG Services,Inc.,File No.333-60653,as amended].
4.11:Second Amended and Restated Articles of Incorporation of ICG Holdings,Inc.,dated March
10,1997.[Incorporated by reference to Exhibit 4.11 to ICG Communications,Inc.'s Annual
Report on Form 10-K for the year ended December 31,1998.]
4.12:Loan Agreement,dated as of January 1,1999,by and among TriNetRealty Capital,Inc.and
ICG Services,Inc.[Incorporated by reference to Exhibit 10.3 to ICG Communications,Inc.'s
Quarterly Report on Form 10-Q for the quarterly period ended March 31,1999].
4.13:Promissory Note,dated as of January 1,1999,by and among TriNetRealty Capital,Inc.and
ICG Services,Inc.[Incorporated by reference to Exhibit 10.4 to ICG Communications,Inc.'s
Quarterly Report on Form 10-Q for the quarterly period ended March 31,1999].
4.14:Deed of Tmst,Assignment of Rents and Security Agreement,made as of January 1,1999,
granted by ICG Services,Inc.for the benefit of TriNet Realty Capital,Inc.[Incorporated by
reference to Exhibit 10.5 to ICG Communications,Inc.'s Quarterly Report on Form 10-Q for
the quarterly period ended March 31,1999].
4.15:Amended and Restated Loan Agreement,dated as of May 1,1999,by and among TriNet
Realty Capital,Inc.and ICG 161,L.P.[Incorporated by reference to Exhibit 10.1 to ICG
Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June
30,1999].
62
4.16: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 [Incorporated by reference to Exhibit 10.11 to ICG Communications,
Inc.'s Quarterly Report on Forn 10-Q for the quarterly period ended June 30,1999].
4.17:Security Agreement,dated August 12,1999,from ICG Equipment,Inc.and ICG NetAhead,
Inc.,as Grantors to Royal Bank of Canada,as Collateral Agent [Incorporated by reference to
Exhibit 10.12 to ICG Communications,Inc.'s Quarterly Report on Forn 10-Q forthe quarterly
period ended June 30,1999].
4.18:Amendment No.1 to Credit Agreement,dated as of December 31,1999,among ICG
Equipment,Inc.and ICG NetAhead,Inc.,as Borrowers,ICG Services,Inc.,as Parent,certain
Initial Lender Parties thereto,Morgan Stanley Senior Funding,Inc.,as Sole Book-Runner and
Lead Arranger,Royal Bank of Canada,as Collateral Agent and as Administrative Agent for
such Lender Parties,and Bank of America,N.A.and Barclays Bank Plc,as Co-Documentation
Agents [Incorporated by reference to Exhibit 10.8 to ICG Communications,Inc.'s Quarterly
Report on Forn 10-Q for the quarterly period ended September 30,1999].
4.19:Amendment and Waiver No.2 to the Loan Documents,dated as of December 29,1999,
among ICG Equipment,Inc.,ICG NetAhead,Inc.,ICG Services,Inc.,as Parent,certain Initial
Lender Parties party thereto,Morgan Stanley Senior Funding,Inc.,as Sole Book-Runner and
Lead Arranger,Royal Bank of Canada,as Collateral Agent and as Administrative Agent for
such Lender Parties,Bank of America,N.A.,as Documentation Agent and Barclays Bank Plc,
as Co-Documentation Agent.[Incorporated by reference to Exhibit 4.19 to ICG
Communications,Inc.'s Annual Report on Form 10-K forthe year ended December 31,1999.]
4.20:Amendment No.3 to the Loan Documents,dated as of February 11,2000,among ICG
Equipment,Inc.,ICG NetAhead,Inc.,ICG Services,Inc.,as Parent,certain Initial Lender
Parties party thereto,Morgan Stanley Senior Funding,Inc.,as Sole Book-Runner and Lead
Arranger,Royal Bank of Canada,as Collateral Agent and as Administrative Agent for such
Lender Parties,Bank of America,N.A.,as Documentation Agent and Barclays Bank Plc,as
Co-Documentation Agent.[Incorporated by reference to Exhibit 4.20 to ICG
Communications,Inc.'s Annual Report on Form 10-K forthe year ended December 31,1999.]
4.21:Certificate of Designation of the Powers,Preferences and Relative,Participating,Optional and
Other Special Rights of 8%Series A-1 Convertible Preferred Stock Due 2015,8%Series A-2
Convertible Preferred Stock Due 2015 and 8%Series A-3 Convertible Preferred Stock Due
2015,and Qualifications,Limitations and Restrictions Thereof,Filed on April 7,2000 with the
Delaware Secretary of State.[Incorporated by reference to Exhibit 10.4 to ICG
Communications,Inc.'s Quarterly Report of Form 10-Q for the quarterly period ended March
31,2000.]
4.22:Registration Rights Agreement dated as of April 7,2000,by and between ICG
Communications,Inc.and Liberty Media Corporation,HMTF Bridge ICG,LLC,HM4 ICG
Qualified Fund,LLC,HM4 ICG Private Fund,LLC,HM PG-IV ICG,LLC,HM 4-SBS ICG
Coinvestors,LLC,HM 4-EQ ICG Coinvestors,LLC and Gleacher/ICG Investors LLC.
[Incorporated by reference to Exhibit 10.5 to ICG Communications,Inc.'s Quarterly Report of
Form 10-Q for the quarterly period ended March 31,2000.]
4.23:Amendment to the Preferred Stock and Warrant Purchase Agreement dated as of April 10,
2000 between ICG Communications,Inc.and Liberty Media Corporation,HMTF Bridge ICG,
LLC,HM4 ICG Qualified Fund,LLC,HM4 ICG Private Fund,LLC,HM PG-IV ICG,LLC,
HM 4-SBS ICG Coinvestors,LLC,HM 4-EQ ICG Coinvestors,LLC and Gleacher/ICG
Investors LLC.[Incorporated by reference to Exhibit 10.6 to ICG Communications,Inc.'s
Quarterly Report of Form 10-Q for the quarterlyperiod ended March 31,2000.]
4.24 Form of Common Stock Warrant Agreement dated April 10,2000.[Incorporated by reference
to Exhibit 10.7 to ICG Communications,Inc.'s Quarterly Report of Form 10-Q for the
quarterly period ended March 31,2000.]
63
4.25 Amendment and Waiver No.4 to the Loan Documents,dated as of September 29,2000,
among ICG Equipment,Inc.,ICG NetAhead,Inc.,ICG Services,Inc.,as Parent,certain Initial
Lender Parties party thereto,Morgan Stanley Senior Funding,Inc.,as Sole Book-Runner and
Lead Arranger,Royal Bank of Canada,as Collateral Agent and as Administrative Agent for
such Lender Parties,Bank of America,N.A.,as Documentation Agent and Barclays Bank Plc,
as Co-Documentation Agent.[Incorporated by reference to Exhibit 10.4 to ICG
Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
September 30,2000.]
4.26 RevolvingCredit Agreement,dated as of December 4,2000,among ICG Communications,
Inc.and each of its subsidiaries party hereto,as Borrowers,and the Chase Manhattan Bank,as
Agent.[Incorporated by reference to Exhibit 4.26 to ICG Communications,Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31,2000.]
4.27 Security and Pledge Agreement,dated as of December 4,2000 by and among ICG
Communications,Inc.and each of its subsidiaries party hereto,as Borrowers and the Chase
Manhattan Bank,as Agent.[Incorporated by reference to Exhibit 4.27 to ICG
Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31,
2000.]
4.28 First Amendment to Credit Agreement,dated as of January 31,2001,among ICG
Communications,Inc.and each of its subsidiaries party hereto,as Borrowers,the Chase
Manhattan Bank and each of the other commercial banks,finance companies,insurance
companies or other financial institutions or funds from time to time party to the Agreement,
and the Chase Manhattan Bank,as Agent.[Incorporated by reference to Exhibit 4.28 to ICG
Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31,
2000.]
4.29 Waiverto Credit Agreement,dated as of March 30,2001,among ICG Communications,Inc.
and each of its subsidiaries party hereto,as Borrowers,the Chase Manhattan Bank and each of
the other commercial banks,finance companies,insurance companies or other financial
institutions or funds from time to time party to the Agreement,and the Chase Manhattan Bank,
as Agent.[Incorporated by reference to Exhibit 4.29 to ICG Communications,Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31,2000.]
4.30 Amendment to Waiver to Credit Agreement,dated as of March 30,2001,among ICG
Communications,Inc.and each of its subsidiaries party hereto,as Borrowers,the Chase
Manhattan Bank and each of the other commercial banks,finance companies,insurance
companies or other financial institutions or funds from time to time party to the Agreement,
and the Chase Manhattan Bank,as Agent.[Incorporated by reference to Exhibit 4.30 to ICG
Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31,
2000.]
4.31 Second Amendment to Waiver to Credit Agreement,dated as of March 30,2001,among ICG
Communications,Inc.and each of its subsidiaries party hereto,as Borrowers,the Chase
Manhattan Bank and each of the other commercial banks,finance companies,insurance
companies or other financial institutions or funds from time to time party to the Agreement,
and the Chase Manhattan Bank,as Agent.[Incorporated by reference to Exhibit 4.31 to ICG
Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31,
2000.]
4.32 Second Amendment to Credit Agreement,dated as of May 2,2001,among ICG
Communications,Inc.and each of its subsidiaries party hereto,as Borrowers,the Chase
Manhattan Bank and each of the other commercial banks,finance companies,insurance
companies or other financial institutions or funds from time to time party to the Agreement,
and the Chase Manhattan Bank,as Agent.[Incorporated by reference to Exhibit 4.32 to ICG
Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31,
2000.]
4.33 Loan ModificationAgreement dated as of June 28,2001 between Trinet Realty Capital,Inc.as
lender and TrinetRealty Investors V,Inc.as borrower.[Incorporated by reference to Exhibit
4.33 to ICG Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31,2000.]
64
(10)Material Contracts
10.1:Añangement and Support Agreement dated June 27,1996 between ICG Communications,
Inc.and IntelCom Group Inc.[Incorporated by reference to Exhibit 2.1 to Registration
Statement on Forn S-4 oflCG Communications,Inc.,File No.333-4226].
10.2:Incentive Stock Option Plan #2 [Incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-8 of IntelCom Group Inc.,File No.33-86346,filed November 14,
1994].
10.3:Form of Stock Option Agreement for Incentive Stock Option Plan #2 [Incorporated by
reference to Exhibit 4.2 to the Registration Statement on Form S-8 of IntelCom Group Inc.,
File No.33-86346,filed November 14,1994].
10.4:Incentive Stock Option Plan #3 [Incorporated by reference to Exhibit 4.3 to the Registration
Statement on Form S-8 of IntelCom Group Inc.,File No.33-86346,filed November 14,
1994].
10.5:Form of Stock Option Agreement for Incentive Stock Option Plan #3 [Incorporated by
reference to Exhibit 4.4 to the Registration Statement on Form S-8 of IntelCom Group Inc.,
File No.33-86346,filed November 14,1994].
10.6:1994 Employee Stock Option Plan [Incorporated by reference to Exhibit 4.5 to the
Registration Statement on Form S-8 of IntelCom Group Inc.,File No.33-86346,filed
November 14,1994].
10.7:Form of Stock Option Agreement for 1994 Employee Stock Option Plan [Incorporated by
reference to Exhibit 4.6 to the Registration Statement on Form S-8 of IntelCom Group Inc.,
File No.33-86346,filed November 14,1994].
10.8:Employment Agreement,dated as of May 30,1995,between IntelCom Group Inc.and J.
Shelby Bryan [Incorporated by reference to Exhibit 10.5 to Form 8-K of IntelCom Group
Inc.,as filed on August 2,1995].
10.9:Stock Option Agreement,dated as of May 30,1995,between IntelCom Group Inc.and J.
Shelby Bryan [Incorporated by reference to Exhibit 10.6 to Form 8-K of IntelCom Group
Inc.,as filed on August 2,1995].
10.10:Indemnification Agreement.dated as of May 30,1995,between IntelCom Group Inc.and J.
Shelby Bryan [Incorporated by reference to Exhibit 10.7 to Form 8-K of IntelCom Group
Inc.,as filed on August 2,1995].
10.11:Placement Agreement,dated as of August 3,1995,among IntelCom Group Inc.,IntelCom
Group (U.S.A.),Inc.,certain subsidiaries of IntelCom Group (U.S.A.),Inc.and Morgan
Stanley &Co.Incorporated [Incorporated by reference to Exhibit 10.1 to Form 8-K of
IntelCom Group Inc.,as filed on August 9,1995].
10.12:ICG Communications,Inc.,401(k)Wrap Around Deferred Compensation Plan.
[Incorporated by reference to Exhibit 10.42 to ICG Communications,Inc.'s Annual Report
on Form 10-K/A for the fiscal year ended September 30,1996].
10.13:ICG Communications,Inc.1996 Employee Stock Purchase Plan.[Incorporated by reference
to the Registration Statement on Form S-8 of ICG Communications,Inc.,File No.33-
14127,filed on October 14,1996].
10.14:Consulting Services Agreement,by and between IntelCom Group Inc.and International
Communications Consulting,Inc.,effective January 1,1996 [Incorporated by reference to
Exhibit 10.44 to ICG Communications,Inc.'s Transition Report on Form 10-K/A for the
three months ended December 31,1996].
10.15:Confidential General Release and Covenant Not to Sue,by and between ICG
Communications,Inc.and John D.Field,dated November 5,1996 [Incorporated by
reference to Exhibit 10.45 to ICG Communications,Inc.'s Transition Report on Form 10-
K/A for the three months ended December 31,1996].
10.16:Amendment,dated as of March 26,1997,between ICG Communications,Inc.and J.Shelby
Bryan,to Employment Agreement,dated as of May 30,1995,between IntelCom Group Inc.
and J.Shelby Bryan [Incorporated by reference to Exhibit 10 to ICG Communications,
Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended March 31,1997].
65
10.17:1996 Stock Option Plan [Incorporated by reference to Exhibit 4.6 to the Registration
Statement on Form S-8 of ICG Communications,Inc.,File No.333-25957,filed on April
28,1997].
10.18:Amendment No.1 to the ICG Communications,Inc.1996 Stock Option Plan.[Incorporated
by reference to Exhibit 10.46 to ICG Communications,Inc.'s Annual Report on Form 10-K
for the year ended December 31,1997.]
10.19:Employment Agreement,dated as of April 22,1997,between ICG Communications,Inc.
and Don Teague [Incorporated by reference to Exhibit 10.2 to ICG Communications,Inc.'s
Quarterly Report on Forn 10-Q for the quarterly period ended June 30,1997].
10.20:Amendment No.2 to the ICG Communications,Inc.1996 Stock Option Plan [Incorporated
by reference to Exhibit 10.1 to ICG Communications,Inc.'s Quarterly Report on Form 10-Q
for the quarterly period ended September 30,1997].
10.21a:Purchase Agreement between ICG Holdings,Inc.and TriNet Corporate Realty Trust,Inc.,
dated December 9,1997.[Incorporated by reference to Exhibit 10.52a to ICG
Communications,Inc.'s Annual Report on Form 10-K for the year ended December 31,
1997.]
10.21b:First Amendment to Purchase Agreement,by and between ICG Holdings,Inc.and TriNet
Essential Facilities X,Inc.,dated January 15,1998.[Incorporated by reference to Exhibit
10.52b to ICG Communications,Inc.'s Annual Report on Form 10-K for the year ended
December 31,1997.]
10.21c:Assignment of Purchase Agreement,by and between TriNet Corporate Realty Trust,Inc.,
dated January 15,1998.[Incorporated by reference to Exhibit 10.52c to ICG
Communications,Inc.'s Annual Report on Form 10-K for the year ended December 31,
1997.]
10.21d:Commercial Lease-Net between TriNetEssential Facilities X,Inc.and ICG Holdings,Inc.,
dated January 15,1998.[Incorporated by reference to Exhibit 10.52d to ICG
Communications,Inc.'s Annual Report on Form 10-K for the year ended December 31,
1997.]
10.21e:Continuing Lease Guaranty,by ICG Communications,Inc.to TriNetEssential Facilities X,
Inc.,dated January 20,1998.[Incorporated by reference to Exhibit 10.52e to ICG
Communications,Inc.'s Annual Report on Form 10-K for the year ended December 31,
1997.]
10.21f:Continuing Lease Guaranty,by ICG Holdings (Canada),Inc.to TriNet Essential Facilities
X,Inc.,dated January 20,1998.[Incorporated by reference to Exhibit 10.52f to ICG
Communications,Inc.'s Annual Report on Form 10-K for the year ended December 31,
1997.]
10.22:Agreement and Plan of Merger,dated October 12,1997,by and among ICG
Communications,Inc.,ICG Acquisition,Inc.and NETCOM On-Line Communication
Services,Inc.[Incorporated by reference to Exhibit 2.1 to Form 8-K,dated January 21,
1998].
10.23:Amendment to Agreement and Plan of Merger,dated December 15,1997,by and among
ICG Communications,Inc.,ICG Acquisition,Inc.and NETCOMOn-Line Communication
Services,Inc.[Incorporated by reference to Exhibit 2.2 to Form 8-K,dated January 21,
1998].
10.24:Employment Agreement,dated July 1,1998,between ICG Communications,Inc.and Harry
R.Herbst [Incorporated by reference to Exhibit 10.1 to ICG Communications,Inc.'s
Quarterly Report on Form 10-Q for the quarterly period ended June 30,1998].
10.25:Employment Agreement,dated September 23,1998,between ICG Communications,Inc.
and Douglas I.Falk [Incorporated by reference to Exhibit 10.1 to ICG Communications,
Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended September 30,1998].
10.26:Asset Purchase Agreement by and between MindSpring Enterprises,Inc.and NETCOM
On-Line Communication Services,Inc.,dated as of January 5,1999 [Incorporated by
reference to Exhibit 10.1 to ICG Communications,Inc.'s Current Report on Form 8-K,
dated March 4,1999].
66
10.27:ICG Communications,Inc.1998 Stock Option Plan.[Incorporated by reference to
Attachment A to ICG Communications,Inc.'s Proxy Statement for the year ended
December 31,1997.]
10.28:Form of Stock Option Agreement for 1998 Stock Option Plan.[Incorporated by reference to
Exhibit 10.28 to ICG Communications,Inc.'s Annual Report on Form 10-K for the year
ended December 31,1998.]
10.29:Amendment No.I to the ICG Communications,Inc.1998 Stock Option Plan,dated
December 15,1998.[Incorporated by reference to Exhibit 10.29 to ICG Communications,
Inc.'s Annual Report on Form 10-K for the year ended December 31,1998.]
10.30:Forn of Agreement regarding Gross-Up Payments,by and between ICG Communications,
Inc.and each of J.Shelby Bryan,Harry R.Herbst,Douglas I.Falk and H.Don Teague,
dated December 16,1998.[Incorporated by reference to Exhibit 10.30 to ICG
Communications,Inc.'s Annual Report on Form 10-K for the year ended December 31,
1998.]
10.31:Extension and Amendment to Employment Agreement,dated as of March 10,1999,by and
between ICG Communications,Inc.and J.Shelby Bryan.[Incorporated by reference to
Exhibit 10.1 to ICG Communications,Inc.'s Quarterly Report on Form 10-Q for the
quarterly period ended March 31,1999].
10.32:Deferred Compensation Agreement,dated as of April 1,1999,by and between ICG
Communications,Inc.and J.Shelby Bryan [Incorporated by reference to Exhibit 10.2 to
ICG Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
March 31,1999].
10.33:Purchase Agreement,dated as of January 1,1999,by and among TriNetEssential Facilities
X,Inc.and ICG Services,Inc.[Incorporated by reference to Exhibit 10.6 to ICG
Communications,Inc.'s Quarterly Report on Form 10-Q for the quatterly period ended
March 31,1999].
10.34:Assumption and ModificationAgreement,dated as of May 1,1999,by and among ICG
Services,Inc.,ICG 161,LP.and TriNet Realty Capital,Inc.[Incorporated by reference to
Exhibit 10.2 to ICG Communications,Inc.'s Quarterly Report on Forn 10-Q for the
quarterly period ended June 30,1999].
10.35:Employment Agreement,dated as of May 19,1999,between ICG Communications,Inc.
and Harry R.Herbst [Incorporated by reference to Exhibit 10.3 to ICG Communications,
Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June 30,1999].
10.36:Employment Agreement,dated as of May 19,1999,between ICG Communications,Inc.
and H.Don Teague [Incorporated by reference to Exhibit 10.4 to ICG Communications,
Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June 30,1999].
10.37:Employment Agreement,dated as of May 19,1999,between ICG Communications,Inc.
and John Kane [Incorporated by reference to Exhibit 10.5 to ICG Communications,Inc.'s
Quarterly Report on Forn 10-Q for the quarterly period ended June 30,1999].
10.38:Employment Agreement,dated as of June 1,1999,between ICG Communications,Inc.and
Douglas I.Falk [Incorporated by reference to Exhibit 10.6 to ICG Communications,Inc.'s
Quarterly Report on Form 10-Q for the quarterlyperiod ended June 30,1999].
10.39:Amendment to Employment Agreement,dated as of June 9,1999,between ICG
Communications,Inc.and John Kane [Incorporated by reference to Exhibit 10.7 to ICG
Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June
30,1999].
10.40:Employment Agreement,dated as of June 28,1999,between ICG Communications,Inc.
and William S.Beans,Jr.[Incorporated by reference to Exhibit 10.8 to ICG
Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June
30,1999].
10.41:Share Price Appreciation Vesting Non-QualifiedStock Option Agreement,dated as of June
28,1999,between ICG Communications,Inc.and William S.Beans,Jr.[Incorporated by
reference to Exhibit 10.9 to ICG Communications,Inc.'s Quarterly Report on Form 10-Q
for the quarterlyperiod ended June 30,1999].
67
10.42:Employment Agreement,dated as of July 1,1999,between ICG Communications,Inc.and
Michael D.Kallet [Incorporated by reference to Exhibit 10.10 to ICG Communications,
Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June 30,1999].
10.43:Amendment to the Stock Option Agreement between J.Shelby Bryan and IntelCom Group,
Inc.dated May 30,1995,dated as of March 10,1999,between ICG Communications,Inc.
and J.Shelby Bryan [Incorporated by reference to Exhibit 10.1 to ICG Communications,
Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended September 30,1999].
10.44:Amendment to the Stock Option Agreement between J.Shelby Bryan and IntelCom Group,
Inc.dated November13,1995,dated as of March 10,1999,between ICG Communications,
Inc.and J.Shelby Bryan [Incorporated by reference to Exhibit 10.2 to ICG
Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
September 30,1999].
10.45:Promissory Note,dated as of August 6,1999,between ICG Telecom Group,Inc.and John
Kane [Incorporated by reference to Exhibit 10.3 to ICG Communications,Inc.'s Quarterly
Report on Form 10-Q for the quarterly period ended September 30,1999].
10.46:Amendment to Employment Agreement,dated as of August 22,1999,between ICG
Communications,Inc.and John Kane [Incorporated by reference to Exhibit 10.4 to ICG
Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
September 30,1999].
10.47:Amendment to Employment Agreement,dated as of August 22,1999,between ICG
Communications,Inc.and Don Teague [Incorporated by reference to Exhibit 10.5 to ICG
Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
September 30,1999].
10.48:Amendment to Employment Agreement,dated as of August 22,1999,between ICG
Communications,Inc.and Harry R.Herbst [Incorporated by reference to Exhibit 10.6 to
ICG Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
September 30,1999].
10.49:Amendment to Employment Agreement,dated as of September 14,1999,between ICG
Communications,Inc.and J.Shelby Bryan [Incorporated by reference to Exhibit 10.7 to
ICG Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
September 30,1999].
10.50:Promissory Note,dated as of December 10,1999,between ICG Telecom Group,Inc.and
John Kane.[Incorporated by reference to Exhibit 10.50 to ICG Communications,Inc.'s
Annual Report on Form 10-K for the fiscal year ended December 31,1999.]
10.51:General Release,Covenant Not to Sue and Agreement,dated as of January 1,2000,between
ICG Communications,Inc.and John Kane.[Incorporated by reference to Exhibit 10.51 to
ICG Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31,1999.]
10.52:Letter of Understanding to Douglas I.Falk,dated December 15,1999,from ICG
Communications,Inc.regarding Section 4 of the Employment Agreement between ICG
Communications,Inc.and Douglas I.Falk.[Incorporated by reference to Exhibit 10.52 to
ICG Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31,1999.]
10.53:Employment Agreement,dated as of July 1,1999,by and between ICG Communications,
Inc.and Carla J.Wolin.[Incorporated by reference to Exhibit 10.53 to ICG
Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended December
31,1999.]
10.54:Amendment to Employment Agreement,dated as of August 22,1999,by and between ICG
Communications,Inc.and Carla J.Wolin.[Incorporated by reference to Exhibit 10.54 to
ICG Communications,Inc.'s Annual Report on Forn 10-K for the fiscal year ended
December 31,1999.]
10.55:Employment Agreement,dated as of January 7,2000,by and between ICG
Communications,Inc.and James Washington.[Incorporated by reference to Exhibit 10.55
to ICG Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31,1999.]
68
10.56:General Release,Covenant Not to Sue and Agreement,dated as of January 17,2000,
between ICG Communications,Inc.and Douglas I.Falk.[Incorporated by reference to
Exhibit 10.56 to ICG Communications,Inc.'s Annual Report on Forn 10-K for the fiscal
year ended December 31,1999.]
10.57:Employment Agreement,dated as of February 1,2000,by and between ICG
Communications,Inc.and Cindy Z.Schonhaut.[Incorporated by reference to Exhibit 10.57
to ICG Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31,1999.]
10.58:Employment Agreement,dated as of March 8,2000,by and between ICG Communications,
Inc.and Pamela S.Jacobson.[Incorporated by reference to Exhibit 10.58 to ICG
Communications,Inc.'s Annual Report on Forn 10-K for the fiscal year ended December
31,1999.]
10.59:Employment Agreement dated as of December 22,1999 by and between ICG
Communications,Inc.and William S.Beans,Jr.[Incorporated by reference to Exhibit 10.1
to ICG Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period
ended March 31,2000.]
10.60:Employment Agreement dated as of March 23,2000 by and between ICG Communications,
Inc.and W.Terrell Wingfield,Jr.[Incorporated by reference to Exhibit 10.2 to ICG
Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
March 31,2000.]
10.61:Deferred Compensation Agreement dated as of March 31,2000 by and between ICG
Communications,Inc.and J.Shelby Bryan.[Incorporated by reference to Exhibit 10.3 to
ICG Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
March 31,2000.]
10.62:Amendment to Employment Agreement dated as of April 13,2000 by and between ICG
Communications,Inc.and William S.Beans,Jr.[Incorporated by reference to Exhibit 10.8
to ICG Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period
ended March 31,2000.]
10.63:Amendment to Employment Agreement,dated as of May 10,2000,by and between ICG
Communications,Inc.and Carla J.Wolin.[Incorporated by reference to Exhibit 10.1 to ICG
Communications,Inc.'s Quarterly Report on Forn 10-Q for the quarterly period ended June
30,2000.]
10.64:Amendment to Employment Agreement,dated as of May 10,2000,by and between ICG
Communications,Inc.and James Washington.[Incorporated by reference to Exhibit 10.2 to
ICG Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
June 30,2000.]
10.65:Amendment to Employment Agreement,dated as of May 10,2000,by and between ICG
Communications,Inc.and Cindy Z.Schonhaut.[Incorporated by reference to Exhibit 10.3
to ICG Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period
ended June 30,2000.]
10.66:Amendment to Employment Agreement,dated as of May 10,2000,by and between ICG
Communications,Inc.and Don Teague.[Incorporated by reference to Exhibit 10.4 to ICG
Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended June
30,2000.]
10.67:Amendment to Employment Agreement,dated as of July 12,2000 by and between ICG
Communications,Inc.and Michael D.Kallet.[Incorporated by reference to Exhibit 10.1 to
ICG Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
September 30,2000.]
10.68:Employment Agreement,dated as of August 7,2000 by and between ICG Communications,
Inc.and John Colgan.[Incorporated by reference to Exhibit 10.2 to ICG Communications,
Inc.'s Quarterly Report on Forn 10-Q for the quarterly period ended September 30,2000.]
10.69:Employment Agreement,dated as of September 24,2000 by and between ICG
Communications,Inc.and Randall Curran.[Incorporated by reference to Exhibit 10.3 to
ICG Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
September 30,2000.]
69
10.70:Employment Agreement,dated as of February 26,2001 by and between ICG
Communications,Inc.and Robert Athey.[Incorporated by reference to Exhibit 10.70 to ICG
Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended December
31,2000.]
10.71:Employment Agreement,dated as of February 26,2001 by and between ICG
Communications,Inc.and Brian Cato.[Incorporated by reference to Exhibit 10.71 to ICG
Communications,Inc.'s Annual Report on Forn 10-K for the fiscal year ended December
31,2000.]
10.72:Employment Agreement,dated as of February 26,2001 by and between ICG
Communications,Inc.and Darlinda Coe.[Incorporated by reference to Exhibit 10.72 to ICG
Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended December
31,2000.]
10.73:Employment Agreement,dated as of February 26,2001 by and between ICG
Communications,Inc.and John Colgan.[Incorporated by reference to Exhibit 10.73 to ICG
Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended December
31,2000.]
10.74:Employment Agreement,dated as of February 26,2001 by and between ICG
Communications,Inc.and Richard E.Fish.[Incorporated by reference to Exhibit 10.74 to
ICG Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31,2000.]
10.75:Employment Agreement,dated as of February 26,2001 by and between ICG
Communications,Inc.and Kimberly Gordon.[Incorporated by reference to Exhibit 10.75 to
ICG Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31,2000.]
10.76:Employment Agreement,dated as of February 26,2001 by and between ICG
Communications,Inc.and David Hurtado.[Incorporated by reference to Exhibit 10.76 to
ICG Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31,2000.]
10.77:Employment Agreement,dated as of February 26,2001 by and between ICG
Communications,Inc.and Michael D.Kallet.[Incorporated by reference to Exhibit 10.77 to
ICG Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31,2000.]
10.78:Employment Agreement,dated as of February 26,2001 by and between ICG
Communications,Inc.and Gayle Landis.[Incorporated by reference to Exhibit 10.78 to ICG
Communications,Inc.'s Annual Report on Forn 10-K for the fiscal year ended December
31,2000.]
10.79:Employment Agreement,dated as of February 26,2001 by and between ICG
Communications,Inc.and Gary Lindgren.[Incorporated by reference to Exhibit 10.79 to
ICG Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31,2000.]
10.80:Employment Agreement,dated as of February 26,2001 by and between ICG
Communications,Inc.and Bemard L.Zuroff.[Incorporated by reference to Exhibit 10.80 to
ICG Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31,2000.]
10.81:Fourth Amendment to Lease,dated as of June 28,2001 between Trinet Realty Investors V,
Inc.as landlord and ICG Holdings,Inc.as tenant.[Incorporated by reference to Exhibit
10.81 to ICG Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31,2000.]
10.82:Agreement Regarding Option and Exercise of Option dated as of June 28,2001 by Trinet
Realty Investors V,Inc.and ICG Corporate Headquarters,L.L.C.[Incorporated by reference
to Exhibit 10.82 to ICG Communications,Inc.'s Annual Report on Form 10-K forthe fiscal
year ended December 31,2000.]
70
10.83:Consulting Agreement.dated January 10,2001 by and between ICG Communications.Inc.
and William S.Beans,Jr.[Incorporated by reference to Exhibit 10.83 to ICG
Communications,Inc.'s Annual Report on Form 10-K for the fiscal year ended December
31,2000.]
10.84:Amended and Restated Employment Agreement.dated June 21,2001.by and between ICG
Communications,Inc.,ICG Holdings,Inc.,ICG Services,Inc.,JCG Equipment,Inc.,and
ICG Telecom,Inc.,and Randall Curran.[Incorporated by reference to Exhibit 10.84 to ICG
Communications,Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended
March 31,2001].
(21)Subsidiaries of the Registrant
21.1:Subsidiaries of the Registrant.
(23)Consents
23.1:Consent of KPMG LLP.
(B)REPORT ON FORM 8-K
The following reports on Form 8-K were filed by the Registrants during the quarter ended December 31,2001:
(i)Current Report on Form 8-K dated December 19,2001,announcing the Company had filed a proposed
Plan of Reorganization and Disclosure Statement in the United States Bankruptcy Court in the District of
Delaware on December 19,2001.
(C)EXHIBITS
The exhibits required by this item are listed under Item 14(A)(3).
(D)FINANCIAL STATEMENT SCHEDULE
The financial statement schedule required by this item is listed under Item 14(A)(2).
71
EXHIBIT 21.
Subsidiaries of the Registrant
State of Doing
Name of Subsidiary Incorporation Business As
Bay Area Teleport,Inc.Delaware -
Communications Buying Group,Inc.Ohio -
ICG DataChoice NetworkServices,L.L.C.Nevada -
DownNorth,Inc.
(formerly known as UpSouth Corporation)Georgia -
ICG Access Services-Southeast,Inc.
(formerlvknown as PrivaCom,Inc.)Delaware -
ICG Canadian Acquisition,Inc.Delaware -
ICG ChoiceCom,L.P.
(formerly known as CSW/ICG ChoiceCom,L.P.)Delaware -
ICG ChoiceCom Management,LLC
(formerly known as Southwest TeleChoice Management,LLC and CSW/ICG
ChoiceCom Management,LLC)Delaware -
ICG Corporate Headquarters,L.L.C.Colorado -
ICG Enhanced Services,Inc.Colorado -
ICG Equipment,Inc.Colorado -
ICG Funding,LLC Delaware -
ICG Holdings,Inc.
(formerly known as IntelCom Group (U.S.A.),Inc.)Colorado -
ICG Holdings (Canada)Co.NovaScotia -
ICG Mountain View,Inc.Colorado --
ICG Ohio LINX,Inc.
(formerly known as Ohio Local Interconnection Network Exchange Co.)Ohio -
ICG NetAhead,Inc.
(formerlvknown as NETCOMOn-Line Communication Services,Inc.and ICG
PST,Inc.)Delaware -
ICG Services,Inc.Delaware -
ICG Telecom Canada,Inc.Federal Canadian -
ICG Telecom Group,Inc.
(formerly known as ICGAccess Services,Inc.)Colorado -
ICG Telecom Group of Virginia,Inc.Virginia -
ICG Telecom of San Diego,L.P.
(formerlvknown as Linkatel of California,L.P.)California -
ICG Tevis,Inc.Delaware ---
NikoNet,LLC Georgia --
PTI Harbor Bay,Inc.Washington --
TransAmerican Cable,Inc.Kentucky MidAmerican Cable
Western Plains Finance Nevada -
72
EXHIBIT 23.1
Consent of KPMG LLP
The Board of Directors
ICG Communications,Inc.:
We consent to incorporation by reference in the registration statements No.33-96660 on Form S-3 of IntelCom
Group,Inc.,Nos.333-18839,333-38823 and 333-74167 on Form S-3 of ICG Communications,Inc.,and Nos.33-14127,
333-25957,333-39737,3$3-45213 and 333-56835 on Form S-8 of ICG Communications,Inc.of our reports dated March
31,2002,relating to the consolidated balance sheets of ICG Communications,Inc.and subsidiaries (the Company)(a
debtor-in-possession as of November 14,2000)as of December 31,2000 and 2001,and the related consolidated statements
of operations,stockholders'deficit,and cash flows for each of the years in the three-year period ended December 31,2001,
and the related financial statement schedule,which reports appear in the December 31,2001 Annual Report on Form 10-K
of ICG Communications,Inc.
Our report dated March 31,2002 contains an explanatory paragraph that states that the Company has suffered
recurring losses,has a significant net capital deficiency,and,on November 14,2000,the Company and most of its
subsidiaries filed voluntary petitions for protection under Chapter 11 of the United States Bankruptcy Code,all of which
raise substantial doubt about their ability to continue as a going concern.The consolidated financial statements do not
include any adjustments that might result from the outcome of that uncertainty.Additionally,the consolidated financial
statements do not include any adjustments that may be required in the Chapter 11 reorganization.
Our report refers to a change in the method of accounting for installation revenues.
Is/KPMG LLP
Denver,Colorado
April 12,2002
73
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 behalfby the undersigned,thereunto duly authorized.
ICG Communications,Inc.
Randall E.Curran
By:ChiefExecutive O§ìcer
Date:April 15,2002
Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the
following persons on behalfof the registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/RANDALL E.CURRAN ChiefExecutive Officer April 15,2002
Randall E.Curran
/s/RICHARD E.FISH,JR.Executive Vice President,ChiefFinancial Officer April 15,2002
Richard E.Fish,Jr.(Principal Financial Officer)
/s/JOHNV.COLGAN Senior Vice President,Finance and Controller(Principal April 15,2002
John V.Colgan Accounting Officer)
/s/WILLIAM J.LAGGETT Vice Chairman of the Board of Directors April 15,2002
William J.Laggett
/s/JOHNU.MOORHEAD Director April 15,2002
John U.Moorhead
/s/LEONTIS TERYAZOS Director April 15,2002
Leontis Teryazos
/s/WALTER THREADGILL Director April 15,2002
Walter Threadgill
74
FINANCIAL STATEMENTS
Page
Independent Auditors'Report.........................................F-2
Consolidated Balance Sheets,Years Ended December 31,2000 and 2001 .......................................F-3
Consolidated Statements of Operations,Years Ended December 31,1999,2000 and 2001...........................................F-5
Consolidated Statements of Stockholders'Deficit,Years Ended December 31,1999,2000 and 2001.......................................F-7
Consolidated Statements of Cash Flows,Years Ended December 31,1999,2000 and 2001...........................................F-8
Notes to Consolidated Financial Statements....................................................F-11
F-1
IndependentAuditors'Report
The Board of Directors
ICG Communications,Inc.:
We have audited the accompanying consolidated balance sheets of ICG Communications,Inc.and subsidiaries (the
Company)(a debtor-in-possession as of November 14,2000)as of December 31,2000 and 2001,and the related
consolidated statements of operations,stockholders'deficit and cash flows for each of the years in the three-year period
ended December 31,2001.These consolidated financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America.Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the fmancial statements
are free of material misstatement.An audit includes examining,on a test basis,evidence supporting the amounts and
disclosures in the fmancial statements.An audit also includes assessing the accounting principles used and significant
estimates made by management,as well as evaluating the overall fmancial statement presentation.We believe that our
audits provide a reasonable basis forour opinion.
As discussed in note 3 to the consolidated financial statements,during 2000,the Company determined that the carrying
value of its long-lived tangible and intangible assets had been impaired.In accordance with Financial Accounting
Standards No.121,"Accounting for the Impairment ofLong-LivedAssets and for Long-LivedAssets to be Disposed Of"
the Company recorded an impairment charge at December 31,2000 of approximately $1.7 billion.
In our opinion,the consolidated financial statements referred to above present fairly,in all material respects,the
consolidated financial position of ICG Communications,Inc.and subsidiaries as of December 31,2000 and 2001 and the
results of their operations and their cash flows for each of the years in the three-year period ended December 31,2001 in
confornity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going
concem.As discussed in note 1 to the consolidated financial statements,the Company has suffered recurring losses,has a
significant net capital deficiency and,on November 14,2000 the Company and most of its subsidiaries filed voluntary
petitions for protection under Chapter 11 of the United States Bankruptcy Code.The consolidated financial statements do
not include any adjustments to the recorded amounts or classification of assets or liabilities or reflect any amounts that may
ultimately be paid to settle liabilities and contingencies which may be required in the Chapter 11 reorganization or the
effect of any changes which may be made in connection with the Company's capitalization or operations resulting from its
plan of reorganization.The Company filed the Second Amended Joint Plan of Reorganization and Disclosure Statement
(the "Plan")with the Bankruptcy Court on March 26,2002,which Plan will be amended.The Plan is subject to acceptance
by the Company's impaired creditors and stockholders and approval by the bankruptcy court which acceptance and
approval is not assured.These factors,among others,raise substantial doubt about its ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
As explained in note 2 to the consolidated fmancial statements,during the year ended December 31,2000,the Company
changed its method of accounting for installation revenue.
/s/KPMG
Denver,Colorado
March 31,2002
F-2
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Consolidated Balance Sheets
December 31,2000 and 2001
December 31,
2000 2001
(in thousands)
Assets
Current assets:
Cash and cash equivalents $196,980 $146,587
Short-term investments available for sale 17,733 -
Receivables:
Trade,net ofallowance of $94 million and $44 million at December 31,2000 and
2001,respectively 132,095 42,365
Other 994 559
Total net receivables 133,089 42,924
Prepaid expenses and deposits 13,234 13,559
Total current assets 361,036 203,070
Property and equipment,net of accumulated depreciation of $2.5 million and $61 million at
December 31,2000 and 2001,respectively (note 6)590,500 531,187
Restricted cash 9,278 7,299
Investments (note 7)1,650 100
Deferred financing costs,net of accumulated amortization of $1 million and $2 million at
December 31,2000 and 2001,respectively 10,969 3,050
Deposits and other assets 7.019 10,459
Total Assets (note 1)$980.452 $755.165
(continued)
See accompanying notes to consolidated fmancial statements.
F-3
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Consolidated Balance Sheets (Continued)
December 31,2000 and 2001
December 31,
2000 2001
(in thousands)
Liabilities and Stockholders'Deficit
Current liabilities not subject to compromise:
Accounts payable $8,774 $8,871
Accrued liabilities 57,888 73,853
Deferred revenue 14,840 9,067
Total current liabilities not subject to compromise 8 1,502 91,791
Liabilities subject to compromise 2,870,130 2,729,590
Long-term liabilities not subject to compromise:
Capital lease obligations (notes 8 and 9)-50,708
Long-term debt,net of discount (notes 9 and 15)33,077 -
Other long-ternliabilities 1.090 1,088
Total liabilities 2,985,799 2,873,177
Preferred stock,at liquidation value (notes 10 and 15):
Redeemable preferred stock of ICG Holdings 449,056 449,056
Mandatorily redeemable preferred securities of ICG Funding 132,251 92,336
8%Series A Convertible Preferred Stock 785,353 785,353
Total preferred stock 1,366,660 1,326,745
Stockholders'deficit:
Common stock,$.01 par value,100,000,000 shares authorized;52,045,443 and 53,706,777
shares issued and outstanding at December 31,2000 and 2001,respectively 520 537
Additional paid-in capital 882,142 922,040
Accumulated deficit (4,254,669)(4,367.334)
Total stockholders'deficit (3,372,007)(3,444,757)
Commitments and contingencies (note 12)
Total Liabilities and Stockholders'Deficit (notes 1 and 12)$980.452 $755,165
See accompanying notes to consolidated financial statements.
F-4
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Consolidated Statements of Operations
Years Ended December 31,1999,2000 and 2001
Years ended December 31,
1999 2000 2001
(in thousands,except per share data)
Revenue $479,226 $598,283 $499,996
Operating costs and expenses:
Operating costs 238,927 440,090 351,973
Selling,general and administrative expenses 179,737 199,508 94,155
Bad debt expense 60,019 84,457 14,236
Depreciation and amortization 174,239 318,771 67,768
Provision for impairment of long-livedassets (note 3)31,815 1,701,466 27,943
Loss (gain)on disposal oflong-livedassets (906)2,415 9,537
Other,net 1.293 1,693 2,412
Total operating costs and expenses 685,124 2,748,400 568,024
Operating loss (205,898)(2,150,117)(68,028)
Other income (expense):
Interest expense (contractual interest of $30.3 million and $249.3
million not recorded during the years ended December 31,2000,and
200l respectively)(212,420)(233,643)(32,214)
Interest income 16,300 22,370 -
Other income (expense),net,including realized gains and losses on
marketable securities (note 7)(2,522)(15,166)1,028
(198.642)(226,439)(31,186)
Loss from continuing operations before reorganization expenses,income
tax expense accretion and preferred dividends,discontinued operations,
extraordinary gain,and cumulative effect of change in accounting
principle (404,540)(2,376,556)(99,214)
Reorganization expenses (note 4)-(53,897)(13,451)
Income tax expense (25)---
Accretion and preferred dividends on preferred securities of subsidiaries,
net of minority interest in share of losses (61,897)(60,043)
Loss from continuing operations before discontinued operations,
extraordinary gain and cumulative effect of change in accounting
principle $(466,462)$(2,490,496)$(112,665)
(continued)
See accompanying notes to consolidated financial statements.
F-5
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Consolidated Statements of Operations (Contínued)
Years Ended December 31,1999,2000 and 2001
Years ended December 31,
1999 2000 2001
(in thousands,except per share data)
Discontinued operations:
Gain (loss)from discontinued operations $(1,036)$770 $-
Gain on disposal of discontinued operations,net of income taxes of $4.7
million in 1999 37,825 3,572 -
Total from discontinued operations 36,789 4,342 ---
Net loss before extraordinary gain and cumulative effect of change in
accounting principle (429,673)(2,486,154)(112,665)
Extraordinary gain on sales of operations of NETCOM,net of income taxes of
$2.0 million 195,511 --
Cumulative effect of change in accounting pnnciple for revenue from
installation services (note 2(i))---(7,363)--
Net loss (234,162)(2,493,517)(112,665)
Accretion of 8%Series A Convertible Preferred Stock to liquidation value and
related dividends -(158,249)--
Charge for beneficial conversion feature of 8%Series A Convertible Preferred
Stock -(159.279)--
Net loss attributable to common stockholders $(234.162)$(2,811.045)$(112,665)
Net loss per share -basic and diluted:
Loss frorn continuing operations $(9.90)$(49.63)$(2.14)
Income from discontinued operations 0.78 .09 -
Extraordinary gain on sales of operations of NETCOM 4.15 --
Accretion,dividends and beneficial conversion of 8%Series A Convertible
Preferred Stock --(6.33)-
Cumulative effect of change in accounting principle -(.15)-
Net loss per share -basic and diluted $(4.97)$(56.02)$(2.14)
Weighted average number of shares outstanding -basic and diluted 47,I 16 50.184 52,748
See accompanying notes to consolidated financial statements.
F-6
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Consolidated Statements of Stockholders'Deficit
Years Ended December 31,1999,2000 and 2001
Accumulated
Additional other Total
Common stock paid-in Accumulated comprehensive stockholders'
Shares Amount capital deficit income (loss)deficit
(in thousands)
BALANCES AT DECEMBER31,1998 46,360 $464 $577,940 $(1,209,462)$(119)S (631,177)
Shares issued for cash in connection with the
exercise of options and warrants 935 9 12,524 --12,533
Shares issued for cash in connection with the
employee stock purchase plan 206 2 3,359 --3,361
Shares issued as contribution to 401(k)plan 260 3 5,457 --5,460
Shares issued upon conversion of long-term debt --2 --2
Reversal of cumulative foreign currency translation
adjustment ----119 119
Net loss ---(234,162)-(234,162)
Comprehensive loss -----(234,043)
BALANCES AT DECEMBER 31,1999 47,761 478 599,282 (1,443,624)-(843,864)
Shares issued for cash in connection with the
exercise of options and warrants 936 9 14,366 --14,375
ahares issued for cash in connection with the
employee stock purchase plan 174 1 2,728 --2.729
Shares issued as contribution to 401(k)plan 178 2 4,296 --4.298
Shares issued in exchange for long-term investment 2,996 30 21,595 --21.625
Warrants issued in connection with 8%Series A
Convertible Preferred Stock --80,596 --80,596
Value ascribed to beneficial conversion feature of
8%Series A Convertible Preferred Stock --159,279 (159,279)--
Accretion and dividends of 8%Series A Convertible
Preferred Stock -----(158,249)-(158,249)
Net loss ---(2,493,517)-(2,493,517)
BALANCES AT DECEMBER 31,2000 52,045 520 882,142 (4,254,669)-(3,372,007)
Shares issued upon conversion of mandatorily
redeemable preferred securities oflCG Funding 1,662 17 39,898 39,915
Net loss (112,665)(112.665)
BALANCES AT DECEMBER 31,2001 53.707 $537 $922.040 $(4,367,334)$--$(3,444.757)
See accompanying notes to consolidated financial statements.
F-7
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
ConsolidatedStatements of Cash Flows
Years ended December 31,
1999 2000 2001
(in thousands)
Cash flows from operating activities:
Net loss $(234,162)$(2,493,517)S (112,665)
Reorganization expenses -53,897 13,451
Net income from discontinued operations (36,789)(4,342)-
Extraordinary gain on sales of discontinued operations (195,511)---
Adjustments to reconcile net loss to net cash provided(used)by operating
activities:
Cumulative effect of change in accounting principle ---7,363 ---
Recognition of deferred gain (29,250)(6,239)
Accretion and preferred dividends on preferred securities of
subsidiaries,net of minority interest in share of losses 61,897 60,043 -
Depreciation and amortization 174,239 318,771 67,768
Provision for impairment oflong-lived assets 31,815 1,701,466 27,943
Loss (gain)on marketable trading securities --21,991 (993)
Deferred compensation 1,293 1,295 2,412
Net loss (gain)on disposal oflong-lived assets (906)2,415 9,537
Provision for uncollectible accounts 60,019 84,457 14,236
Interest expense deferred and included in long-term debt,net of
amounts capitalized on assets under construction 186,080 168,779 (1,213)
Interest expense deferred and included in capital lease obligations 5,294 4,046 6,8 10
Amortization of deferred fmancing costs included in interest expense 4,860 5,276 10,006
Contribution to 401(k)plan through issuance of common stock 5,460 4,298 -
Changes in operating assets and liabilities:
Receivables (120,857)(49,619)31,052
Prepaid expenses and deposits 3,474 (2,392)1,224
Accounts payable and accrued and other liabilities 18,847 95,072 10,526
Deferred revenue 20,721 169.237 (5,773)
Net cash provided(used)by operating activities before
reorganization items (43,476)142.297 74,321
Reorganization items:
Reorganization expenses -(53,897)(13,451)
Gain on settlement with major customer --(39,179)
Changes in restructuring accruals -8,094 (6,552)
Changes in liabilities subject to compromise -(10,504)(20,600)
Changes in liabilities to priority and secured creditors --(15,440)
Write-off of deferred financing and offeringcosts -36,493 -
Loss on revaluation of assets held for sale --10,300
Disposal of assets --(874)
Forgiveness of dividend payable --(740)
Other ---234
Net cash used by reorganization items -(19,8 14)(86,302)
Net cash provided (used)by operating activities $(43,476)$122,483 $(11,981)
(continued)
See accompanying notes to consolidated financial statements.
F-8
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Consolidated Statements of Cash Flows (Continued)
Years ended December 31,
1999 2000 2001
(in thousands)
Cash flows from investing activities:
Proceeds from sales of discontinued operations,net of selling costs and cash
included in sales S 374,897 $-$-
Acquisition of property,equipment and other assets (595,346)(742,766)(41,463)
Change in prepaid expenses,accounts payable and accrued liabilities for
purchase of long-term assets 64,559 146,325 (2,808)
Proceeds from disposition ofproperty,equipment and other assets 4,300 4,157 4,467
Proceeds from sale of short-term investments available forsale 29,781 22,172 17,733
Proceeds from sale of marketable securities,net of realized gain 30,000 10,634 2,542
Purchase of investments (28,939)(1,400)-
Decrease (increase)in restricted cash 4,375 3,259 (617)
Purchase of minority interest in subsidiaries (6,039)---
Reorganization items:
Proceeds from disposal of assets ---31
Decrease in restricted cash due to settlement of liabilities subject to
compromise ---2,596
Net cash used by investing activities (122,412)(557,619)(17.519)
Cash flows from financing activities:
Proceeds from issuance of common stock 15,894 17,104 -
Proceeds of 8%Series A Convertible Preferred Stock,net of issuance costs -720,330 -
Proceeds from issuance of long-term debt 80,000 95,000 -
Deferred long-term debt issuance costs (4,785)(7,150)(2,086)
Principal payments on capital lease obligations (14,662)(20,525)-
Payments on IRU agreement -(179,497)-
Principal payments on long-term debt (502)(90,122)-
Payments of preferred dividends (8,927)(6,696)-
Reorganization items:
Principal payments on capital lease obligations subject to compromise --(17,495)
Payments ofpreferred dividends --(1312)
Net cash provided (used)by financing activities 67,018 528,444 (20,893)
Net increase (decrease)in cash and cash equivalents (98,870)93,308 (50,393)
Net cash provided(used)by discontinued operations (8,149)384 -
Cash and cash equivalents,beginning of year 210.307 103,288 196.980
Cash and cash equivalents,end of year $103.288 $196,980 $146.587
(continued)
See accompanying notes to consolidated financial statements.
F-9
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
ConsolidatedStatements of Cash Flows (Continued)
Years ended December 31,
1999 2000 2001
(in thousands)
Supplemental disclosure of cash flows information of continuing operations:
Cash paid for interest $15,216 $32,626 $22.107
Capitalized interest $9.022 $7,005 $1.213
Cash paid forincome taxes $2,848 $378 $-
Supplemental disclosure of non-cash investing and financing activities of
continuing operations:
Common stock issued in connection with long-term investment $-$21.625 $-
Common stock issued in connection with conversion of mandatorily
redeemable preferred securities of ICG Funding $--$-$39.915
Acquisition of corporate headquarters assets through the issuance of long-term
debt and conversion of security deposit $33,077 $-$--
Sale of corporate headquarters assets (note 9)$--$-$36,744
Capital expenditures:
Assets acquired pursuant to IRU agreement $135,322 $96,903 $-
Assets acquired under capital leases 8,393 133,915 50,547
Total $143,715 $230,818 $50.547
Reorganization items:
Forgiveness of capital lease obligations resulting in a net gain from
restructuring activities $-$-$317
Renegotiation of capital lease obligation $-$-$557
See accompanying notes to consolidated financial statements.
F-10
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Notes to Consolidated Financial Statements
(1)Organizationand Nature of Business
(a)Organizadon
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 and wholly owned subsidiary of ICG ("ICG Funding"),ICG Holdings (Canada)Co.,a
Nova Scotia unlimited liability company ("ICG Holdings-Canada"),ICG Holdings,Inc.,a Colorado
corporation ("ICG Holdings"),and ICG Services,Inc.,a Delaware corporation ("ICG Services")and
their subsidiaries.ICG Mountain View,Inc.,ICG Equipment,Inc.("ICG Equipment")and ICG
NetAhead,Inc.("ICG NetAhead")are wholly owned subsidiaries of ICG Services.ICG and its
subsidiaries are collectively referred to as the "Company."The Company's common stock was traded on
the NASDAQ National Market ("NASDAQ")stock exchange.However,due to the bankruptcy filings
described below,the NASDAQhalted trading of the Company's common stock on November 14,2000
and delisted the stock on November 18,2000.
The Company provides voice,data and Internet communication services.Headquartered in Englewood,
Colorado,the Company operates an integrated metropolitan and nationwide fiber optic infrastructure to
offer:Dial-Up Services including primary rate interface and remote access services/managed modem
services on a wholesale basis to national and regional Internet service providers ("ISP"s).Point-to-Point
Broadband Service providingtraditional special access service to long-distance and long-haul carriers
and medium to large sized corporate customers as well as switched access and SS7 services.Corporate
Services,primarilyretail voice and data services to businesses.
(b)Bankruptcy Proceedings
On November 14,2000 (the "Petition Date"),ICG and all of its subsidiaries,except certain non-
operating entities,filed voluntary petitions for protection under Chapter 11 of the United States
Bankruptcy Code in the Federal District of Delaware in order to facilitate the restructuring of the
Company's debt,trade liabilities and other obligations.ICG and its bankruptcy filing subsidiaries are
collectively referred to as the "Debtors."The Debtors are currently operating as debtors-in-possession
under the supervision of the United States District Court for the District of Delaware (the "Bankruptcy
Court").
These consolidated financial statements have been prepared in accordance with AICPA Statement of
Position ("SOP")90-7,"Financial Reporting by Entities in Reorganization under the Bankruptcy Code."
Pursuant to SOP 90-7,an objective of financial statements issued by an entity in Chapter 11 is to reflect
its financial evolution during the proceeding.For that purpose,the financial statements for periods
including and subsequent to filing the Chapter 11 petition should distinguish transactions and events that
are directly associated with the reorganization from the ongoing operations ofthe business.Expenses and
other items not directly related to ongoing operations are reflected separately in the consolidated
statement of operations as reorganization expenses (see note 4).
The filing of the Chapter 11 cases by the Debtors (i)automatically stayed actions by creditors and other
parties in interest to recover any claim that arose priorto the commencement of the cases,and (ii)served
to accelerate,for purposes of allowance,all pre-petition liabilities of the Company,whether or not those
liabilities were liquidated or contingent as of the Petition Date.The following table sets forth the
liabilities of the Company subject to compromise as ofDecember31,2000 and 2001,respectively:
F-11
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Notes to Consolidated Financial Statements (Continued)
December 31,
2000 2001
(in thousands)
Unsecured long-term debt (note 9)$1,968,781 $1,968,781
Unsecured creditors 583,749 476,243
Capital lease obligations,secured (note 8)177,253 166,637
Capital lease obligations,unsecured (note 8)20,721 18,881
Secured long-term debt (note 9)85,503 85,503
Priority creditors 34,123 13,545
$2,870,130 $2.729,590
The followingsummarizes the significant changes in the liabilities subject to compromise:
.Liabilities to unsecured creditors decreased primarily as a result of specific settlements with
individualvendors.
.Capital lease obligations decreased primarily due to payments made under executory contracts the
Company has,or plans to affirm.The contracts are,for financial reporting purposes,accounted for
as capital leases.
.Liabilities to priority creditors decreased primarily due to the payment,or reclassification of,
liabilities for employee benefits and sales taxes which are being assumed by on-going operations
and are classified as of December 31,2001 as accrued liabilities.
Certain 2000 balances have been reclassified to be consistent with the 2001 presentation.
Pre-petition debt that is subject to compromise must be recorded at the allowed claim amount,which
generally results in the write-off of any deferred financing amounts associated with the debt.Interest on
debt subject to compromise ceases to accrue when bankruptcy is filed if the debt is not adequately
collateralized.Interest has been accrued and paid on the secured and collateralized long-term debt and
capital lease obligations.
Under the Bankruptcy Code,the Company may elect to assume or reject real estate leases,employment
contracts,personal property leases,service contracts,and other unexpired executory pre-petition
contracts,subject to Bankruptcy Court approval.The Company cannot presently deternine with
certainty the ultimate aggregate liability,which will result from the filing and settlement of claims
relating to such contracts which may be rejected.
The Debtors filed a Plan of Reorganization and a Disclosure Statement with the Bankruptcy Court on
December 19,2001 and a First Amended Plan on March 1,2002.On March 26,2002,the Company
filedthe Second Amended Joint Plan of Reorganization and Disclosure Statement (the "Plan").The Plan
contains separate classes and proposed recoveries for the holders of claims against interests in ICG
Holdings and its respective subsidiaries and ICG Services and its respective subsidiaries,respectively.
The Plan does not providefor the substantive consolidation of the ICG Holdings Debtors and the ICG
Services Debtors.The Plan does,however,providefor the substantive consolidation of the entities that
comprise the ICG Holdings Debtors and the entities that comprise the ICG Services Debtors forpurposes
of voting,confirmation and distribution of claims proceeds.The Plan contemplates the conversion of the
F-12
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Notes to Consolidated Financial Statements (Continued)
Debtors'existing unsecured debt into common equity in the post-bankruptcy,reorganized Company.
The Plan also contemplates the issuance of new senior notes to the Debtors'existing secured lenders,the
issuance of a new $25 million senior subordinated term loan which is subordinated to the Debtors'
existing secured lenders,the issuance of $40 million in new unsecured convertible notes,and for the
cancellation of all equity securities previously issued by the Debtors,including all common stock,
preferred stock,options and warrants.It is anticipated that a hearing to assess the adequacy of the
Disclosure Statement will be held by the Bankruptcy Court on April 3,2002,after which time it is
anticipated that the Court will submit the Amended Plan to the Company's creditors for approval.
Consummation of the Amended Plan is contingent upon receiving Bankruptcy Court approval,as well as
the approval of certain classes of creditors.There can be no assurance that the Plan as submitted will be
approved.
Upon consummation of the Plan,the Company will apply "Fresh-Start"reporting in accordance with
generally accepted accounting principles ("GAAP")and the requirements of AICPA Statement of
Position ("SOP")90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy Code."
Under Fresh Statt reporting the reorganization value of the Company,which generally represents the
going concern value,is determined by the Company with assistance from its financial advisors.Upon the
effective date of the confirmation of the Plan,a new capital structure will be established and assets and
liabilities,other than deferred taxes,will be stated at their relative fair values.Deferred taxes are
determined in confornity with the Financial Accounting Standards Board ("FASB")Statement of
Financial Accounting Standards No.109.
The Company,assisted by its financial advisors,Dresdner Kleinwort&Wasserstein,Inc.,evaluated the
reorganization value of the Company in connection with the filing of the Plan.The reorganization value
of the Company on a going concern basis was estimated to be between $350 million and $500 million.
This evaluation of the Company resulted in a range of values for the new common equity of between
approximately $102 million and $252 million.This range of reorganization values in the Plan indicates
that a fair value adjustment to reduce the value of property and equipment of up to $220 million may be
necessary.However,the Plan assumptions may differ from the actual business conditions at the date of
emergence from bankruptcy.Therefore,the fair values assigned to assets and liabilities upon emergence
from bankruptcy may also be different.The fairvalue adjustment to property and equipment,if any,will
be recorded upon emergence from bankruptcy once the final enterprise value is determined.This value is
derived by subtracting from the Company's reorganization value,the projected funded debt on the pro
forma balance sheet for the Company on the date of emergence from bankruptcy.The valuation is based
on numerous assumptions,including,among other things,the achievement of certain operating results,
market values of publicly-traded securities of other relevant companies,and general economic and
industry conditions.
The ability of the Company to continue as a going concern is dependent upon,but not limited to,the
approval and confirmation of the Plan,access to adequate sources of capital,customer and employee
retention,the ability to provide high quality services and the ability to sustain positive results of
operations and cash flows sufficient to contmue to fund operations.
No assurance can be given however that the Company will be successful in reorganizing its affairs
within the Chapter 11 bankruptcy proceedings.Because of the ongoing nature of the reorganization
cases,the outcome of which is not determinable until finally approved by the creditors and the
Bankmptcy Court,the consolidated financial statements contained herein are subject to material
uncertainties.
F-13
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Notes to Consolidated Financial Statements (Continued)
The bankruptcy filing and the severe downturn in telecommunications industries have had a significant
affect on the Company's basic operations and its dealings with all third parties including its customers,
vendors and employees.Significant amounts of both pre-petition and post-petition billings to customers
and costs billed to the Company by vendors are in dispute.Some of these disputes have resulted in
litigation as discussed in note 12.As a result,significant judgement is needed in determining the
revenues and costs to be appropriately reflected in the financial statements.The Company expects that
negotiations with major customers and vendors to settle disputed amounts could involve a lengthy
process.During 2001,as discussed in note 17,the Company concluded a settlement with a major
customer,the terms of which significantly affected recorded amounts of assets and liabilities.The
Company cannot predict the possible outcome of such other negotiations that may be concluded in the
future.
Accordingly,the consolidated financial statements do not include adjustments to the recorded amounts
or classification of assets or liabilities or reflect amounts that may ultimately be required to settle such
contingencies or any other contingencies which may be required pursuant to the Company's Chapter 11
proceedings.
As a result of the items discussed above,there is substantial doubt about the Company's ability to
continue as a going concern.
(c)Discontinued Operadons
During 1999,the Company sold the retail customer ISP business of NETCOMOn-Line Communication
Services,Inc.("NETCOM"),but retained the national Tier 1 data network assets.Additionally,during
1999,the Company sold 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").Network Services provided
information technology services and selected networkingproducts.Satellite Services providedsatellite
voice,data and video services to major cruise ship lines,the U.S.Navy,the offshore oil and gas industry
and integrated communications providers.(See note 5.)
(2)Summary of SignificantAccounting Policies
(a)Basis ofPresentadon
The accompanying consolidated financial statements include the accounts of the Company and its
wholly owned subsidiaries and reflect the operations of NETCOM,Network Services and Satellite
Services as discontinued for all periods presented.
All significant intercompany accounts and transactions have been eliminated in consolidation.
(b)Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to
be cash equivalents.
F-14
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Notes to Consolidated Financial Statements (Continued)
(c)Inventory
Inventory,consisting of equipment to be utilized in the installation of telecommunications systems,
services and networks for customers,is recorded at the lower of cost or market in property and
equipment in the accompanying balance sheet.
(d)Restricted Cash
Restricted cash consists of cash balances held by various financial institutions as collateral for various
letters of credit issued in favor of landlords and as collateral for surety bonds.These deposits will not be
released until the underlying obligation is satisfied.
(e)Investments
The Company invests primarily in high-grade,short-term investments that 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.All short-tern investments mature within one year.
Investments in partnership interests and in common or preferred stock for which there is no public
tradmg market and which represent less than a 20%equity interest in the investee company are
accounted for using the cost method,unless the Company exercises significant influence and/or control
over the operations of the investee company,in which case the equity method of accounting is used.
Realized gains and losses and declines in value judged to be other than temporary are included in the
statement of operations.
(f)Property and Eqwpment
The Company assesses the impairment of long-livedassets whenever changes in circumstances indicate
that their carrying value may not be recoverable.If the total expected future cash flows or salvage value
is less than the carrying value of the asset,the asset is written down to its fair value.See note 3 for a
discussion of the impairment of long-livedassets.
Costs of construction are capitalized,including interest costs related to construction,capitalized labor
and other costs associated with network development,service installation and intemal-use software
development.
The Company capitalizes costs of direct labor and other employee benefits associated with installing and
provisioning local access lines for new customers and providing new services to existing customers,
since these costs are directly associated with multi-period,contractual,revenue-producing activities.
Capitalization begins upon the acceptance of the customer order and continues until the installation is
complete and the service is operational.Capitalized service installation costs are depreciated on a
straight-line basis over two years,the estimated average customer contract term.
The Company capitalizes costs of direct labor and other employee benefits associated with the
development of intemal-use computer software in accordance with SOP 98-1,"Accounting forthe Costs
of Computer Software Developed or Obtained for Internal Use."Intemal-use software costs are
depreciated over the estimated useful life of the software,typically two to five years,beginning in the
period when the software is substantially complete and ready for use.
F-15
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Notes to Consolidated Financial Statements (Continued)
Depreciation begins in the period the network is substantially complete and available for use and is
recorded on a straight-line basis over the estimated useful life of the equipment or network,ranging from
eight to 20 years.Estimated useful lives of major categories of property and equipment are as follows:
Fumiture,fixtures and officeequipment 3 to 7 years
Internal-use software costs 2 to 5 years
Machinery and equipment 3 to 8 years
Fiber optic equipment 8 years
Switch equipment 3 to 10 years
Fiber optic networks 20 years
Buildings and improvements 31.5 years
Site improvements 7 years
Service installation costs 2 years
Equipment held under capital leases is stated at the lower of the fair value of the asset or the net present
value of the minimum lease payments at the inception of the lease.For equipment held under capital
leases,depreciation is providedusing the straight-line method over the estimated useful lives of the
assets owned,or the related lease term,whichever is shotter.
(g)Other Assets
Amortization of deferred financing costs is provided over the life of the related financing agreement and
is included in interest expense.The Company has written-off all deferred financing costs related to debt
subject to compromise as of December 31,2000 (see notes 4 and 9).
(h)ImpairmentofLong-LivedAssets
The Company provides for the impairment of long-livedassets,including goodwill,pursuant to SFAS
No.121,"Accounting for the Impairment of Long-Lived Assets and for Long-LivedAssets to be
Disposed of",which requires that long-livedassets and certain identifiable intangibles held and used by
an entity be reviewed for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable.Such events include,but are not limited to,a
significant decrease in the market value of an asset,a significant adverse change in the business climate
that could affect the value of an asset or a current period operating or cash flow loss combined with a
history of operating or cash flow losses.An impairment loss is recognized when estimated undiscounted
future cash flows,before interest,expected to be generated by the asset are less than its carrying value.
Measurement of the impairment loss is based on the estimated fair value of the asset,which is generally
deternined using valuation techniques such as the discounted present value of expected future cash
flows,appraisals or other pricing models as appropriate.See note 3 for a discussion of the impairments.
(i)Revenue Recognition
The Company recognizes revenue from services providedto its business end-user and ISP customers as
such services are provided and charges direct selling expenses to operations as incurred.Maintenance
revenue is recognized as services are provided.
Generally,the Company recognizes revenue earned under indefeasible rights-of-use ("IRU")and
constructed fiberratably over the term of the agreement.In the event that the IRUmeets the definitionof
F-16
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Notes to Consolidated Financial Statements (Continued)
a sales-type lease pursuant to SFAS No.13,"Accounting for Leases",and the Company transfers
ownership of the underlying assets to the customer,the Company will apply sales-type lease accounting
and recognize revenue and related costs at the inception of the agreement.Prior to June 30,1999,the
Company applied sales-type lease accounting to IRUs whether or not the agreement provided for the
transfer of ownership of the underlying assets if the IRU met the criteria included in SFAS No.13.
Under either application,revenue recognition begins in the period that facilities are available for use by
the customer.Approximately $18 million,$14 million and $9 million of revenue was recognized in each
of the three years ended December 31,2001,respectively from IRU agreements.Revenue earned on the
portion of IRUs attributable to the provision of maintenance services is recognized ratably over the term
of the agreement.
Deferred revenue includes amounts billed,in compliance with customer contracts,before service is
provided.
The Company records reciprocal compensation and carrier access revenue in accordance with regulatory
authority approval and pursuant to interconnection agreements with incumbent local exchange carriers
("ILEC"s)and interexchange carriers ("IXC"s)forthe origination,transport and /or termination of traffic
originated by ILEC and IXC customers,including Internet traffic.Disputed billings are not recognized as
revenue until realization is assured.
Due to changes in the regulatory environment and as a means of gaining certainty with respect to the
continued collection of reciprocal compensation revenue,the Company negotiated voluntary settlement
agreements with certain of its ILEC customers in the first half of 2000 that provide for the payment of
reciprocal compensation for terminating Internet bound traffic,but at rates lower than the Company had
historically received.
On October 1,2000,the Company adopted Staff Accounting Bulletin ("SAB")No.101,"Revenue
Recognition in Financial Statements",which provides guidance on the recognition,presentation and
disclosure of revenue in financial statements filed with the Securities and Exchange Commission.
Effective January 1,2000,installation revenue is recognized ratably over a two-year period.Prior to the
adoption of SAB No.101,the Company recognized installation revenue as services were performed.As
required by generally accepted accounting principles,the Company has reflected the effects of the
change in accounting principle as if such change had been adopted as of January 1,2000,and has
included in the results of operations for the year ended December 31,2000,a charge of approximately
$7.4 million relating to the cumulative effect of this change in accounting principle.In addition,the
change in accounting principle resulted in an increase in revenue for the year ended December 31,2000
of approximately $0.9 million.
The Company provides for uncollectible receivables using the allowance method.An allowance for
uncollectible accounts is provided when it is determined the receivable may not be collectible.The
Company maintains the accounts receivable balance and the related allowance until collection efforts are
exhausted and the account is written off or the accounts are determined to be collectible.The Company
has,as of December 31,2001,an allowance for uncollectible accounts of approximately $44 million,
substantial amount of which is for accounts which were determined to be uncollectible prior to
December 31,2000,but for which collection efforts have not been exhausted.
F-17
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Notes to Consolidated Financial Statements (Continued)
(þ Income Taxes
The Company accounts for income taxes under the provisions of SFAS No.109,"Accounting for
Income Taxes."Under the asset and liability method of SFAS No.109,deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases.Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.Under SFAS No.109,the effect on
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(k)Net Loss Per Share
Net loss per share is calculated by dividing the net loss by the weighted average number of shares
outstanding.Net loss per share is determined in accordance with SFAS No.128,"Earnings Per Share."
Under SFAS No.128,basic loss per share is computed on the basis of weighted average common shares
outstanding.Diluted loss per share considers potential common stock instruments in the calculation of
weighted average common shares outstanding.Potential common stock instruments,which include
options,warrants and convertible subordinated notes and preferred securities,are not included in the
Company's net loss per share calculation,as their effect is anti-dilutive.
(I)Stock-Based Compensadon
The Company accounts for its stock-based employee and non-employee director compensation plans
using the intrinsic value based method prescribed by Accounting Principles Board ("APB")Opinion No.
25,"Accounting for Stock Issued to Employees",and related Interpretations.
(m)Use ofEsdmates
The preparation of financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting periods.Actual results could differ
from those estimates.
(n)Reclassificadons
Certain prior period amounts have been reclassified to conform to the current period's presentation.
(3)Provision for Impairment of Long-Lived Tangibleand IntangibleAssets
As a result of adverse changes in the capital markets,specifically as related to the availabilityof capital to finance
competitive local exchange carrier's growth,downward trends in certain segments of the economy,particularly
with respect to expected growth of demand in technology and telecommunications segments,the Company's
Chapter 11 filing and the subsequent deterioration in the valueof the Company's operating assets,the Company
undertook an extensive analysis of its business plan during the fourthquarter of 2000 and the first quarter of 2001.
As a result,the Company prepared a detailed business plan that gave appropriate consideration to the
environmental factors noted above.
F-18
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Notes to Consolidated Financial Statements (Continued)
SFAS No.121 requires that assets to be held and used be measured for impairment on the basis of undiscounted
future cash flows before interest determined at the lowest level for which there are identifiable cash flows.Due to
the Company's inability to allocate significant amounts of central support costs to the various markets,the
impairment analysis was perfornedon a Company-wide basis.This analysis indicated that there was a shortfall of
undiscounted cash flows before interest compared to the canying value of the Company's long-lived tangible and
intangible assets and that an impairment had occurred.For purposes of calculating the amount of the impairment
the Company segregated its long-lived assets into three categories:intangible assets,consisting primarily of
goodwill,tangible assets to be disposed of,and tangible assets to be utilized in ongoing operations.
As a result of the analysis of shortfalls of cash flows to carrying values of assets noted above,all intangibles,
consisting primarily of goodwill relating to the Company's acquisitions under the purchase method of accounting,
were written off as of December 31,2000,resulting in an impairment charge of approximately $80 million.
Additionally,the Company has determined that certain assets that will not be utilized under the business plan will
be held for disposal or sale.The fair value of assets to be disposed of is based on current appraisals or purchase
offers,less cost to sell.Assets to be disposed of are comprised primarily of 1)assets which were under
construction in late 2000 and for which the incremental capital required to place the asset in service for revenue
generation was not available,and 2)assets in service which were not required to meet expected future customer
demand as defined in the business plan.An impairment of approximately $124 million and $28 million was
reflected in the financial statements during 2000 and 2001,respectively,to reduce these assets to their fairvalue of
approximately $8 million.These assets have not been segregated as current assets in the accompanying
consolidated financial statements and are included in property and equipment because the sales are subject to final
Bankruptcy Court approval.
The fair value of tangible assets to be utilized in ongoing operations was determined to be $550 million at
December 31,2000.This value was derived primarily from the discounted cash flows from future operations;
however,the Company also took into consideration several other valuation techniques.The followingdescribes
the different methods used and the resulting ranges of value under those techniques.
Discounted cash flows-The Company,as noted above,developed a new business plan in late 2000 and
early 2001.The Company hired external third-party consultants to assist during the bankruptcy process
and help in the formulation of the business plan.The Company's business plan process was a
comprehensive,zero-based assessment of the markets in which the Company believes it can provide
profitable service offerings in the future.The business plan also includes substantial capital expenditures
to complete the network and generate the revenues projected within the business plan.Additionally,the
plan contemplated significant future restructuring of the Company's basic operating costs including,but
not limited to,additional significant reductions in selling,general and administrative expenses and line
costs.This valuation technique resulted in a range of fair values of the Company's long-lived assets from
$400 million to $900 million.
Asset appraisal-In connection with securing the Company's Credit Agreement (see note 11),appraisals
were performed with an effective date of December 22,2000.These appraisals indicated that the value
of the Company's long-livedassets ranged from $640 to $740 million.These appraisals were prepared
on the basis of an orderly liquidation,which is not part of the Company's plans.
Current market capitalization-This analysis was based on the public market capitalization as
deternined by reference to recent trading prices for the Company's debt and equity securities.For this
calculation,the preferred securities were assumed to have no value and the senior discount notes were
F-19
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Notes to Consolidated FinancialStatements (Continued)
valued at 8-10%of the face value based on recent trading prices.Fully secured debt balances (such as
capital leases and the Senior Facility)were valued at 100%of their book value.This valuation technique
resulted in a range of fair values of the Company's long-livedassets from $400 million to $600 million.
In order to reduce tangible assets to be used in ongoing operations to the fair value of $550 million,the Company
recorded an impairment charge as of December 31,2000 of approximately $1,500 million.No adjustment was
made to recorded depreciation during the year ended December 31,2000.
The book value of the impaired assets became the new cost basis of the assets.This amount is being depreciated
over the remaining estimated useful life of the assets.
The Company,during the year ended December 31,1999,also recorded a provision for impairment of long-lived
assets of $32 million,which relates to the impairment of software and other capitalized costs associated with
Telecom Services'billing and provisioningsystem projects under development.The provisionfor impairment of
long-livedassets was based on management's decision to abandon the billing and provisioningsystems under
development and to select new vendors for each of these systems,which vendors were expected to provide the
Company with billing and provisioning solutions with improved functionality and earlier delivery dates at
significantly lower costs.The Company's billing and provisioningsystems under development were either not
operational or were selving minimal customers at the time management determined the carrying value of the
underlying assets was not recoverable.
(4)ReorganizationExpenses
Under bankruptcy accounting (note 1 (b)),the Company is required to segregate and classify costs not directly
related to ongoing operations as reorganization costs.
The following reorganization expenses were incurred during the year ended December 31,2000 and 2001,
respectively (in thousands):
2000 2001
Gain on settlement with major customers and vendors (note 17)$-$(39,179)
Estimated loss on equipment retumed to vendors -10,300
Debt and equity restructuring costs (notes 9 and 10)36,493 (236)
Severance and employee retention costs 9,647 13,154
Legal and professional fees 6,260 16,498
Switch site closure costs -5,187
Line cost termination expenses --9,296
Interest income (1,412)(6,661)
Other 2,909 5,092
Total $53,897 $13,451
F-20
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Notes to Consolidated Financial Statements (Continued)
(5)Sale of Assets and Discontinued Operations
Income (loss)from discontinued operations consists of the following:
Years ended December 31,
1999 2000 2001
(in thousands)
NETCOM(a)$-S -$-
Network Services (b)(1,349)-
Satellite Services (c)313 770 -
Income (loss)from discontinued operations S (1,036)$770 $-
(a)NETCOM
On February 17,1999,in accordance with a plan of disposition adopted on November 3,1998,the
Company sold certain of the operating assets and liabilities of NETCOMto MindSpring Enterprises,Inc.
(MindSpring),predecessor to EarthLink,Inc.for total proceeds of $245.0 million.Assets and liabilities
sold to MindSpring included those directly related to the domestic operations of NETCOM'sInternet
dial-up,dedicated access and Web site hosting services.
Additionally,on March 16,1999,the Company sold all of the capital stock of NETCOM'sinternational
operations (including NETCOM Canada and NETCOMU.K.)for total proceeds of approximately $41.1
million.
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 (the MindSpring Capacity Agreement).Under the agreement,
MindSpring utilized the Company's network capacity to provideInternet access to the dial-up services
customers formerly owned by NETCOM.In addition,the Company received for a one-year period 50%
of the gross revenue earned by MindSpring from the dedicated access customers formerly owned by
NETCOM.As the Company expected to generate operating losses under the MindSpring Capacity
Agreement,and the terms of the sale agreement were dependent upon and negotiated in conjunction with
the terms of the sale of the operating assets of NETCOM,the Company deferred approximately $35.5
million of the proceeds from the sale agreement to be applied on a periodic basis to losses incurred under
the MindSpring Capacity Agreement.Accordingly,the Company did not recognize any revenue,
operating costs or selling,general and administrative expenses from services provided to MindSpring for
the twelve-month term of the agreement which expired February 17,2000.Any incremental revenue or
costs generated by other customers,or by other services provided to MindSpring was recognized in the
Company's consolidated statement of operations as incurred.
As discussed above,the terms of the MindSpring Capacity Agreement were negotiated in conjunction
with and were dependent upon the terms of the sale of the operating assets of NETCOM to MindSpring.
As such,these transactions are collectively referred to as "Sale of Operating Assets of NETCOM".
F-21
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Notes to Consolidated Financial Statements (Continued)
(b)Network Services
On October 22,1999,in accordance with a plan of disposition adopted on July 15,1999,the Company
completed the sale of all of the capital stock of Network Services for total proceeds of $23.9 million in
cash.
(c)Satellite Services
On November 30,1999,in accordance with a plan of disposition adopted on July 15,1999,the
Company completed the sale of all of the capital stock of Satellite Services for total proceeds of $98.1
million in cash.
(6)Property and Equipment
See note 3 for a discussion regarding the impairment oflong-livedassets.
Property and equipment,at cost,including assets held under capital leases,is comprised of the following:
December 31,
2000 2001
(in thousands)
Land $8,708 $1,214
Buildings and improvements 36,307 50,358
Fumiture,fixtures and officeequipment 11,799 33,593
Machinery and equipment 9,450 14,548
Switch equipment 104,947 136,133
Fiber optic equipment 119,146 150,982
Fiber optic networks 56,242 90,137
Site improvements -11,245
Construction in progress 205,881 95,415
Assets to be disposed of 40,500 8,570
592,980 592,195
Less accumulated depreciation (2,480)(61,008)
$590,500 $531,187
Property and equipment includes approximately $95 million and $9 million of equipment that has not been placed
in service or is being held for sale,respectively,at December 31,2001,and accordingly,is not being depreciated.
The Company had property and equipment held under capital leases at December 31,2000 and 2001,with net
book values of approximately $158 million and $120 million,respectively.Amortization of these assets are
included in depreciation and amortization in the Company's consolidated statements of operations for all periods
presented.
The Company capitalized interest costs on assets under constmetion of approximately $9 million,$7 million and
$1 million,in each of the years ended December 31,1999,2000 and 2001,respectively.However,in connection
with the asset impairment discussed in note 3,all previously capitalized interest amounts were written-offas of
F-22
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Notes to Consolidated Financial Statements (Continued)
December 31,2000.The Company recognized interest expense of approximately $212 million,$234 million,and
$32 million in each of the years ended December 31,1999,2000 and 2001,respectively.
Substantially all of the assets of ICG Services have been pledged as security for the Senior Facility,as of
December 31,2001.The net book value of ICG Services property and equipment is approximately S353 million
as of December 31,2001.
(7)Investments
On February 22,2000,the Company purchased restricted Series D 8%Convertible Preferred Stock (Cyras
Preferred Stock)of Cyras Systems,Inc.(Cyras),which was subsequently purchased by Ciena,for approximately
$1.0 million.During 2001,the Company sold $900,000 of its investment for proceeds of approximately
$2,542,000,resulting in a gain of approximately $1,642,000,which is included in other income in the
accompanying consolidated statement of operations for the year ended December 31,2001.
On July 6,2000,a subsidiary of the Company acquired 1,000,000 shares of unregistered common stock of
Teligent,Inc.,a fixed wireless broadband communications provider(Teligent),from a subsidiary of Teligent in
exchange for 2,996,076 shares ofICG Common Stock.The Teligent shares were valued at $21.625 per share for a
total investment of approximately $21.6 million.As of December 31,2000,the decrease in the value of the
Teligent shares of $21.6 million,based on the market price at December 31,2000,was deemed to be other than
temporary and,accordingly,the charge related to the write off of the value of such shares is included in the
accompanying consolidated statement of operations.
On November 15,1999,the Company entered into an agreement to purchase a limited partnership interest in
Centennial Strategic Partners VI,L.P.(Centennial).The primary purpose of the partnership is to invest in venture
capital investments,principally by investing in equity or equity-oriented securities of privatelyheld companies in
the electronic communications industry.Through December 31,2001,the Company had contributed
approximately $650,000 to the partnership.The Company has accounted for its investment in Centennial under
the cost method of accounting.As of December 31,2001,management determined the investment to have no
value and the full amount was written off.
Investments are summarized as follows:
December 31,
2000 2001
(in thousands)
Ciena preferred stock -$1,000 $100
Limitedpartnership interest -Centennial 650 -
S 1,650 $100
(8)Capital Lease Obligations
As a result of the Company's bankruptcy proceedings,all Debtors'capital lease payments related to capital leases
existing at the date of the filing are suspended and subject to negotiation on a lease by lease basis.Leases subject
to compromise could be amended or rejected.The capital lease for the Corporate Headquarters was entered into in
June 2001 and is not subject to compromise (see note 9(c)).The Company continued to accrue and make interest
payments on approximately $55 million of executory contracts the Company has or plans to affirm.These
F-23
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Notes to Consolidated Financial Statements (Continued)
contracts are,for financial reporting purposes,accounted for as capital leases.The following table represents
contractual payments under the original terms of the Company's capital lease obligations (in thousands):
Not Subject
to
Compromise Subject to Compromise
Corporate
Headquarters Unsecured Secured Total
Year:
2002 $5,338 $16,878 $124,770 $146,986
2003 5,498 5,414 30,199 41,111
2004 5,663 90 12,126 17,879
2005 5,833 90 11,907 17,830
2006 6,008 90 4,953 11,051
Thereafter 124,733 1,051 66,419 192,203
Total minimum lease payments 153,073 23,613 250,374 427,060
Less amounts representing interest (102,365)(4,732)(83,737)(190,834)
Present value of net minimum lease
payments $50,708 $18,881 $166,637 $236.226
(9)Long-term Debt
As a result of the Company's bankruptcy proceedings,all prepetition contractual debt payments are suspended
and subject to revised payment terms during the bankruptcy process on a specific case basis.As of December 31,
2001,the Company is in default with respect to all ofits prepetition debt.However,under bankruptcy accounting,
no reclassifications are made from long-term to short-term as a result of the defaults.Additionally,debt subject to
compromise should be recorded at the allowed amount of the claim.Based on this,the Company has written-off
during 2000 all deferred financing costs related to the 9 '/s%,10%,11 6/s%,12 1/2%and 13 '/2%Senior discount
notes.Such amounts totaled approximately $27 million and are included in reorganization expenses in the
accompanying consolidated statement of operations.In addition,the Company ceased accreting the discounts or
accming interest on all unsecured debt subject to compromise as of the Petition Date.The Company continued to
accrue and make interest payments on all fully secured long-term debt in the accompanying table of
approximately $85 million.
The Plan contemplates the conversion of unsecured debt into common equity (see note 1(b))of the post
bankruptcy Company.The payment of principal due under the Senior Facility and mortgage payable have been
stayed by the Bankmptcy Court.
F-24
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Notes to Consolidated Financial Statements (Continued)
Long-term debt is summarized as follows:
December 31,
2000 2001
(in thousands)
Long-term debt not subject to compromise:
Credit Agreement (a)$-$-
Mortgage loan payable (c)33,077 -
Total long-terndebt not subject to compromise 33,077 -
Long-term debt subject to compromise:
Secured long-term debt:
Senior Facility with adjustable rate of interest secured by assets
of ICG Services,ICG Equipment and ICG NetAhead (b)84,574 84,574
Moitgage payable with interest at 8 '/2%,secured by building 929 929
Total secured long-term debt 85,503 85,503
Unsecured long-term debt,net of discount (d):
9'/s%Senior discount notes of ICG Services 319,564 319,564
10%Senior discount notes of ICG Services 393,311 393,311
11 6/s%Senior discount notes of ICG Holdings 151,342 151,342
12 '/2%Senior discount notes of ICG Holdings 520,264 520,264
13 '/a%Senior discount notes of ICG Holdings 584,300 584.300
Total unsecured long-term debt 1,968,781 1.968,781
Total long-term debt subject to compromise 2,054,284 2.054.284
Total long-term debt $2,087.361 $2.054,284
(a)Debtor-in-Possession Financing
On December 4,2000,the Company finalized its Debtor-in-Possession RevolvingCredit Agreement (the
"Credit Agreement")with Chase Manhattan Bank.The Credit Agreement,as amended,provided for up
to $200 million in financing,subject to certain conditions.The Company paid monthly commitment fees
at an annual rate of 1 '/2%on the average daily unused commitment,which were expensed monthly.On
November 7,2001,the Company terninated the Credit Agreement without ever having drawn any
amounts under this agreement.Deferred financing costs were written off to interest expense at that time.
(b)Senior Facility
On August 12,1999 and amended on December 29,1999,ICG Equipment and ICG NetAhead (the
"Debtors")entered into a $200 million senior secured fmancing facility (the "Senior Facility")consisting
of a $75 million term loan,a $100 million term loan and a $25 million revolvingline of credit.The
Senior Facility is guaranteed by ICG Services and ICG Mountain View,Inc.and is secured by the assets
of ICG Services,ICG Equipment and ICG NetAhead.
On December 19,2000,the Bankruptcy Court issued an order (the "Order")granting adequate protection
to the Lendérs of the Senior Facility.This Order,among other things,requires the Debtors to pay all
accrued and unpaid Prepetition interest and expenses,grant the Lenders a valid,perfected,first priority
postpetition security interest and lien upon on all property of ICG Services,ICG Equipment and ICG
NetAhead acquired after the Petition date,grant an administrative claim under the Bankruptcy Code for
F-25
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Notes to Consolidated Financial Statements (Continued)
any diminution of the Prepetition collateral,providecash collateral in accordance with the Plan,provide
monthly fmancial reports and pay all out-of-pocket costs incurred by the Lenders.
At December 31,2001,the $36.0 million outstanding under the $75.0 million term loan bears annual
interest at the prime rate plus 4.25%,or 9%.
At December 31,2001,the $48.6 million outstanding under the $100.0 million tern loan bears annual
interest at the prime rate plus 3.875%,or 8.625%.
The tenns of the Senior Facility providevarious covenants,limitations and terms.Due to the bankruptcy
proceedings,the Company is in default with respect to the terms of the Senior Facility.The Company is
currently renegotiatmg the terms of the Senior Facility as part of the Plan ofReorganization.
The amortization of the debt issuance costs during 1999 and through the Petition Date in 2000 is
included in interest expense in the accompanying consolidated statement of operations.The unamortized
debt issuance cost balance was written-off as of December 31,2000 and is included in reorganization
expenses in the accompanymg consolidated statement of operations.
(c)MortgageLoan Payable /Capital Lease Obligation
EffectiveJanuary 1,1999,the Company purchased its corporate headquarters,land and improvements
(collectively,the "Company Headquarters")for approximately $43.4 million.The Company financed the
purchase primarily through a loan secured by a mortgage on the Company Headquarters.The seller
("Seller")of the Company Headquarters retained an option to repurchase the Company Headquarters at
the original sales price.
In June 2001,the Seller exercised its right to repurchase the Company Headquarters from the Company
for approximately $33 million.In connection with the repurchase,the Seller agreed to assume from the
Company the mortgage loan payable and other accrued liabilities related to completing the Company
Headquarters.The Company recognized a $7.6 million loss on the sale.In addition,the Company agreed
to lease the Company Headquarters back from the Seller under a capital lease agreement initially valued
at $50.4 million ($50.7 million at December 31,2001).(See note 8).
(d)Senior Discount Notes
The principal balance of all of the Senior Discount Notes (the "Notes")is unsecured and is subject to
compromise and is likely to be converted to equity upon the company's emergence from bankruptcy.
Accordingly,no interest has been acemed,accreted or paid on the Notes subsequent to the Petition Date.
Prior to the Petition Date,the original discount on all of the Notes was being accreted over the period
from the issue date to the date that the notes may first be redeemed.The accretion was included in
interest expense for the periods prior to the petition date in the accompanying consolidated statements of
operations.
Contractual principal maturities of long-term debt as of December 31,2001,which are expected to be
substantially altered as a result of the bankruptcy proceedings,are as follows (in thousands):
F-26
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Notes to Consolidated Financial Statements (Continued)
Year:
2002 $7,670
2003 15,207
2004 18,795
2005 605,468
2006 572,646
Thereafter 1,071,567
2,291,353
Less unaccreted discount (237,069)
$2,054.284
(10)Preferred Stock
(a)Redeemable PreferredSecurities ofSubsidiaries
It is anticipated the Redeemable Preferred Stock of Subsidiaries will be deemed to be cancelled and
extinguished on the effective date of the Plan.Accordingly,no accretion and preferred dividends have
been recorded or paid subsequent to the Petition Date.
The Company is prohibited from declaring or paying any preferred dividends as a result of the
Bankruptcy petitions.The Company has fully written off during 2000 the offermg costs and fully
accreted the discount associated with the prefered stock totaling approximately $10 million.Such
amounts are included in reorganization expenses in the accompanying consolidated statement of
operations.
Accretion and preferred dividends on preferred securities of subsidiaries,net ofminority interest in share
of losses is approximately $62 million and $60 million for the years ended December 31,1999 and 2000
respectively.Accretion and preferred dividends are associated with the accretion of issuance costs,
discount and preferred security dividend accruals for the 6 3/4%Preferred Securities,the 14%Preferred
Stock and the 14 '/4%Preferred Stock and the Redeemable Preferred Stock through the Petition Date.
Redeemable preferred stock of subsidiaries is summarized as follows:
December 31,
2000 2001
(in thousands)
14%Exchangeable preferred stock of ICG Holdings $165,831 $165,831
14 '/4%Exchangeable preferred stock ofICG Holdings 283,225 283,225
$449,056 $449,056
63/4%Mandatorily redeemable preferred securities ofICG Funding $132,251 $92,336
Dividends on the 14%and 14 */4%Exchangeable Preferred Stock paid prior to the Petition Date were
paid through the issuance of additional 14%and 14 1/4%Preferred Stock.
In 2001,due to the Bankruptcy proceedings,the Company did not declare or pay the dividend that was
otherwise payable in November 2000 on the 6 */4%mandatorily redeemable preferred securities of ICG
F-27
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Notes to Consolidated Financial Statements (Continued)
Funding The Company however,paid from the proceeds of amounts held in escrow approximately $1.3
million of dividends on this security.
During 2001,798,296 shares with a carrying value of approximately $40 million of the ICG Funding
Preferred Stock was exchanged for 1,661,334 shares of the Company's Common Stock.
ICG Funding owns shares valued at $112.4 million of ICG Preferred Stock,which has been eliminated,
in consolidation of the Company's consolidated financial statements.
(b)MandatorilyRedeemable 8%Series A Conve tible PreferredStock
Pursuant to the Company's Plan of Reorganization,the Mandatorily Redeemable 8%Series A
Convertible Preferred Stock will be deemed to be cancelled and extinguished on the effective date of the
Plan.Accordingly,no accretion and preferred dividends have been recorded or paid subsequent to the
Petition Date.
On April 10,2000,the Company sold 75,000 shares of mandatorily redeemable 8%Series A-1,A-2 and
A-3 Convertible Preferred Stock of ICG (the 8%Series A Convertible Preferred Stock)and 10,000,000
warrants to purchase ICG Common Stock for net proceeds of $708 million.The value allocated to the
warrants was $8 1 million at the time of the transaction.
The Company has fully written off the offeringcosts and fully accreted the discount associated with the
8%Series A Convertible Preferred Stock totaling $118 million prior to the petition date.Such amounts
are included in accretion of 8%Series A Convertible Preferred Stock and related dividends in arrivingat
net loss attributable to common stockholders in the accompanying consolidated statement ofoperations.
Additionally,the Company allocated $159 million of the proceeds from the issuance of the 8%Series A
Convertible Preferred Stock to the intrinsic value of the embedded beneficial conversion feature of the
convertible preferred securities to additional paid-in capital.The accompanying consolidated statement
of operations for the year ended December 31,2000,includes approximately $40 million of accretion
and dividends related to the 8%Series A Convertible Preferred Stock through the Petition Date.
(11)Stockholders'Deficit
(a)Stock Options and Employee Stock Purchase Plan
The Company has recorded no compensation expense in connection with its stock-based employee and
non-employee director compensation plans pursuant to the intrinsic value based method of APB 25 for
the periods presented.
As of December 31,2001,the Company had approximately 5,177,000 options outstanding.No options
were granted nor exercised in 2001.Pursuant to the Company's Plan of Reorganization,the Common
Stock of the Company will be deemed to be cancelled and extinguished on the effective date of the Plan.
Accordingly,if the Plan is approved,all outstanding stock options in the Company's Stock Option Plan
will be cancelled on the effectivedate of the Plan.
In October 1996,the Company established an Employee Stock Purchase Plan,which the Company
discontinued in the third quarter of 2000.Under this plan,employees could elect to designate 1%to
F-28
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Notes to Consolidated Financial Statements (Continued)
30%of their annual salary to be used to purchase shares of ICG Common Stock,up to a limit of
$25,000 each year,at a 15%discount to fair market value.The Company sold 205,568 and 173,772
shares of ICG Common Stock to employees under this plan during the years ended December 31,
1999 and 2000,respectively.
(b)Warrants
Pursuant to the Company's Plan of Reorganization,the Common Stock of the Company will be deemed
to be cancelled and extinguished on the effective date of the Plan.Accordingly,all outstanding warrants
shall be cancelled on the effective date of the Plan.As of December 31,2000 and 2001,the Company
had approximately 11,646,000 warrants outstanding.The exercise price of such warrants ranged from
$12.51 to $34.00 per share.
(c)PreferredStock
The Company is authorized to issue 5,000,000 shares of preferred stock,of which no shares were
outstanding as of December 31,2001.
(12)Commitments and Contingencies
As a result of the Company's filing for bankruptcy protection,all commitments and contingencies could be
substantially modified during the Company's bankruptcy restructuring process.
(a)Network Capacity and Construcdon
In January 2000,the Company signed an agreement with a major customer,whereby the Company will
provide,for $126.5 million over the initial six-year term of the agreement,exclusive service over
designated portions of the Company's local fiber optic networks.The Company will recognize revenue
ratably over the term of the agreement,as the network capacity is available for use.The agreement was
amended in March 2000 to include additional capacity for proceeds of $53.8 million.The customer may,
at its option,extend the initial term of the agreement for an additional four-year period and an additional
ten-year period for incremental payment at the time the option exercises.In July 2001,as part of a
settlement agreement reached with the customer (see note 17),deferred revenue was reduced by $21.5
million,with a corresponding reduction in trade receivables.At December 31,2001,$147.3 million of
deferred revenue related to this agreement is reflected in liabilities subject to compromise.The customer
has not yet ordered from the Company,and the Company has not yet delivered,certain equipment and
services required by this agreement.The Company recognized approximately $9 million of revenue
fromthis agreement in the year ended 2001.
(b)Telecommunications and Line Purchase Commitments
The Company had entered into two agreements with a major interexchange carrier (the "Carrier")that
required the Company to providethe Carrier 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.Under a settlement reached with the Carrier in September 28,2001,no
deficiency payments were required nor will the Company be subject to minimum monthly revenue
commitments.
F-29
ICG COMMLWICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Notes to Consolidated Financial Statements (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 mmimum purchase level in any given year,the
vendor may discontinue certain discounts,allowances and incentives otherwise provided to the
Company.In addition,either the Company or the vendor upon prior written notice may terminate the
agreements.
(d)Reciprocal Compensadon and CarrierAccess Revenue
The Company records reciprocal compensation and carrier access revenue in accordance with regulatory
authority approval and pursuant to interconnection agreements with incumbent local exchange carriers
("ILEC"s)for the transport and termination of traffic originated by ILEC customers,including Internet
traffic.Disputed billings are not recognized as revenue until realization is assured.
Due to changes in the regulatory environment and as a means of gaining certainty with respect to the
continued collection of reciprocal compensation revenue in the first half of 2000,the Company
negotiated voluntary settlement agreements with certain of its ILEC customers that provide for the
payment of reciprocal compensation for terminating Intemet bound traffic,but at rates lower than the
Company had historically received.
The Company has,as of December 31,2001,a net receivable of approximately $14 million for
reciprocal compensation revenue.Approximately $9 million has been acknowledged as due by certain
LECs,but payment is being withheld pending resolution of line cost disputes.The Company received
cash of approximately $61 million during the year ended December 31,2001,from certain ILECs for
terminating local and toll traffic.
The Company has recognized revenue of approximately $143 million,$139 million and $64 million in
each of the three years ended December 31,2001,respectively,for terminating local and toll traffic.
Revenue for the year ended December 31,1999 includes approximately $22 million for the tandem
switching and common transport rate elements.ICG ceased,effective July 1,1999,recognition of these
rate elements as revenue until cash receipts were either received or the uncertainty of receipt had been
removed (such as the execution of a binding agreement).
The Company has as of December 31,2001 a net receivable balance of carrier access revenue of
approximately $3 million.Approximately $22 million of access carrier revenue was recognized during
the year ended December 31,2001.
(e)Hardware and Software Maintenance Contracts
The Company is committed to various vendors for hardware and software maintenance as follows (in
thousands):
F-30
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Notes to Consolidated Financial Statements (Continued)
Year:
2002 $2,619
2003 200
2004 400
$3.219
(f)Operating Leases
Under the Bankruptcy Code,the Company may elect to assume or reject all leases noted below,subject
to Bankruptcy Court approval.
The Company leases office space,warehouse space,switch sites,points of presence and equipment
under non-cancelable operating leases.Lease expense was approximately $21 million,$30 million and
$21 million for each of the three years ended December 31,2001,respectively.Lease expense included
in reorganization expenses was approximately $3.3 million forthe year ended December 31,2001.
Minimum lease payments due each year on or before December 31 under the Company's current
contractual operating leases are as follows (in thousands):
Year:
2002 $20,593
2003 17,125
2004 15,543
2005 14,447
2006 13,977
Thereafter 56.251
$137,936
(g)Litigation
Duringthe third and fouith quarters of 2000,the Company was served with fourteen lawsuits filed by
various shareholders in the Federal District Court for the District of Colorado.All of the suits were
consolidated in October 2001 and further amended in February 2002.The consolidated amended
complaint names as defendants the Company's former CEO,J.Shelby Bryan,the Company's former
President,William S.Beans,Jr.and the Company's former CFO,Harry R.Herbst.The consolidated
amended complaint does not name the Company as a defendant.The consolidated amended complaint
seeks unspecified damages for alleged violations of Rules 10(b)and 20(a)of the Securities Exchange
Act of 1934.The complaints seek class action certification for similarly situated shareholders.At this
time,the Company has not been named a defendant because all claims against the Company have been
stayed pursuant to the Company's filing for bankruptcy.
In January 2001,certain shareholders of ICG Funding,a wholly owned subsidiary of the Company,filed
an adversary proceeding in the United States Bankruptcy Court against the Company and ICG Funding.
In April 2001,the Company and ICG Funding finalized a settlement agreement with the shareholders,
which has been approved by the Bankruptcy Court.Under the terms of the settlement,the shareholders
received approximately two thirds of the funds in the escrow account and the Company received the
F-31
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Notes to Consolidated Financial Statements (Continued)
remaining one third of the escrowed funds,subject to certain contingencies and holdbacks related to
shareholders that did not participate in the settlement.
In January 2002,SBC Communications,Inc.,on behalfof various subsidiaries (collectively "SBC")filed
a motion in the Company's Bankruptcy case seeking permission to terminate the services it provides the
Company pursuant to its interconnection agreements.SBC contends that the Company owes SBC in
excess of $24 million related to past billing,and,as a result,should be entitled to terminate services and
pursue an administrative claim for the alleged past due receivable.SBC also has filed a motion objecting
to the Company's Disclosure Statement on the grounds that it does not adequately providesufficient
information with respect to the Company's ability to pay its alleged obligations to SBC.The Company
filed a response to SBC's motions stating that it does not owe a significant portion of the alleged past due
amount.Additionally,the Company's response provides that SBC owes the Company more for services
the Company providedSBC than the Company owes SBC.The Company retained legal counsel to
vigorously defend itself against SBC's claims and is aggressively pursuing its counterclaims.
On or about March 29,2002 the Company and SBC entered into a settlement agreement regarding
wholesale services provided to the Company by SBC pursuant to its Interconnection Agreements,
leaving only amounts allegedly owed for the retail services to be resolved.The terms of the settlement
are subject to reviewand approval by the Bankruptcy Court.If the settlement agreement is approved by
the Bankruptcy Court,the Company's operating results would be favorably impacted by approximately
$5 million.The impact of the settlement will be recognized when realization is assured.The Company
anticipates that SBC's motions will be amended and/or withdrawn,leaving only amounts allegedly owed "
for the retail services to be resolved.The Company believes that the ultimate resolution of the remaining
items relating to retail services will be immaterial to the Company's operating results.
The Company is a party to certain other litigation that 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.
(g)Line Cost Disputes
The Company significantly reduced facilities leased from LECs and other CLECs throughout the year
ended 2001.In addition,these facilities providers changed ICG's billing account numbers ("BANs")
throughout the year in an attempt to segregate pre-and post-petition billing activity.Frequently,
disconnected services were not reflected on ICG'sinvoices or not reflected in a timely manner,resulting
in inaccurate invoices and significant disputes.The assignment of new BANs frequently resulted in
incorrect balances being carried forward on invoices.As a result of these and other types of billing
issues,the Company is in negotiations with these providersregarding amounts owed by the Company for
leased facilities.The Company believes line cost expenses and related accrued liabilities are properly
stated and that disputed amounts will be resolved in the Company's favor.
(13)Income Taxes
Current income tax expense for the year ended December 31,1999,represents state and federal income tax
relating to operations of a subsidiary company during periods when this entity's taxable income could not be
offset by the Company's current period losses or net operating loss ("NOL")carryforwards.
F-32
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Notes to Consolidated Financial Statements (Continued)
Income tax benefit differs from the amounts computed by applying the U.S.federal income tax rate to loss before
income taxes primarily because the Company has not recognized the income tax benefit of certain of its net
operating loss caryforwardsand other deferred tax assets due to the uncertainty of realization.
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred
tax liabilities at December 31,2000 and 2001 are as follows:
December 31,
2000 2001
(in thousands)
Deferred income tax liabilities:
Interest expense $-$40.645
Net deferred income tax liabilities -40,645
Deferred income tax assets:
Deferred revenue (65,000)(60,109)
Net operating loss carryforwards (510,877)(625,110)
Property and equipment (318,116)(540,157)
Unrealized loss on investments (34,904)(35,994)
Accrued interest on high yield debt obligations (194,435)(192,264)
Accrued expenses (11,745)(9,584)
Allowance for doubtful accounts (37,714)(88,578)
Net deferred income tax assets (1,172,791)(1,551,796)
Less valuation allowance 1,172,791 1,511,151
Net deferred income tax liability ¯S ¯
As of December 31,2001,the Company has federal NOL carryfonvards of approximately $1.56 billion,which
expire in varyingamounts through December 31,2021.Due to the provisions of Intemal Revenue Code ("Code")
sections 108,382 and certain other Code and Treasury Regulations,it is anticipated the major portion of the NOLs
will be reduced by cancellation of indebtedness and that a change in ownership will occur as a result of the Plan.
If the Plan results in the issuance of new stock and or the cancellation of existing stock,the remaining amount of
NOLs (if any)that can be utilized each year will be limited.
The Company is also subject to certain state income tax laws,which may also limit the amount and utilization of
NOLs at the state level.
Considering the net reversals of future taxable and deductible amounts and that management is not presently able
to determine when the Company will generate future taxable income,the Company has established a valuation
allowance for all deferred tax assets.After application of the valuation allowance,the Company's net deferred tax
assets and liabilities are zero.
(14)Employee Benefit Plans
The Company has established a salary reduction savings plan under Section 401(k)of the Code that the Company
administers for participating employees.All full-time employees are covered under the plan after meeting
minimum service and age requirements.Throughthe second quarter of 2000,the Company made matching
contributions of ICG Common Stock up to a maximum of 6%of the employee's eligible earnings.Beginning in
the third quarter of 2000,the Company matching was made in cash,up to 3%of the employee's eligible eamings.
F-33
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Notes to Consolidated Financial Statements (Continued)
Aggregate matching contributions under the Company's employee benefit plans were approximately,$5.5
million,$6.1 million and $1.5 million during the years ended December 31,1999,2000 and 2001,respectively.
(15)Fair Value of FinancialInstruments
The followingmethods and assumptions were used to estimate the fair value of each class of financial instruments
for which it is practicable to estimate that value:
Cash and cash equivalents and short-term investments available-for-sale:
The carrying amount approximates fair value because of the short maturities of such instruments.
Long-terminvestments:
The fair values of long-term investments for which it is practicable are estimated based on the quoted market
prices for those or similar investments.The long-term investments for which it is not practicable to estimate the
fair value relate to cost investments in unrelated entities for which there is no public market.
Long-termdebt:
The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or
similar issues for the Senior Discount Notes that are publicly traded.The fair value of both the Senior Facility and
the mortgage loan are estimated to be the canying amount of the debt as the debt instruments are not publicly
traded and have stated fixed or LIBOR or Prime plus a fixed percent interest rates.
Redeemable preferredstock:
The fair value of the preferred stock,which was issued in a private placement is not traded in the open market,is
estimated to be zero due to the bankruptcy proceedings.
The estimated fair values of the Company's financial instruments are as follows:
F-34
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Notes to Consolidated Financial Statements (Continued)
December 31,
2000 2001
(in thousands)
Carrying Carrying
Amount Fair Value Amount Fair Value
Cash and cash equivalents and
short-term investments available-
for-sale $214,713 $214,713 $146,587 $146,587
Restricted cash 9,278 9,278 7,299 7,299
Long-term investments:
Practicable ------
Not practicable 1,650 -100 -
Long-term debt:
Secured long-terndebt 85,503 85,503 85,503 85,503
Senior discount notes 1,968,78 1 176,472 1,968,78 1 135
Mortgage loan payable 33,077 33,077 --
Redeemable preferred stock 1,366,660 -1,326,745 -
(16)Summarized Financial Information for Non-Bankruptcy Filing Subsidiaries (Unaudited)
As discussed in note 1,the majority of the Company's subsidiaries filed voluntary petitions for protection under
Chapter 11.The following table summarizes financial infornation as of and for the year ended December 31,
2001 for the Company's non-bankruptcy and bankruptcy filing subsidiaries:
Non-Bankrupt Bankrupt
Companies Companies Eliminations Consolidated
Current assets $-$203,070 $-$203,070
Property and equipment,net 4 531,183 -531,187
Other non-current assets,net 237 20.671 -20.908
Total Assets 24l 754.924 -755,165
Current liabilities 193 91,596 2 91,791
Liabilities subject to compromise --2,729,590 -2,729,590
Long-term debt -50,708 -50,708
Other long-term liabilities 2,500 1,088 (2,500)1,088
Due to Intercompany 10,814 (13,312)2,498 -
Redeemable preferred stock -1,326,745 -1,326,745
Stockholders'deficit (13,266)(3,431,491)-(3,444,757)
TotalLiabilities and Stockholders'
Deficit $241 $754,924 $-$755,165
F-35
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November14,2000)
Notes to Consolidated Financial Statements (Continued)
Non Bankrupt Bankrupt
Companies Companies Eliminations Consolidated
Total revenue $2,579 $499,996 $(2,579)$499,996
Total operating costs and expenses 8,116 562.487 (2,579)568,024
Operating loss $(5,537)S (62.491)5 -$(68.028)
Loss from continuing operations $(8,107)$(104,558)$-$(112.665)
Net loss $(8,107)$(104.558)$-$(112.665)
(17)Major Customer
A significant amount of the Company's revenue is derived from long-term contracts with large customers,
including one major customer (the "Customer").For the year ended December 31,2001,the Customer accounted
for approximately 18%,or $89 million,of total revenue.Revenue from the Customer represented less than 10%of
total revenue for the years ended December 31,1999 and 2000.
Prior to the bankruptcy filing,the Customer and the Company developed a number of important and mutually
valuable business relationships,governed by a plethora of contracts (collectively the "Pre-Petition Agreements").
During the pendancy of the Chapter 11 cases,both the Company and the Customer asserted various breaches of,
and claims under,the Pre-petition Agreements.Followinglengthy negotiations,the parties agreed to enter into a
settlement resolving all of the claims and issues between the parties (the "Settlement Agreement")in order to
continue a cooperative,mutually beneficial relationship and to avoid potentially costly litigation.The Settlement
Agreement was approved by the Bankruptcy Court in June 2001.
Under the Settlement Agreement,the Company agreed to assume certain executory contracts,as amended to
mutually benefit both parties.In addition,the Settlement Agreement resolved issues related to pre-petition setoffs.
The Company received significant benefits from the Settlement Agreement including (i)eliminating all pre-
petition unsecured claims;(ii)receiving $10 million in cash;and (iii)modifying its service contract with the
Customer to eliminate the risk that current revenue levels could materially decrease.
Pursuant to the terms of the Settlement Agreement,the Company settled a $54 million net receivable from the
Customer for $10 million,and was relieved of $60 million in accruals and payables and $22 million in deferred
revenue.The remaining $147 million of deferred revenue at December 31,2001,related to an agreement to
providethe Customer with exclusive service over designated portions of the Company's local fiber optic networks
(see note 1 (b))was not fully settled and remains reflected in liabilities subject to compromise.Based on the terms
of the Settlement Agreement,the Company has recorded a gain of approximately $39 million,$37.5 million of
which is reflected in reorganization items and $1.5 million in interest expense in the accompanying consolidated
statement of operations (see note 4).The settlement agreement contemplates the transfer of certain assets with a
net carrying value at December 31,2001 of approximately $13 million and a remaining economic life of
approximately 2 years.The transfer requires the approval by a major vendorwhose approval is contingent upon
acceptance of the plan of reorganization by the Bankruptcy Court.Further,the transfer requires approval by the
secured lender.Management believes that the release of pre-existing liens on this equipment by the secured lender
is remote.Therefore,the transfer of the assets has not been reflected in the financial statements as of December
31,2001.
F-36
ICG COMMUNICATIONS,INC.
AND SUBSIDIARIES
(Debtor-in-Possession as of November 14,2000)
Notes to Consolidated Financial Statements (Continued)
(18)New Accounting Standards
In June 2001,the FASB issued SFAS No.143,"Accounting for Asset Retirement Obligations."This statement
deals with the costs of closing facilities and removing assets.SFAS No.143 requires entities to record the fair
value of a legal liability for an asset retirement obligation in the period it is incurred.This cost is initially
capitalized and amortized over the remaining life of the underlying asset.Once the obligation is ultimately settled,
any difference between the final cost and the recorded liability is recognized as a gain or loss on disposition.
SFAS No.143 is effective starting in 2003.Adoption of this pronouncement as of December 31,2001 would not
'have a material impact on future financial results.
In October 2001,the FASB issued SFAS No.144,"Accounting for the Impairment or Disposal of Long-lived
Assets."SFAS No.144 supersedes SFAS No.121,"Accounting for the Impairment of Long-LivedAssets and for
Assets to be Disposed of'and certain provisions of APB Opinion 30,"Reporting the Results of Operations--
Reporting the Effects of Disposal of a Segment of a Business,and Extraordinary,Unusual and Infrequently
Occurring Events and Transactions."SFAS No.144 develops one accounting model for long-livedassets that are
to be disposed of by sale.SFAS No.144 requires that long-livedassets that are to be disposed of by sale be
measured at the lower of book value or fair value less cost to sell.Additionally,SFAS No.144 expands the scope
of discontinued operations to include all components of an entity with operations that (i)can be distinguished
from the rest of the entity and (ii)will be eliminated from the ongoing operations of the entity in a disposal
transaction.SFAS No.144 is effective starting in 2002.Adoption of this pronouncement as ofDecember 31,2001
would not have a material impact on future fmancial results.
F-37
IndependentAuditors'Report
The Boardof Directorsand Stockholders
ICG Communications,Inc.:
Under the date of March 31,2002,we reported on the consolidated balance sheets of ICG Communications,Inc.
and subsidiaries (the Company)(a debtor-in-possession as of November 14,2000)as of December 31,2000 and 2001 and
the related consolidated statements of operations,stockholders'deficit and cash flows for each of the years in the three-year
period ended December 31,2001 as contained in the Company's Annual Report on Forn 10-K for the year ended
December 31,2001.In connection with our audits of the aforementioned consolidated financial statements,we have also
audited the related financial statement Schedule II:Valuation and QualifyingAccounts.This financial statement schedule is
the responsibility of the Company's management.Our responsibility is to express an opinion on this financial statement
schedule based on our audits.
In our opinion,based on our audits,the related financial statement schedule,when considered in relation to the
basic consolidated financial statements taken as a whole,presents fairly,in all material respects,the information set forth
therein.
The consolidated financial statements and financial statement schedule have been prepared assuming the
Company will continue as a going concern.As discussed in note 1 to the consolidated financial statements,the Company
has suffered recurring losses,has a significant net capital deficiency and,on November 14,2000 the Company and most of
its subsidiaries filed voluntary petitions for protection under Chapter 11 of the United States Bankruptcy Code.The
consolidated financial statements and financial statement schedule do not include any adjustments to the recorded amounts
or classification of assets or liabilities or reflect any amounts that may ultimately be paid to settle liabilities and
contingencies which may be required in the Chapter 11 reorganization or the effect of any changes which may be made in
connection with the Company's capitalization or operations resulting from a plan of reorganization.The Company filed the
Second Amended Joint Plan of Reorganization and Disclosure Statement (the "Plan")with the Bankruptcy Court on March
26,2002,which Plan will be amended.The Plan is subject to acceptance by the Company's impaired creditors and
stockholders and approval by the bankruptcy court which acceptance and approval is not assured.These factors,among
others,raise substantial doubt about its ability to continue as a going concern.The consolidated financial statements and
financial statement schedule do not include any adjustments that might result from the outcome ofthis uncertainty.
As explained in note 2 to the consolidated financial statements,during the year ended December 31,2000,the
Company changed its method of accounting for installation revenue.
Is/KPMG LLP
Denver,Colorado
March 31,2002
S-1
EXHIBIT B
ICG TELECOM GROUP,INC.
(Debtor-in-Possession)
UnauditedConsolidated Balance Sheets
December 31,2000 and 2001
December 31.
2000 2001
(m thousands)
Assets
Current assets:
Cash and cash equivalents S (6.403)S (6,992)
Receivables:
Trade,net of allowance of 594.2 million and S43.2 million at December
31,2000 and 2001,respectively'l13,740 56.888
Prepaid expenses,deposits and other 6.809 10.250
Total current assets l 14,l46 60,146
Property and equipment,net of accumulated depreciation of SO million and
520.4 million at December 31,2000 and 2001,respectively 141.208 124,495
Restricted cash 1,790 1,866
Other assets:
Deferred financing costs,net of accumulated amortization of5183 thousand
and SO million at December 31,2000 and 2001,respectively 49 -
Deposits and other 4,482 7,381
Intercompany receivable 16.357 -
22.678 9,247
Total Assets S 278,032 S 193.889
Liabilities and Stockholders'Deficit
Current liabilities not subject to compromise:
Accounts payable S 7,289 S 8,253
Accrued liabilities 67,897 158,21 l
Deferred revenue 14.840 7.590
Total current liabilities not subject to compromise 90,026 174,054
Liabilities subject to compromise 2,704,744 2,625,811
Long-term liabilities not subject to compromise:
Intercompany payable -83,896
Other long-term liabilities 1,090 l.090
Total liabilities 2,795,860 2,884,851
Stockholders'deficit :
Additional paid-in capital 89,595 89,595
Accumulated deficit (2,607,423)(2,780,557)
Total stockholders'deficit (2,517,828)(2,690,962)
Total Liabilities and Stockholders'Deficit S 278,032 $193,889
Notes:
See accompanying Notes to the Unaudited Consolidated Financial Statements.
l
ICG TELECOM GROUP,INC.
Unaudited Consolidated Statements of Operations
Years ended December 3 L
2000 2001
(in thousands)
Revenue S 570.628 S 495.470
Operating costs and expenses:
Operating costs 441,931 360.361
Selling,general and administrative expenses 241,543 101,803
Leasing expense (Note 7)146.186 160.709
Depreciation and amortization 207,876 25,845
Provision for impairment of long-livedassets (Note 3)841,728 14.816
Other.net 1,482 723
Total operating costs and expenses 1.880,746 664.257
Operating (loss)(1,310,118)(168,787)
Other income (expense):
Interest expense (intercompany interest of $289 million at December 31,
2000,and 50 million at December 31,2001)(292.520)(7,638)
Interest income including 544.6 million of intercompany interest at
December 31,2001 1,610 44,771
Other expense,net,including realized gains and losses on marketable
tradingsecurities 7,534 (458)
(283.376)36.675
Loss from continuing operations before reorganization expense,income
taxes and extraordinary gain (1,593,494)(132,112)
Reorganization expenses (Notes 5 and 6)9,230 41,023
Income tax expense -1
Loss from continuing operations before extraordinary gain and cumulative
effect of change in accounting principle (1,602,724)(173,134)
Cumulative effect of change in accounting principle for revenue from
installation services 7,363 -
Net loss S (1,610.087)S (173.134)
Notes:
See accompanying Notes to the Unaudited Consolidated Financial Statements.
2
ICG TELECOM GROUP,INC.
Unaudited Consolidated Balance Sheets
December 31,2000 and 2001
December 31.
2000 2001 ChanceS Change%
(in thousands)
Assets
Current assets:
Cash and cash equivalents S (6.403)S (6.992)S (589)9.20
Receivables:
Trade,net of allowance of 594.2 million and S43.2
million at December 31,2000 and 2001,
respectively 113,740 56,888 (56.852)(49.98)
Prepaid expenses,deposits and other 6.809 10,250 3.441 50.54
Total current assets I l4,146 60,146 (54,000)(47.31)
Property and equipment,net of accumulated depreciation
of SO million and S20.4 million at December 31,2000
and 2001,respectively 141,208 124,495 (16,713)(l 1.84)
Restricted cash 1,790 1,866 76 4.25
Other assets:
Deferred financing costs,net of accumulated
amortization of Sl83 thousand and SO million at
December 31,2000 and 2001,respectively 49 -(49)(100.00)
Deposits and other 4,482 7,381 2.899 64.68
Intercompany receivable 16.357 -(16.357)(100.00)
22,678 9.247 (13.431)(59.22)
Total Assets S 278.032 S 193.889 S (84.143)(30.26)
Liabilities and Stockholders'Deficit
Current liabilities not subject to compromise:
Accounts payable S 7,289 S 8,253 S 964 13.23
Accrued liabilities 67,897 158.211 90.314 133.02
Deferred revenue 14.840 7.590 (7.250)(48.85)
Total current liabilities not subject to compromise 90,026 174,054 84,028 93.34
Liabilities subject to compromise 2,704,744 2,625,811 (78,933)(2.92)
Long-term liabilities not subject to compromise:
Intercompany payable -83,896 83,896 -
Other long-term liabilities 1,090 1,090 -0.00
Total liabilities 2,795,860 2,884,851 88,991 3.18
Stockholders'deficit:
Additional paid-in capitai 89,595 89,595 -0.00
Accumulated deficit (2,607,423)(2,780,557)(173,134)6.64
Total stockholders'deficit (2,517,828)(2.690,962)(173,134)6.88
Total Liabilities and Stockholders'Deficit S 278,032 S 193,889 S (84,143)(30.26)
Notes:
See accompanying Notes to the Unaudited Consolidated Financial Statements.
3
ICG TELECOM GROUP,INC.
Unaudited Consolidated Statements of Operations
Years ended December 31.
2000 2001 Chance S Chanee°a
(in thousands)
Revenue S 570,628 S 495.470 S (75,158)(13.17)
Operating costs and expenses:
Operating costs 441,931 360,361 (81,570)(18.46)
Selling,general and administrative expenses 241.543 101.803 (139,740)(57.85)
Leasing expense 146,186 160.709 14.523 9.93
Depreciation and amortization 207,876 25,845 (182,031)(8".57)
Provision for impairment of long-livedassets 841,728 14,816 (826,912)(98.24)
Other,net 1.482 723 (759)(51.21)
Total operating costs and expenses 1,880.746 664.257 (1.216.489)(64.68)
Operating loss (1,310,118)(168,787)1,141,331 (87.12)
Other income (expense):
Interest expense (intercompany interest of 5289
million at December 31,2000,and SO million at
December 31,2001)(292,520)(7,638)284,882 (97.39)
Interest income including 544.6 million of
intercompany interest at December 31,2001 l,6l0 44,771 43,161 2680.81
Other expense,net,including realized gains and losses
on marketable trading securities 7.534 (458)(7,992)(106.08)
(283,376)36,675 320.051 (112.94)
Loss from continuing operations before reorganization
expense,income taxes and extraordinary gain (1,593,494)(132,112)1,461,382 (91.71)
Reorganization expenses 9,230 41,023 31,793 344.45
Income tax expense 0 1 1 -
Loss from continuing operations before extraordinary
gain and cumulative effect of change in accounting
prmeiple (1,602,724)(173,134)1,429,590 (89.20)
Cumulative effect of change in accounting principle for
revenue from installation services 7.363 0 (7,363)(100.00)
Net loss (1,610.087)(173,134)1,436,953 (89.25)
Notes:
See accompanying Notes to the Unaudited Consolidated Financial Statements.
4
ICG TELECOM GROUP,INC.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements (Unaudited)
(1)Basis of Presentation
These consolidated financial statements should be read in conjunction with the ICG Communications.
Inc.'s and subsidiaries ("ICG")Annual Report on Form 10-K for the year ended December 31.2000 as
certain information and note disclosures normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles ("GAAP")have been condensed or omitted from
the statements attached hereto.ICG Telecom Group,Inc.(the "Company")is a wholly owned subsidiarv
of ICG.The December 31,2000 amounts reflected herein have been adjusted to reflect any adjustments
made subsequent to the previously filed December 31,2000 consolidated financial statements.
All significant intercompany accounts and transactions have been eliminated in consolidation.
(2)Bankruptcy Proceedings
On November 14,2000 (the "Petition Date"),ICG,except certain non-operating entities (collectively
referred to as the "Debtors"),filed voluntary petitions for protection under Chapter ll of the United States
Bankruptcy Code in the Federal District of Delaware in order to facilitate the restructuring of its debt,trade
liabilities and other obligations.The Debtors are currently operating as debtors-in-possession under the
supervision of the United States District Court for the District of Delaware (the "Bankruptcy Court").The
bankruptcy petitions were filed in order to preserve cash and to give the Debtors the opportunity to
restructure their obligations.
On December 19,2001 the Debtors filed a proposed Plan of Reorganization and a Disclosure Statement
(collectively referred to as the "Plan")in the Bankruptcy Court.The Plan is premised on the substantive
consolidation of all of the Debtors for purposes of Plan voting,confirmation and distribution of claim
proceeds.The Plan contemplates the conversion of the Debtors'existing unsecured debt into common
equity in the post-bankruptcy,reorganized company.The Plan also contemplates the issuance of new
secured notes to the Debtors'existing secured lenders.The Plan calls for the cancellation of all equity
securities previously issued by the Debtors,including all common stock,preferred stock and warrants.
Consummation of the Plan is contingent upon receiving Bankruptcy Court approval,as well as the approval
of certain classes of creditors.
ICG,assisted by its investment banker,Dresdner Kleinwort &Wasserstein,Inc.,evaluated the enterprise
value of ICG in connection with the filing of the Plan on December 19,2001.Accordingly,a stand-alone
valuation of the Company was not evaluated.The enterprise value of ICG on a going concem basis was
estimated to be between S350 million and S500 million.This valuation of ICG results in a valuation of the
new common equity to be issued under the Plan,in the aggregate,between approximately Sl36 million and
S287 million,which is derived by subtracting from ICG's enterprise value the projected funded debt on the
pro forma balance sheet for ICG on the date of emergence from bankruptcy.The valuation is based on
numerous assumptions,including,among other things,the achievement of certain operating results,market
values of publicly-traded securities of other relevant companies and general economic and industry
conditions.
Under accounting guidelines commonly referred to as "fresh start",the fair value of all assets of ICG will
be estimated as it emerges from bankruptcy in conformity with GAAP,specifically Statement of Financial
Accounting Standards ("SFAS")No.141,"Business Combinations."The enterprise value range in the
Plan implies that a fair value adjustment of up to S200 million to property and equipment may be
necessary.However,the Plan assumptions are likely to differ from the actual business conditions at the
date of emergence from bankruptcy.Therefore,the fair values assigned to assets upon emergence from
bankruptcy will also be different.The fair value adjustment to property and equipment,if any,will be
recorded upon emergence from bankruptcy once the final enterprise value is determined.
Èecause of the ongoing nature of the reorganization cases,the outcome of which is not presently
determinable,the consolidated financial statements contained herein are subject to material uncertainties
and may not be indicative of ICG and the Company's future operations or financial position.No assurance
can be given that ICG and the Company will be successful in reorganizing its affairs within the Chapter 11
bankruptcy proceedings.
5
ICG TELECOM GROUP,INC.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements (Unaudited).Continued
As a result of the items discussed above,there is doubt about ICG s and the Company's abihty to continue
as a going concern.The ability of ICG and the Company to continue as a going concem is dependent upon.
but not limited to,the approval and confirmation of a plan of reorganization.adequate sources of capital,
customer and employee retention,the ability to provide high quality services and the ability to sustain
positive results of operations and cash flows sufficient to continue to operate.These consolidated financial
statements do not include any adjustments to the recorded amounts or classification of assets or liabilities
or reflect any amounts that may ultimately be paid to settle liabilities and contingencies which may be
required in the Chapter ll reorganization or the effect of any changes.which may be made in connection
with the Company's capitalization or operations resulting from a plan of reorganization.
These consolidated financial statements have been prepared in accordance with AICPA Statement of
Position ("SOP")90-7,"FinancialReporting bv Entities in Reorganization under the Bankruptcy Code."
Pursuant to SOP 90-7,an objective of financial statements issued by an entity in Chapter 1 1 is to reflect its
financial evolution during the proceeding.For that purpose,the financial statements for periods including
and subsequent to filing the Chapter 11 petition should distinguish transactions and events that are directly
associated with the reorganization from the ongoing operations of the business.Expenses and other items
not directly related to ongoing operations are reflected separately in the consolidated statement of
operations as reorganization expenses.
(3)Asset Impairment
ICG has provided for the impairment of long-livedassets,including goodwill,pursuant to SFAS No.121,
"Accounting for the Impairment of Long-LivedAssets and for Long-LivedAssets to be Disposed of "
SFAS 121 requires that long-livedassets and certain identifiable intangibles held and used by an entity be
reviewed for impairment whenever changes in circumstances indicate that the carrying value of an asset
may not be recoverable.Such events include,but are not limited to,a significant decrease in the market
value of an asset,a significant adverse change in the business climate that could affect the value of an asset
or a current period operating or cash flow loss combined with a history of operating or cash flow losses.
An impairment loss is recognized when estimated undiscounted future cash flows,before interest,expected
to be generated by the asset are less than its carrying value.Measurement of the impairment loss is based
on the estimated fair value of the asset,which is generally determined using valuation techniques such as
the discounted present value of expected future cash flows,appraisals or other pricing models.
Management,in consultation with its financial advisors,determined that the fair value of tangible assets to
be utilized in ongoing operations of ICG was S550 million at December 31,2000.The determination was
based primarily on the present value of discounted cash flows,although ICG also took into consideration
several other valuation techniques,including asset appraisals and current market capitalization.As a result,
ICG and the Company recorded impairment charges of 51.7 billion and S842 million in 2000,respectively.
(4)Liabilities Subject to Compromise
As of December 31,2000 and December 31,2001,liabilities subject to compromise consist of the
following:
December 31,December 31,
2000 2001
(in thousands)
Unsecured creditors S 2,532,339 S 2,477,734
Priority creditors 25,709 10,806
Capital lease obligations 146,696 137,271
Total S 2,704,744 5 2,625,811
Included in unsecured creditors are S2.28 billion of intercompany payables that will be eliminated in
consolidation.
6
ICG TELECOM GROUP,INC.
(Debtor-in-Possession)
Notes to Consolidated Financial Statements (Unaudited),Continued
(5)Qwest Settlement
In July 2001,ICG reached a settlement agreement (the "Agreement")with Qwest Communications
Corporation and Qwest Corporation (collectively "Qwest").The Agreement related to various agreements
between ICG and Qwest including IRU agreements,a capacity lease agreement,an equipment purchase
agreement,a remote access service agreement,a private label remote access service agreement and a
primary rate interface agreement.
Based on the terms of the Agreement,the Company has recorded a gain of approximately S2.2 million in
reorganization expense in the accompanying consolidated statement of operations.The gain may be
adjusted if certain transactions contemplated by the Agreement are consummated.It is not possible to
y determine the amount of the adjustments at this4ime.
(6)ReorganizationItems
For the twelve months ended December 31,2001,net reorganization expenses totaled approximately S41
million,consisting of a gain of S2.2 million related to the Qwest settlement (see note 5 above),offset by
S12 million in severance and retention costs,Sl3.5million in professional and legal fees,S11.1 million in
costs related to the closing of certain switch sites and administrative offices,55,4 million in line cost
cancellation fees and Sl.2 million in other miscellaneous expenses.The retention bonus accrual is pursuant
to a Bankruptcy Court approved plan to retain employees through the bankruptcy process.
(7)Leasing Expense
Leasing expense totaling approximately Sl61 million and Sl46 million in 2001 and 2000,respectively,
relates to the rental of facilities from consolidated subsidiaries and is eliminated in consolidation.
7