AS FILED WITH THE SECURITIES AND EXCHANGE CaOMMISSION ON February 2, 1999
REGISTRATION NO. 333-_____
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
QWEST COMMUNICATIONS INTERNATIONAL INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 4813 84-1339282
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
700 QWEST TOWER
555 SEVENTEENTH STREET
DENVER, COLORADO 80202
(303) 992-1400
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
ROBERT S. WOODRUFF
EXECUTIVE VICE PRESIDENT--FINANCE
QWEST COMMUNICATIONS INTERNATIONAL INC.
700 QWEST TOWER
555 SEVENTEENTH STREET
DENVER, COLORADO 80202
(303) 992-1400
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE FOR THE REGISTRANT)
---------------
COPIES TO:
NICK NIMMO, ESQ.
HOLME ROBERTS & OWEN LLP
1700 LINCOLN STREET, SUITE 4100
DENVER, COLORADO 80203
(303) 861-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
---------------
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with
1
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT OFFERING MAXIMUM MAXIMUM
OF SECURITIES TO TO BE PRICE AGGREGATE AMOUNT OF
BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION
FEE(2)
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7.50% Senior
Notes Due 2008.... $750,000,000 99.324% $744,930,000 $212,192
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 of the Securities Act of 1933, as amended.
(2) Calculated pursuant to Rule 457(f)(2) based on the book value on
January 29, 1999 of the notes to be received by the Registrant in the
exchange described herein.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
2
THIS PROSPECTUS, DATED JANUARY 29, 1999, IS SUBJECT TO COMPLETION AND
AMENDMENT.
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
7.50% NOTES DUE 2008
FOR
7.50% SERIES B NOTES DUE 2008
OF
QWEST COMMUNICATIONS INTERNATIONAL INC.
We are offering, on the terms and conditions described in this Prospectus, to
exchange all of our outstanding 7.50% Senior Notes due 2008 ("Old Notes") for
our registered 7.50% Series B Senior Notes due 2008 ("New Notes"). We issued the
Old Notes on November 4, 1998 and a total principal amount of $750.0 million is
outstanding. The terms of the New Notes are identical to the terms of the Old
Notes except that the New Notes are registered under the Securities Act of 1933,
as amended, and will not contain any legends restricting their transfer. We
sometimes collectively refer to the New Notes and the Old Notes as the "7.50%
Notes."
INFORMATION ABOUT THE 7.50% NOTES:
-----------------------------------------------
* PLEASE CONSIDER THE FOLLOWING:
- - The 7.50% Notes will mature on November 1, 2008.
- - We will pay interest on the 7.50% Notes semi-annually on May 1 and November
1 of each year beginning May 1, 1999, at the rate of 7.50% per annum.
- - We have the option to redeem all or a portion of the 7.50% Notes at any
time at the redemption price set forth on page of this Prospectus.
- - You should carefully review the Risk Factors beginning on page 25 of this
Prospectus.
- - Our offer to exchange Old Notes for New Notes will be open until 5:00 p.m.,
New York City time, on , 1999, unless we extend the offer.
- - You should also carefully review the procedures for tendering the Old Notes
beginning on page of this Prospectus.
- - The 7.50% Notes are senior unsecured obligations and are of equal ranking
in right of payment to our existing future senior debt and rank senior in
right of payment to our existing and future subordinated debt. Please be
advised that, as of September 30, 1998, we had $1,301.2 million of senior
debt of equal ranking in right of payment to the 7.50% Notes and
- - If you fail to tender your Old Notes, you will continue to hold
unregistered securities and your ability to transfer them could be
adversely affected.
- - No public market currently exists for the 7.50% Notes.
We do not intend to list the New Notes on any securities exchange and,
therefore, no active public market is anticipated.
--------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------
THE DATE OF THIS PROSPECTUS IS , 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
- ----------------
3
TABLE OF CONTENTS
PAGE
----
Where You Can Find More Information..........................................7
Incorporation of Certain Documents by Reference..............................8
Cautionary Statement Regarding Forward-looking Statements....................9
Prospectus Summary..........................................................10
Risk Factors................................................................25
The Exchange Offer..........................................................35
Use of Proceeds.............................................................44
Capitalization..............................................................45
Description of the 7.50% Notes..............................................47
Description of Certain Indebtedness.........................................86
Certain United States Federal Income Tax Considerations.....................90
Plan of Distribution........................................................90
Legal Matters...............................................................96
Experts.....................................................................97
------------------------
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). You
may read and copy any reports, statements and other information we file at the
Commission's public reference rooms in Washington, D.C., New York, New York, and
Chicago, Illinois. Please call 1-800-SEC-0330 for further information on the
public reference rooms. Our filings are also available to the public from
commercial document retrieval services and at the web site maintained by the
Commission at http://www.sec.gov.
We have filed a Registration Statement on Form S-4 to register with the
Commission the New Notes to be issued in exchange for the Old Notes. This
Prospectus is part of that Registration Statement. As allowed by the
Commission's rules, this Prospectus does not contain all of the information you
can find in the Registration Statement or the exhibits to the Registration
Statement.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS ABOUT THE TRANSACTIONS WE DISCUSS IN THIS PROSPECTUS OTHER THAN
THOSE CONTAINED HEREIN OR IN THE DOCUMENTS WE INCORPORATE HEREIN BY REFERENCE.
IF YOU ARE GIVEN ANY INFORMATION OR REPRESENTATIONS ABOUT THESE MATTERS THAT IS
NOT DISCUSSED OR INCORPORATED IN THIS PROSPECTUS, YOU MUST NOT RELY ON THAT
INFORMATION. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY SECURITIES ANYWHERE OR TO ANYONE WHERE OR TO WHOM WE ARE NOT
PERMITTED TO OFFER OR SELL SECURITIES UNDER APPLICABLE LAW. THE DELIVERY OF THIS
PROSPECTUS DOES NOT, UNDER ANY CIRCUMSTANCES, MEAN THAT THERE HAS NOT BEEN A
CHANGE IN OUR AFFAIRS SINCE THE DATE OF THIS PROSPECTUS. IT ALSO DOES NOT MEAN
THAT THE INFORMATION IN THIS PROSPECTUS OR IN THE DOCUMENTS WE INCORPORATE
HEREIN BY REFERENCE IS CORRECT AFTER THIS DATE.
4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows us to "incorporate by reference" information into this
Prospectus. This means that we can disclose important information to you by
referring you to another document filed separately with the Commission. The
information incorporated by reference is considered to be part of this
Prospectus, except for any information that is superseded by information that is
included directly in this document.
This Prospectus includes by reference the documents listed below that we
have previously filed with the Commission and that are not included in or
delivered with this document. They contain important information about our
company and its financial condition.
FILING PERIOD
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Annual Report on Form 10-K Year ended December 31, 1997
Quarterly Reports on Form 10-Q Quarter ended September 30, 1998,
as amended on Form 10-Q/A filed
December 9, 1998
Quarter ended June 30, 1998,
1998, as amended on Form
10-Q/A filed December 9, 1998
Quarter ended March 31, 1998, as
amended on Form 10-Q/A filed
May 7, 1998
Current Reports on Form 8-K Filed January 14, 1999
Filed December 16, 1998
Filed December 7, 1998
Filed November 25, 1998
Filed November 19, 1998
Filed October 29, 1998
Filed September 16, 1998
Filed July 8, 1998, as
amended on Form 8-K/A filed
July 10, 1998
Filed June 12, 1998, as
amended on Form 8-K/A filed
October 13, 1998
Filed April 21, 1998
Filed April 3, 1998
Filed March 27, 1998
Filed March 20, 1998
Filed March 9, 1998
Filed January 29, 1998
Filed January 12, 1998
5
Amendment No. 3 to Registration Statement
on Form S-3 (File No. 333-58617)
filed December 9, 1998;
Amendment No.1 to Registration Statement
on Form S-4 (File No. 333-49915)
filed May 13, 1998;
The historical financial statements
of SuperNet, Inc. at pages F-31 to
F-41 of Registration Statement on
Form S-4 (File No. 333-46145)
filed February 12, 1998;
The description of our common stock set forth in the Form 8-A filed by us on May
28, 1997, including any amendment or report filed with the Commission for
purposes of updating such description.
We incorporate by reference additional documents that we may file with
the Commission between the date of this Prospectus and the date of the closing
of this offering. These documents include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form
8-K, as well as proxy statements.
You can obtain any of the documents incorporated by reference in this
document without charge, excluding any exhibits to those documents unless the
exhibit is specifically incorporated by reference as an exhibit to this
Prospectus. You can obtain documents incorporated by reference in this
Prospectus by requesting them in writing or by telephone from the appropriate
company at the following address:
Investor Relations
Qwest Communications International Inc.
700 Qwest Tower
555 Seventeenth Street
Denver, Colorado 80202 TELEPHONE NUMBER 800-567-7296.
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
6
This Prospectus contains or incorporates by reference certain "forward-looking
statements" as that term is used in Section 27A of the Securities Act of 1933,
as amended (the "Securities Act") and Section 21E of the Exchange Act about our
financial condition, results of operations and business. These statements
include, among others:
(i) statements concerning the benefits that we expect will result from our
business activities and certain transactions we have completed, such as
synergies in the form of increased revenues, decreased expenses and avoided
expenses and expenditures,
(ii) our plans to complete our communications network and
(iii) other statements of our expectations, beliefs, future plans and
strategies, anticipated developments and other matters that are not historical
facts.
These statements may be made expressly in this document, or may be incorporated
by reference to other documents we have filed with the Commission. You can find
many of these statements by looking for words such as "believes," "expects,"
"anticipates," "estimates," or similar expressions used in this Prospectus or
incorporated by reference in this Prospectus.
These forward-looking statements are subject to numerous assumptions, risks and
uncertainties that may cause our actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by us in those statements. The risks and uncertainties
include those risks, uncertainties and risk factors identified, among other
places, under "Risk Factors" in this Prospectus, beginning on page 25, and under
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the documents incorporated by reference in this
Prospectus.
The most important factors that could prevent us from achieving our stated goals
include, but are not limited to, the following:
- - our failure to construct our communications network on schedule and on
budget;
- - operating and financial risks related to managing rapid growth, integrating
acquired businesses and sustaining operating cash flow to meet our debt service
requirements, make capital expenditures and fund operations;
- - potential fluctuation in quarterly results;
- - volatility of stock price;
- - intense competition in the communications services market;
- - dependence on new product development;
7
- - our ability to achieve year 2000 compliance;
- - rapid and significant changes in technology and markets;
- - adverse changes in the regulatory or legislative environment affecting our
business;
- - failure to maintain necessary rights of way; and
- - satisfactory negotiation and execution of certain definitive documentation.
Because such statements are subject to risks and uncertainties, actual results
may differ materially from those expressed or implied by the forward-looking
statements. You are cautioned not to place undue reliance on such statements,
which speak only as of the date of this Prospectus or, in the case of documents
incorporated by reference, the date of such document.
The cautionary statements contained or referred to in this section should be
considered in connection with any subsequent written or oral forward-looking
statements that we or persons acting on our behalf may issue. We undertake no
obligation to review or confirm analysts' expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this Prospectus or to reflect the
occurrence of unanticipated events.
8
PROSPECTUS SUMMARY
This brief summary highlights selected information from the Prospectus. It does
not contain all of the information that is important to you. We urge you to
carefully read and review the entire Prospectus and the other documents to which
it refers to fully understand the terms of the New Notes and the exchange offer.
Qwest Communications International Inc. is sometimes referred to in this
Prospectus as "Qwest" and, together with its subsidiaries, including Qwest
Communications Corporation ("QCC"), as the "Company."
THE COMPANY
We offer a full range of multimedia communications services through two core
businesses: Communications Services and Construction Services.
Communications Services includes Retail Services and Wholesale Services. Retail
Services provides voice, data, video and related services to both business and
residential customers. Wholesale Services provides high-volume and conventional
private line services to other communications providers, as well as to Internet
service providers and other data service companies. We are developing these
services in partnership with leading information technology companies, including
Microsoft (business applications and services) and Netscape (one-stop access for
various communications services accessed over the Internet).
Construction Services constructs and installs fiber optic systems for other
communications providers, as well as for our own use.
9
Our Macro Capacity (SM) Fiber Network, an approximately 18,450 route-mile
coast-to-coast fiber-optic communications system, is central to our strategies.
The technologically advanced network uses a self-healing SONET ring architecture
that prevents interruption of service to our customers by instantaneously
rerouting traffic in the event of a fiber cut. The network is equipped with the
most advanced commercially available fiber, manufactured by Lucent Technologies,
and the most advanced transmission electronics, manufactured by Northern
Telecom. At full capacity, our network will transmit two trillion bits of
multimedia information per second. Our state-of-the-art Internet Protocol ("IP")
architecture supports ATM (asynchronous transfer mode)and Frame Relay services ,
as well as circuit switched services.
In April, 1998, we became the first network service provider to complete a
transcontinental IP fiber network when we activated our network from Los Angeles
to San Francisco to New York. We expect our network to be fully activated in
1999.
In addition to significant advantages in service speed and sophistication, our
network's advanced technologies should also provide a cost advantage over older
fiber systems generally in commercial use today. We expect an additional cost
benefit from the sale of dark fiber along the network, which will reduce the
cost per fiber mile we retain for our own use.
Under our current plan, the network will serve more than 130 cities and 80
percent of the data and voice traffic originating in the United States. Leased
digital fiber optic facilities and more than 15 switches throughout the United
States connect our network to metropolitan areas that account for more than 95
percent of U.S. call volume.
We are also moving aggressively to expand the network beyond the U.S. We plan to
complete an extension of the U.S. network into Mexico in early 1999. We own
capacity on three undersea systems linking the network to Europe and are part of
a consortium of companies building a submarine cable system connecting the U.S.
to Japan, a project scheduled for completion in the year 2000.
We believe that the technological advantages and growing reach of our network
will put us in an excellent position to capture market share and take full
advantage of the rapidly growing demand for voice and data transmission capacity
and services.
RECENT DEVELOPMENTS
Credit Facility Commitment. On November 5, 1998, we signed a commitment letter
with our three lead banks to syndicate an unsecured credit facility of between
$500 million and $750 million. Each of the lead banks agreed to commit up to
$100.0 million, with a minimum aggregate commitment of $250.0 million.
Subsequent to this, the Company obtained other financing through the issuance of
$300.0 million of 7.25% Senior Notes due 2008 (the "7.25% Notes Due 2008"), as
discussed below, and through an investment in the Company of $200.0 million by
Microsoft Corporation. As a result of entering into these transactions, the
closing of the credit facility was postponed. We are currently in the process
10
of obtaining a new unsecured $750.0 million to $1.0 billion credit facility
through a syndicate of banks. Closing of the new credit facility is conditioned,
among other things, on the execution of a mutually satisfactory credit
agreement. We are working with the syndicate of banks toward closing in the
first quarter of 1999.
Issuances of Notes. On November 27, 1998, we issued and sold $300.0 million in
principal amount of our 7.25% Senior Notes due 2008. The net proceeds from the
offering was approximately $297.5 million, after deducting offering costs.
Interest on the 7.25% Notes Due 2008 is payable semiannually in arrears on May 1
and November 1 of each year, commencing May 1, 1999. The 7.25% Notes Due 2008
are subject to redemption at our option, in whole or in part, at any time at
specified redemption prices.
In connection with the sale of the 7.25% Notes Due 2008, we agreed to make an
offer to exchange new notes, registered under the Securities Act and with terms
identical in all material respects to the original notes, for the original notes
or, alternatively, to file a shelf registration statement under the Securities
Act with respect to the original notes.
Redemption of Notes. On December 31, 1998, we redeemed $87.5 million of our 10
7/8% Senior Notes Due 2007 ("10 7/8% Notes"). Bankers Trust Company, the Trustee
for the 10 7/8% Notes, issued the required notice to affected noteholders on
December 1, 1998. Under the terms of the Indenture for the 10 7/8% Notes, dated
August 28, 1997, we may redeem up to 35%, or $87.5 million, of the $250 million
principal amount of the 10 7/8% Notes.
Equipment Credit Facility. In December 1998, we repaid the outstanding balance
of our equipment credit facility. The balance of the facility was $57.3 million
at September 30, 1998.
Our principal executive offices are located at 700 Qwest Tower, 555 Seventeenth
Street, Denver, Colorado 80202, and our telephone number is (303) 992-1400.
11
THE EXCHANGE OFFER
SECURITIES TO BE EXCHANGED...
On November 4, 1998, we issued $750.0 million aggregate principal amount of
Old Notes to the initial purchaser in a transaction exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"). The terms of the New Notes and the Old Notes are
substantially identical in all material respects, except that the New Notes
will be freely transferable by the holders thereof except as otherwise
provided in this Prospectus. See "Description of the 7.50% Notes."
THE EXCHANGE OFFER...........
$1,000 principal amount of New Notes in exchange for each $1,000 principal
amount of Old Notes. As of the date of this Prospectus, Old Notes
representing $750.0 million aggregate principal amount are outstanding.
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to certain third parties unrelated to us, we
believe that New Notes issued pursuant to the exchange offer in exchange
for Old Notes may be offered for resale, resold or otherwise transferred by
holders thereof (other than any holder which is an "affiliate" of the
Company within the meaning of Rule 405 promulgated under the Securities
Act, or a broker-dealer who purchased Old Notes directly from us to resell
pursuant to Rule 144A or any other available exemption promulgated under
the Securities Act), without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such holders' business and
such holders have no arrangement with any person to engage in a
distribution of New Notes.
However, the Commission has not considered the exchange offer in the
context of a no-action letter and we cannot be sure that the staff of the
Commission would make a similar determination with respect to the exchange
offer as in such other circumstances. Furthermore, each holder, other than
a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of such New Notes and has no
arrangement or understanding to participate in a distribution of New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to
the exchange offer must acknowledge that it will comply with the prospectus
delivery requirements of the Securities Act in connection with any resale
of such New Notes. Broker-dealers who acquired Old Notes directly from us
and not as a result of market-making activities or other trading activities
may not rely on the staff's interpretations discussed above or participate
in the exchange offer and must comply with the prospectus delivery
requirements of the Securities Act in order to resell the Old Notes.
REGISTRATION RIGHTS
AGREEMENT..................
We sold the Old Notes on November 4, 1998, in a private placement in
reliance on Section 4(2) of
12
the Securities Act. The Old Notes were immediately resold by the initial
purchaser in reliance on Rule 144A promulgated under the Securities Act. In
connection with the sale, we entered into a Registration Rights Agreement
with the initial purchaser (the "Registration Rights Agreement") requiring
us to make the exchange offer. The Registration Rights Agreement further
provides that we must use our reasonable best efforts to (i) cause the
Registration Statement with respect to the exchange offer to be declared
effective within 150 days of the date on which we issued the Old Notes and
(ii) consummate the exchange offer on or before the 180th day following the
date on which we issued the Old Notes. See "The Exchange Offer -- Purpose
and Effect."
EXPIRATION DATE..............
The exchange offer will expire at 5:00 p.m., New York City time, , 1999 or
such later date and time to which it is extended.
WITHDRAWAL...................
The tender of the Old Notes pursuant to the exchange offer may be withdrawn
at any time prior to 5:00 p.m., New York City time, on , 1999, or such
later date and time to which we extend the offer. Any Old Notes not
accepted for exchange for any reason will be returned without expense to
the tendering holder thereof as soon as practicable after the expiration or
termination of the exchange offer.
INTEREST ON THE NEW NOTES AND
THE OLD NOTES..............
Interest on the New Notes will accrue from the date of the original
issuance of the Old Notes or from the date of the last periodic payment of
interest on the Old Notes, whichever is later. No additional interest will
be paid on Old Notes tendered and accepted for exchange.
CONDITIONS TO THE EXCHANGE
OFFER......................
The exchange offer is subject to certain customary conditions, certain of
which may be waived by us. See "The Exchange Offer -- Certain Conditions to
Exchange Offer."
PROCEDURES FOR TENDERING OLD
NOTES......................
Each holder of the Old Notes wishing to accept the exchange offer must
complete, sign and date the letter of transmittal, or a copy thereof, in
accordance with the instructions contained in this Prospectus and in the
letter of transmittal, and
13
mail or otherwise deliver the letter of transmittal, or the copy, together
with the Old Notes and any other required documentation, to the exchange
agent at the address set forth in this Prospectus. Persons holding the Old
Notes through the Depository Trust Company ("DTC") and wishing to accept
the exchange offer must do so pursuant to the DTC's Automated Tender Offer
Program, by which each tendering participant will agree to be bound by the
letter of transmittal. By executing or agreeing to be bound by the letter
of transmittal, each holder will represent to us that, among other things,
(i) the New Notes acquired pursuant to the exchange offer are being
obtained in the ordinary course of business of the person receiving such
New Notes, whether or not such person is the registered holder of the Old
Notes, (ii) the holder is not engaging in and does not intend to engage in
a distribution of such New Notes, (iii) the holder does not have an
arrangement or understanding with any person to participate in the
distribution of such New Notes, and (iv) the holder is not an "affiliate,"
as defined under Rule 405 promulgated under the Securities Act, of the
Company.
We will accept for exchange any and all Old Notes which are properly
tendered (and not withdrawn) in the exchange offer prior to 5:00 p.m., New
York City time, on , 1999. The New Notes issued pursuant to the exchange
offer will be delivered promptly following the expiration date. See "The
Exchange Offer -- Terms of the Exchange Offer."
EXCHANGE AGENT...............
The Bank of New York is serving as Exchange Agent (the "Exchange Agent") in
connection with the exchange offer.
FEDERAL INCOME TAX
CONSIDERATIONS.............
In the opinion of our counsel, the exchange of Old Notes for New Notes
pursuant to the exchange offer should not constitute a taxable exchange for
United States federal income tax purposes. See "Certain United States
Federal Income Tax Considerations."
EFFECT OF NOT TENDERING......
Old Notes that are not tendered or that are tendered but not accepted will,
following the completion of the exchange offer, continue to be subject to
the existing restrictions upon transfer thereof. We will have no further
obligation to
14
provide for the registration under the Securities Act of such Old Notes.
THE NEW NOTES
The summary below describes the principal terms of the New Notes. Certain of the
terms and conditions described below are subject to important limitations and
exceptions. The "Description of the 7.50% Notes" section of this Prospectus
beginning on page 47 contains a more detailed description of the terms and
conditions of the New Notes.
Issuer.......................
Qwest Communications International Inc.
Securities Offered...........
$750,000,000 principal amount of 7.50% Series B Senior Notes Due 2008
Maturity.....................
November 1, 2008
Interest Rate................
7.50% per year (calculated using a 360-day year)
Ranking......................
The New Notes will be senior unsecured obligations of Qwest and will rank
equal in right of payment to our existing and future senior debt and senior
in right of payment to all of Qwest's existing and future subordinated
debt. The New Notes are not secured by any assets and are effectively
subordinated to our future secured indebtedness to the extent of the value
of the assets securing the indebtedness. As of September 30, 1998, on a pro
forma basis after giving effect to the acquisition of Icon CMT Corp.
("Icon"), the redemption of $87.5 million of 10 7/8% Notes, the repayment
of $57.3 million of our equipment credit facility, the offering of the Old
Notes, the offering of our 7.25% Senior Notes Due 2008 ("7.25% Notes Due
2008") and the use of the proceeds from these offerings, Qwest would have
had approximately $1,912.0 million of indebtedness outstanding, none of
which was secured. The New Notes are effectively subordinated to all of the
present and future indebtedness and other liabilities of our subsidiaries
(including trade payables). The total liabilities of our subsidiaries
(after the elimination of loans and advances by us to our subsidiaries)
would have been approximately $1,893.7 million, of which approximately
$32.0 million was secured. Any rights we and our creditors, including the
holders of New Notes, to participate in the assets of any of our
subsidiaries upon any liquidation or reorganization of any such subsidiary
will be
15
subject to the prior claims of that subsidiary's creditors (including trade
creditors).
Optional Redemption..........
We can redeem the 7.50% Notes at any time at a price of 100% of the
principal amount plus the Applicable Premium (as defined).
Change of Control Offer......
If a "Change of Control" of the Company occurs (as defined), we must give
holders of the 7.50% Notes an opportunity to sell us their 7.50% Notes at
101% of their face amount, plus accrued interest.
We might not be able to pay you the required price for New Notes you
request us to purchase at the time of a Change of Control because we may
also have to repay our senior credit facility and may not have enough funds
to repay all of our senior debt at that time.
Asset Sale Proceeds..........
If we engage in certain asset sales, we must generally use the proceeds (1)
first, to the repayment of debt then outstanding under any credit facility,
to the extent such agreements would require such application or prohibit
Note repurchases; (2) second, to offer to purchase outstanding 7.50% Notes
at 100% of their face amount, plus accrued interest; (3) third, to the
repayment of other debt; and (4) fourth, to any other Company use.
Certain Indenture
Provisions...................
The indenture governing the 7.50% Notes contains covenants limiting our
(and most of our subsidiaries') ability to:
- borrow additional money,
- pay dividends or other distributions to stockholders,
- allow subsidiaries to guarantee our debt,
- limit the ability of subsidiaries to make payments to us,
- make certain investments,
- create certain liens on our assets,
- sell certain assets,
- enter into transactions with affiliates, and - engage in certain mergers
or consolidations.
These covenants are subject to a number of important limitations and
exceptions and are more
16
fully described under "Description of the 7.50% Notes" beginning on page
47.
Under the terms of the indenture for the 7.50% Notes, we have no obligation
to comply with most of the covenants during any period when the 7.50% Notes
have been assigned investment grade ratings. If the 7.50% Notes later lose
an investment grade rating, the covenants will again apply, but actions
taken during such period generally cannot cause us to be in default if the
covenants again become effective. Consequently, the protection afforded by
the covenants could be weakened if the 7.50% Notes are assigned investment
grade ratings and subsequently downgraded to non-investment grade.
Use of Proceeds..............
The Company will not receive any cash proceeds from the issuance of the New
Notes pursuant to this Prospectus.
RISK FACTORS
We urge you to carefully review the Risk Factors beginning on page 25for a
discussion of factors you should consider before exchanging your Old Notes for
New Notes.
17
SELECTED HISTORICAL AND UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL DATA
The selected unaudited pro forma condensed combined statement of operations data
for the year ended December 31, 1997 and for the nine months ended September 30,
1998 gives effect to the acquisitions of SuperNet, Inc., Phoenix Network, Inc.,
LCI International, Inc. and subsidiary ("LCI") and Icon as if the acquisitions
had occurred on January 1, 1997. The unaudited pro forma condensed combined
balance sheet data as of September 30, 1998 set forth below gives effect to the
proposed acquisition by Qwest of all the issued and outstanding shares of
capital stock of Icon and the assumption of the Icon stock options and warrants
as if the acquisition had occurred on September 30, 1998. The selected unaudited
pro forma condensed combined financial data does not give effect to Qwest's
acquisition of EUnet International Ltd. and the joint venture with KPN Telecom
B.V. because such disclosure is not required under Rule 3-05 of Securities and
Exchange Commission Regulation S-X.
The selected unaudited pro forma condensed combined financial data give effect
to the acquisitions described above under the purchase method of accounting and
are based on the assumptions and adjustments described in the notes to the
Unaudited Pro Forma Condensed Combined Financial Statements incorporated by
reference in this Prospectus. The fair value of the consideration will be
allocated to the assets and liabilities acquired based upon the fair values of
such assets and liabilities at the date of each respective acquisition and may
be revised for a period of up to one year from the date of each respective
acquisition. The preliminary estimates and assumptions as to the value of the
assets and liabilities of LCI and Icon to the combined company are based upon
information available at the date of preparation of the Unaudited Pro Forma
Condensed Combined Financial Statements, and will be adjusted upon the final
determination of such fair values. The items awaiting final allocation include
LCI network asset valuation and final determination of the costs to sell these
assets. It is anticipated that final allocation of the LCI purchase price will
not differ materially from the preliminary allocation.
Qwest has undertaken a study to determine the allocation of the Icon purchase
price to the various assets acquired, including in-process research and
development projects, and the liabilities assumed. Based on Qwest's
consideration of the study's preliminary findings as of this date, Qwest has
allocated a portion of purchase price to certain intangible assets, including
in-process R&D. See the footnotes to the pro forma condensed combined financial
statements for further information on the preliminary allocation of purchase
price.
The selected historical financial data as of the end of, and for each of the
years in, the five year period ended December 31, 1997 and as of September 30,
1998 and 1997 and for the nine months ended September 30, 1998 and 1997 have
been taken or derived from the respective historical consolidated financial
statements of Qwest.
18
SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL DATA (UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE INFORMATION)
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
STATEMENT OF OPERATIONS DATA:
Revenue............................................ $2,473 $2,199
Operating expenses................................. 2,211 1,934
Depreciation and amortization...................... 261 231
------ ------
Earnings from operations........................... 1 34
Other expense, net................................. 39 64
------ ------
Earnings before income taxes....................... (38) (30)
Income tax expense................................. 39 35
------ ------
Net loss........................................... $ (77) $ (65)
====== ======
Loss per share--basic and diluted.................. $(0.24) $(0.20)
Shares used in calculating basic and diluted loss
per share......................................... 326 329
AS OF
SEPTEMBER 30,
1998
-------------
BALANCE SHEET DATA:
Current assets.................................................... $1,157
Property and equipment, net....................................... $2,058
Total assets...................................................... $7,126
Debt.............................................................. $1,623
Total liabilities................................................. $3,133
Total stockholders' equity........................................ $3,993
19
SELECTED HISTORICAL FINANCIAL DATA
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------ --------------
1993 1994 1995 1996 1997 1997 1998(1)
----- ------ ------ ------ ----- ----- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS AND
OTHER FINANCIAL DATA:
Total revenue............ $ 69 $ 71 $ 125 $ 231 $ 697 $ 490 $1,378
Total operating
expenses................ 80 82 161 243 673 490 2,164
Earnings (loss) from
operations.............. (11) (11) (36) (12) 24 -- (786)
Other (income)
expense(2).............. (123) -- 2 (2) -- (5) 51
Earnings (loss) before
income taxes............ 112 (11) (38) (10) 24 5 (837)
Net earnings (loss)...... $ 69 $ (7) $ (25) $ (7) $ 15 $ 2 $ (823)
===== ====== ====== ====== ===== ===== ======
Earnings (loss) per
share--basic............ $0.40 $(0.04) $(0.15) $(0.04) $0.08 $0.01 $(3.17)
Earnings (loss) per
share--diluted.......... $0.40 $(0.04) $(0.15) $(0.04) $0.07 $0.01 $(3.17)
EBITDA(3)................ $ (1) $ (6) $ (26) $ 7 $ 42 $ 13 $ 214
Net cash provided by
(used in)
operating activities.... $ (7) $ 3 $ (57) $ 33 $ (36) $ (60) $ 106
Net cash provided by
(used in)
investing activities.... $ 107 $ (42) $ (59) $ (53) $(357) $(196) $ (778)
Net cash provided by
(used in)
financing activities.... $ (96) $ 34 $ 114 $ 26 $ 766 $ 436 $ 518
Capital expenditures(4).. $ 4 $ 41 $ 49 $ 86 $ 445 $ 213 $ 751
Ratio of earnings to
fixed charges(5)....... 5.67 -- -- -- 1.15 -- --
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
-------------------------- --------------------
1993 1994 1995 1996 1997 1997 1998(2)
---- ---- ---- ---- ------ -------- -----------
(IN MILLIONS)
SUMMARY BALANCE SHEET DATA:
20
Total assets................... $61 $89 $184 $263 $1,398 $ 908 $ 6,834
Long-term debt................. $ 2 $27 $ 69 $109 $ 630 269 1,387
Total stockholders' equity(6).. $12 $25 $ 26 $ 9 $ 382 369 3,752
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
------------------------------ -------------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
OPERATING DATA:
Route miles of conduit
installed.............. 3,200 3,650 9,500 7,900 15,979
Route miles of lit fiber
installed.............. 580 900 3,400 2,800 9,052
Total minutes of use.... 237,000,000 382,000,000 669,000,000 433,000,000 6,252,000,000
- --------
(1) On June 5, 1998, Qwest acquired LCI. The acquisition was accounted for
as a purchase and the results of LCI's operations are included with
Qwest's for the period subsequent to the acquisition.
(2) In November 1993, Qwest sold substantially all of its then owned fiber
optic network capacity and related equipment and assets to a
third-party purchaser for $185.0 million (the "1993 Capacity Sale").
After deducting the carrying value of the assets sold and direct costs
associated with the 1993 Capacity Sale, Qwest recognized a gain of
approximately $126.5 million.
(3) EBITDA represents net earnings (loss) before interest, income taxes,
depreciation and amortization, a nonrecurring expense of $2.6 million
in the year ended December 30, 1996 to restructure operations, the gain
on sale of telecommunications agreements of $6.1 million (which is
non-recurring) in the year ended December 31, 1996, the gain on sale of
contract rights of approximately $9.3 million (which is non-recurring)
in the year ended December 31, 1997 and non-recurring expenses of $813
million in the nine months ended September 30, 1998 related to the LCI
merger. EBITDA includes earnings from the construction contracts for
the sale of dark fiber that Qwest will use to provide cash for the
construction cost of the Qwest Network. EBITDA does not represent cash
flow for the periods presented and should not be considered as an
alternative to net earnings (loss) as an indicator of Qwest's operating
performance or as an alternative to cash flows as a source of
liquidity,
21
and may not be comparable with EBITDA as defined by other companies.
Qwest believes that EBITDA is commonly used by financial analysts and
others in the telecommunications industry. Without the effect of
Qwest's growth share plan expense, EBITDA would have been $115.2
million, $20.0 million, and $1.8 million for the years ended December
31, 1997, 1996 and 1993, respectively, and $153.4 million and $80.6
million for the nine months ended September 30, 1998 and 1997,
respectively.
(4) Capital expenditures include expenditures for property and equipment,
accrued capital expenditures, capital expenditures financed with the
equipment credit facility and initial obligations under capital leases.
(5) Earnings were insufficient to cover fixed charges by $864.0 million and
$6.7 million for the nine month periods ended September 30, 1998 and
1997, respectively, and $12.6 million, $40.4 million and $11.0 million
for the years ended December 31, 1996, 1995 and 1994.
(6) Qwest has not declared or paid cash dividends on the Qwest common stock
since becoming a public company in June 1997.
22
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating us and our business before
participating in the Exchange Offer.
Effect of Not Tendering
Holders of Old Notes who do not exchange their Old Notes for New Notes will
continue to be subject to the restrictions on transfer of the Old Notes as set
forth in the legends on the Old Notes. In general, the Old Notes may not be
offered or sold, unless they are registered under the Securities Act or are
exempt from registration. See "The Exchange Offer--Consequences of Failure to
Exchange."
Holding Company Structure; Subordination of the 7.50% Notes to Indebtedness of
Subsidiaries
The 7.50% Notes are obligations only of Qwest, which is a holding company with
no material assets other than the stock of its subsidiaries. Our subsidiaries
conduct substantially all of our operations and own substantially all of our
assets. As a result, our cash flow and our ability to meet our debt service
obligations, including payments on the 7.50% Notes, depends on the cash flow of
our subsidiaries and the payment of funds by them to us in the form of loans,
dividends or otherwise. Our subsidiaries generally are not obligated to make
funds available to us for payment on the 7.50% Notes or for other purposes.
Existing debt agreements of our subsidiaries impose, and future debt instruments
of our subsidiaries may impose, significant restrictions on the ability of our
subsidiaries to pay dividends or make other distributions or loans and advances
to us. In addition, the ability of our subsidiaries to make any payments to us
will depend on their earnings, business and tax considerations and legal
restrictions.
As a result, the 7.50% Notes effectively will rank junior to all existing and
future indebtedness, trade payables and other liabilities of our subsidiaries.
In the event of a bankruptcy or dissolution of a subsidiary, our rights and the
rights of our creditors, including the holders of the 7.50% Notes, to share in
the assets of the subsidiary will be subject to the prior claims of the
subsidiary's creditors. After the payment of the subsidiary's liabilities, the
subsidiary may not have enough assets remaining to pay us and our creditors. On
a pro forma basis after giving effect to the acquisition of Icon, the redemption
of $87.5 million of 10 7/8% Notes, the repayment of $57.3 million of our
equipment credit facility, the offering of the 7.25% Notes Due 2008, the
offering of the Old Notes and the use of the proceeds from these offerings, at
September 30, 1998, our subsidiaries would have had approximately $1,893.7
million of outstanding liabilities. All of these liabilities would effectively
rank senior to the 7.50% Notes. We expect that our subsidiaries will incur
additional indebtedness in the future.
23
The 7.50% Notes are Unsecured; Subordination of the 7.50% Notes to Secured
Indebtedness
The 7.50% Notes will be general unsecured obligations of Qwest. As a result,
the 7.50% Notes will rank junior in right of payment to the claims of all of our
secured creditors to the extent of the value of the secured assets. If a default
or acceleration of our debt occurs, the holders of the debt could seize the
assets securing the debt and sell the assets to satisfy all or a part of what is
owed. On a pro forma basis, after giving effect to the acquisition of Icon, the
redemption of $87.5 million of 10 7/8% Notes, the repayment of $57.3 million of
our equipment credit facility, the offering of the Old Notes, the offering of
the 7.25% Notes Due 2008 and the use of the proceeds from these offerings, at
September 30, 1998, we would have had approximately $32.0 million of secured
indebtedness. Future indebtedness incurred by us also may be secured.
The value of a substantial portion of our fixed assets is derived from
employing such assets in a communications business. These assets are highly
specialized and, taken individually, can be expected to have limited
marketability. Consequently, in the event of a realization by secured creditors
on the assets of our subsidiaries, creditors would likely seek to sell the
business as a going concern in order to maximize the proceeds realized. The
price obtained upon a sale could be adversely affected by the necessity to
obtain approval of the sale from the applicable regulatory authorities and
compliance with other applicable governmental regulations.
Substantial Indebtedness; Ability to Incur Additional Debt
We have a significant amount of debt outstanding. As of September 30, 1998, on
a pro forma basis, after giving effect to the acquisition of Icon, the
redemption of $87.5 million of 10 7/8% Notes, the repayment of $57.3 million of
our equipment credit facility, the offering of the Old Notes, the offering of
the 7.25% Notes Due 2008 and the use of proceeds from these offerings, we would
have had approximately $2,295.7 million of long-term debt (including the current
portion), and a debt-to-equity ratio of 0.6 to 1.0. You should be aware that
this significant amount of debt could have important consequences to you as a
holder of the 7.50% Notes. For example, a significant portion of our cash flow
from operations must be dedicated to the repayment of the indebtedness, thereby
reducing the amount of cash we have available for other purposes.
The indenture governing the 7.50% Notes limits, but does not prohibit, us and
our subsidiaries from incurring additional debt. We expect that we and our
subsidiaries may incur substantial additional debt in the future. On November 5,
1998, we signed a commitment letter with our three lead banks to syndicate an
unsecured credit facility of between $500 million and $750 million. The lead
banks agreed to a minimum aggregate commitment of $250.0 million with the
remainder expected to be provided by other banks to be added to the syndicate.
Subsequent to this, the Company obtained other financing through the issuance of
$300.0 million of 7.25% Senior Notes due 2008 and through an investment in the
Company of $200.0 million by Microsoft Corporation. As a result of entering into
these transactions, the closing of the credit facility was postponed. We are
currently in the process of obtaining a new unsecured $750.0 million to
24
$1.0 billion credit facility through a syndicate of banks. Closing of the new
credit facility is conditioned, among other things, on the execution of a
mutually satisfactory credit agreement. We are working with the syndicate of
banks toward closing in the first quarter of 1999.
Our ability to pay the principal of and interest on our debt will depend upon
our future performance, which is subject to several uncertainties, many of which
are beyond our control. We cannot assure you that we will have enough cash flow
in the future to let us meet our anticipated debt service requirements
(including those with respect to the 7.50% Notes). Although we currently
anticipate that we will pay the principal and interest on the 7.50% Notes with
cash flow from operations, we cannot assure you in this regard. Failure to
generate sufficient cash flow may impair our ability to obtain additional equity
or debt financing or to meet our debt service requirements, including the
payment of principal and interest on the 7.50% Notes. In such circumstances, we
may be required to renegotiate the terms of our long-term debt or to refinance
all or a portion of our long-term debt. We cannot assure you that we would be
able to renegotiate successfully those terms or refinance our debt when required
or that the terms of the refinancing would be acceptable to management. If we
were unable to refinance our debt or obtain new financing under these
circumstances, we would have to consider other options such as the sale of
certain assets to meet our debt service obligations, the sale of equity,
negotiations with our lenders to restructure debt or other options.
Restrictive Debt Covenants
The indentures for the 7.50% Notes and our other outstanding senior notes (the
"Senior Note Indentures") and our senior credit facilities impose significant
operating and financial restrictions on us and our subsidiaries. These
restrictions may significantly limit or prohibit us from engaging in certain
transactions, including the following:
o borrowing additional money,
o paying dividends or other distributions to stockholders, o allowing
subsidiaries to guarantee our debt, o limiting the ability of subsidiaries to
make payments to us, o making certain investments, o creating certain liens on
our assets, o selling certain assets, o entering into transactions with
affiliates, and o engaging in certain mergers or consolidations.
These restrictions could limit our ability to obtain future financing, make
needed capital expenditures, withstand a future downturn in our business or in
the economy or otherwise conduct necessary corporate activities. Under the terms
of the indenture for the 7.50% Notes, we have no obligation to comply with most
of the covenants during any period when the 7.50% Notes have been assigned
investment grade ratings. If the 7.50% Notes later lose an investment grade
rating, the covenants will again apply, but actions taken during such period
generally cannot cause us to be in default if the covenants again become
effective. As a result, the protection afforded by the covenants could be
25
weakened if the 7.50% Notes are assigned investment grade ratings and
subsequently downgraded to non-investment grade.
Our failure to comply with the restrictions in the Senior Note Indentures and
our senior credit facilities could lead to a default under the terms of those
documents. Our senior credit facilities also require us and certain of our
subsidiaries to maintain specified financial ratios and satisfy certain
financial tests. Our ability to meet these financial ratios and tests may be
affected by events beyond our control and, as a result, there can be no
assurance that we will be able to meet such tests. In the event of a default
under any of our senior credit facilities, the applicable lenders could
terminate their commitments to lend to us or accelerate the loans and declare
all amounts borrowed due and payable. Borrowings under other debt instruments
that contain cross-acceleration or cross-default provisions may also be
accelerated and become due and payable. If any of these events occurs, we cannot
assure you that we would be able to make the necessary payments to the lenders
and cannot assure you that we would be able to find alternate financing. Even if
we could obtain alternate financing, we cannot assure you that it would be on
terms that are favorable or acceptable to us.
Completing the Qwest Network and Increasing Traffic Volume
Our objective is to become a leading facilities-based provider of multi-media
communications services to businesses, consumers and other communications
providers. Our ability to achieve this objective will depend largely on
completion of our 18,450 route-mile fiber optic communications network on
schedule and within budget, on maintaining the rights of way for our network and
on achieving substantial volumes on the Qwest Network. The construction of our
network will be affected by many factors, such as weather and regulatory
approvals, that are beyond our control. We cannot assure you that our entire
network will be completed on schedule and within budget. Although we believe
that our cost estimates and build-out schedule are reasonable, the actual
construction costs or time required to complete our network could exceed current
estimates. In addition, we must substantially increase our current traffic
volume in order to realize the anticipated cash flow, operating efficiencies and
cost benefits of the network. We cannot assure you that we will be able to
achieve this increased traffic volume.
Operating Losses and Working Capital Deficits
We have had operating losses and have not had enough cash flow from operations
to allow us to meet our debt service requirements, capital expenditures and
other cash needs. We had a net loss of $822.6 million for the nine months ended
September 30, 1998 (or $30.9 million excluding non-recurring costs associated
with recent acquisitions and provisions for in-process research and
development). We had an accumulated deficit of approximately $854.5 million at
September 30, 1998.
We had a working capital deficit of approximately $49.5 million at September
30, 1998 and working capital deficits for each of the four fiscal years before
1998. We expect total capital expenditures for the year ending December 31, 1999
26
to be approximately $1.3 billion to $1.4 billion. Working capital deficits could
limit our cash resources, resulting in reduced liquidity. We cannot assure you
that our operations will be profitable in the future. We may require additional
capital in order to offset operating losses and working capital deficits and to
support our objectives. Certain debt instruments to which we and our
subsidiaries are parties limit but do not prohibit the incurrence of additional
indebtedness, and we expect additional indebtedness to be incurred by us or our
subsidiaries in the future. We cannot assure you that we will be successful in
obtaining additional borrowings when required, or that the terms of future
indebtedness will not impair our ability to develop our business.
Competition
The communications industry is highly competitive. Many of our existing and
potential competitors have financial, personnel, marketing and other resources
that are significantly greater than ours, as well as other competitive
advantages. Increased consolidation and strategic alliances in the
telecommunications industry resulting from the Telecommunications Act of 1996
(the "Telecommunications Act") also could give rise to significant new
competitors.
The success of our business plan depends on our ability to increase
significantly our share of the communications services market in the medium and
long term. Our primary competitors in this market are other communications
service providers, including large and small facilities-based interexchange
carriers. For high-volume capacity services, we compete primarily with other
coast-to-coast and regional fiber optic network providers. AT&T, MCI WorldCom
and Sprint currently are the three principal facilities-based long distance
fiber optic networks. We are aware that others are planning additional networks
that, if constructed, could employ similar advanced technology as our network.
In addition, we have sold dark fiber along major portions of our network to
Frontier Corporation and GTE Corporation. Upon completion of our network,
Frontier and GTE will each have a fiber network smaller than ours in geographic
scope with potential operating capability equal to ours. Another competitor is
constructing, and has already obtained a significant portion of the financing
for, a fiber optic network. As publicly announced, the scope of this
competitor's network is less than ours. Nevertheless, we expect that this
competitor's network will compete directly with ours for many of the same
customers where their and our routes overlap. A carrier's carrier announced in
January 1998 that it plans to sell wholesale capacity on its fiber optic network
and that it has entered into an agreement with one of the local telephone
companies established as a result of the AT&T divestiture in 1984 (the "Regional
Bell Operating Companies") to be the primary user of its network. We believe
that this network, although potentially competitive, is different in operating
capability from ours. Another potential competitor, a new telecommunications
company, has announced its intention to create a telecommunications network
based on Internet technology.
In the switched services segment of the communications services market, we sell
switched services to businesses, consumers and other communications carriers. In
this market, we compete with facilities-based carriers such as AT&T, MCI
27
WorldCom and Sprint, all of which have extensive experience in the long distance
market, and some of the regional carriers. We compete in the switched services
market on the basis of price, transmission quality, network reliability,
customer service and support. Our ability to compete effectively in this market
depends on our ability to maintain high quality services at prices equal to or
below those charged by our major competitors. The Telecommunications Act will
allow the Regional Bell Operating Companies and others to enter the long
distance market. We cannot assure you that we will be able to compete
successfully with existing or new competitors in our communications services
markets. Our failure to do so would have a material adverse effect on our
business, financial condition and results of operations.
Dependence on Significant Customers
We have substantial business relationships with a few large customers,
primarily for the sale of dark fiber. Frontier, GTE and WorldCom (prior to its
merger with MCI) accounted for approximately 9%, 10% and 2%, respectively, of
total revenues for the nine months ended September 30, 1998, approximately 31%,
37% and 6%, respectively, of total revenues in 1997 and approximately 26%, 0%
and 28%, respectively, of total revenues in 1996. Revenues from these large
customers were attributable primarily to construction contracts for the sale of
dark fiber that extend through 1998 or into 1999. In 1997, we entered into two
large construction contracts for the sale of dark fiber to GTE. Our contracts
with Frontier and GTE provide for reduced payments and varying penalties if we
make late deliveries of route segments. These contracts also allow the
purchaser, after grace periods ranging generally from 12 to 18 months, to drop
the non-delivered segments from the system route to be delivered. In such cases,
the purchaser would not pay us for that portion of the contract purchase price
allocated to the non-delivered segments. A failure by any of our dark fiber
purchasers to pay the full contract purchase price due to either the purchaser's
breach or our failure to deliver certain segments on time would require us to
seek alternative funding sources for capital expenditures. A significant
reduction in the level of services we provide for any of our large customers
could have a material adverse effect on our results of operations or financial
condition.
We have generated substantial revenues from dark fiber sales. However, as our
network is completed, we anticipate that revenues from dark fiber sales will
substantially decrease in the future. Our business plan assumes that we will
increase our revenue from communications services operations to fund the
expansion of our network. We are aware that certain interexchange carriers are
constructing or considering new networks. Accordingly, we cannot assure you that
any of our customers will increase their use of our services, or will not reduce
or cease their use of our services which could have a material adverse effect on
our ability to fund the completion of our network.
Managing Rapid Growth
Part of our strategy is to achieve rapid growth by using our network to
exploit opportunities that we expect will result from regulatory and
technological changes and other industry developments. Our growth strategy also
28
includes exploring opportunities for strategic acquisitions. We have completed
five acquisitions since our initial public offering, including the acquisition
of LCI in June 1998 for approximately $3,930.5 million and Icon for
approximately $254.1 million in our common stock. As result of our strategy, we
are experiencing rapid expansion that we expect will continue for the
foreseeable future. This growth has increased our operating complexity. To
manage our expansion effectively we must:
o expand, train and manage our employee base, and attract and retain highly
skilled personnel;
o expand and improve our systems for serving and communicating with our
customers;
o continue to develop and market new products and services; o integrate
acquired operations with our existing operations; and o control expenses
related to the expansion of our business.
We cannot assure you that we will be able to satisfy these requirements, or
otherwise manage our growth effectively, and any failure to do so could have a
material adverse effect on our business, financial condition and results of
operations.
Pricing Pressures and Industry Capacity
The long distance transmission industry generally has had overcapacity and
falling prices since shortly after the AT&T divestiture in 1984. We believe that
increasing demand in the last several years has resulted in a shortage of
capacity and slowed the decline in prices. However, we also expect that prices
for communications services will continue to fall over the next several years.
This is due primarily to:
(1) recent technological advances that permit large increases in the
transmission capacity of both new and existing fiber; and
(2) strategic alliances or similar transactions, such as purchasing alliances
for long distance capacity among Regional Bell Operating Companies that increase
the parties' purchasing power.
Also, our existing and future construction contracts for the sale of dark
fiber with other carriers will increase supply of capacity and may lower prices
for traffic on our network. These downward pressures on prices could have a
material adverse effect on our business and on our financial condition and
results of operations, including our ability to fund future operations.
Year 2000 Risks
Many existing computer systems, including hardware and software, use only the
last two digits to identify a year. As a result, as the year 2000 approaches,
such systems will not recognize the difference in a year that begins with "20"
rather than "19." As a result of the date change in the year 2000, if any of our
computer systems use only two digits to define the year, these defective systems
may cause disruptions in the network operations through which we provide
29
communications services to customers and in our internal operations.
Additionally, we are dependent on outside sources to provide communications
services to customers and to bill customers for such services. The greatest risk
to our ability to provide communications services is the failure of third-party
service providers to be year 2000 compliant, especially those third-party
service providers that provide local access and certain of the billing systems
that we rely on in providing long distance telecommunications service.
We have established a year 2000 compliance group. The objective of the year
2000 compliance group is to eliminate disruptions as a result of the date change
in the year 2000. The compliance group has developed a five-step plan to
identify and repair year 2000 affected systems:
(i) identify potentially date-sensitive systems, including third-party
products;
(ii) assess such systems for year 2000 compliance; (iii) modify, upgrade or
replace non-compliant systems; (iv) test the corrected systems; and (v) deploy
the corrected systems.
The year 2000 compliance group has focused mainly on our domestic operations
and, to a lesser extent, on our international operations.
In addition to reviewing our own systems, the year 2000 compliance group is
submitting requests to third-party service providers to obtain information as to
their compliance efforts.
Inventory, assessment and remediation of software applications is complete.
Testing and deployment of corrected software systems is scheduled for completion
by June 30, 1999.
Inventory and assessment of hardware systems, including network computing,
network systems engineering and corporate facilities, is scheduled for
completion by January 31, 1999. Upgrades necessary to complete remediation of
these systems are expected to be in place by April 30, 1999. Testing of these
system upgrades is scheduled to be completed by May 31, 1999. Deployment of
these system upgrades is scheduled for completion by June 30, 1999.
The Company's ability to meet the target dates discussed above depends on
third parties for operational testing, as well as the Company's overall efforts
to integrate the operations of recently acquired businesses, including LCI.
Thus, various factors, including the compliance efforts of third parties, over
which the Company has no control, may affect these target dates.
We are developing contingency plans in the event that we fail to be year 2000
compliant. We expect the contingency plans to be completed by June 1999.
We estimate the SG&A expenses of implementing our year 2000 plan will be
approximately $5.0 million to $7.0 million for the year ending December 31,
1998. During the nine months ended September 30, 1998, we incurred approximately
30
$3.0 million for year 2000 compliance costs, included in SG&A expense. We expect
to incur an additional approximately $15.0 million to $20.0 million in SG&A
expense in 1999 to implement our year 2000 plan.
Rapid Technological Changes
The telecommunications industry is subject to rapid and significant changes in
technology. For instance, recent technological advances permit large increases
in the transmission capacity of both new and existing fiber. The introduction of
new products or emergence of new technologies also may reduce the cost and
increase the supply of certain services similar to those provided by us. We
believe that for the foreseeable future technology changes will neither
materially affect the continued use of fiber optic cable nor materially hinder
our ability to acquire necessary technologies. However, the effect of
technological changes on our operations cannot be predicted and could have a
material adverse effect on our business, financial condition and results of
operations.
Regulation Risks
Our operations are subject to extensive federal and state regulation.
Communications services are subject to the provisions of the Communications Act
of 1934, as amended (the "Communications Act"), including the Telecommunications
Act and the FCC regulations under the Communications Act. Communications
services also are covered by laws and regulations of the states, including
regulation by public utility commissions ("PUCs") and other state agencies.
Generally, we must obtain and maintain certificates of authority from regulatory
bodies in most states where we offer intrastate services. We also must obtain
prior regulatory approval of tariffs for our intrastate services in most of
these jurisdictions.
Regulation of the telecommunications industry is changing rapidly, and the
regulatory environment varies substantially from state to state. As deregulation
at the federal level occurs, some states are reassessing the level and scope of
regulation that may be applicable to us. Some of our operations are also subject
to various environmental, safety, health and other governmental regulations.
Future regulatory, judicial or legislative activities could have a material
adverse effect on us.
The Telecommunications Act may have potentially significant effects on our
operations. The Telecommunications Act allows the Regional Bell Operating
Companies to enter the long distance business and enables other entities,
including entities affiliated with power utilities and ventures between local
exchange carriers and cable television companies, to provide an expanded range
of telecommunications services. Entry of these companies into the long distance
business would result in substantial additional competition in communications
services. This may have a material adverse effect on us and our customers that
are communications services providers themselves. However, we believe that entry
by the Regional Bell Operating Companies and other companies into the market
will create opportunities for us to sell fiber or lease long distance
high-volume capacity.
31
We monitor compliance with federal, state and local regulations governing the
discharge and disposal of hazardous and environmentally sensitive materials,
including the emission of electromagnetic radiation. We believe that we are in
compliance with these regulations; however, any discharge, disposal or emission
could have a material adverse effect on us.
Reliance on Key Personnel
Our operations are managed by key executive officers. The loss of any of these
executive officers could have a material adverse effect on us. We believe that
our growth and future success will depend in large part on our continued ability
to attract and retain highly skilled and qualified personnel. The competition
for qualified personnel in the telecommunications industry is intense. We cannot
assure you that we will be able to hire or retain necessary personnel. The loss
of certain key members of senior management or the failure to recruit additional
qualified personnel in the future could significantly impede our ability to
complete the integration of acquired businesses and to attain our financial,
expansion, marketing and other objectives.
Concentration of Voting Power; Potential Conflicts of Interest
Philip F. Anschutz, a director and Chairman of Qwest, beneficially owned
approximately 46.1% of the issued and outstanding shares of Common Stock at
December 31, 1998. Mr. Anschutz continues to have the power to elect all the
directors of Qwest and to control the vote on all other matters, including
significant corporate actions. Also, Mr. Anschutz is a director and holds
approximately 5% of the stock of Union Pacific Railroad Company. Subsidiaries of
that company own railroad rights of way on which a significant portion of our
network has been and will be built.
Liquid Trading Market for the 7.50% Notes May Not Develop
There is no established trading market for the 7.50% Notes. The initial
purchaser of the 7.50% Notes has informed us that it currently intends to make a
market in the New Notes. However, the initial purchaser has no obligation to do
so and may discontinue making a market at any time without notice. In addition,
the liquidity of any trading market in the 7.50% Notes will depend upon a number
of factors including:
- - the number of holders of the 7.50% Notes;
- - the overall market for similar securities;
- - our financial performance and prospects; and
- - prospects for companies in our industry generally.
As a result, we cannot assure you that an active trading market will develop for
the 7.50% Notes.
32
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were originally issued and sold on November 4, 1998 in an
offering that was exempt from registration under the Securities Act in reliance
upon the exemptions provided by Section 4(2), Rule 144A and Regulation S of the
Securities Act. Accordingly, the Old Notes may not be reoffered, resold or
otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an exemption from the registration requirements of the
Securities Act and applicable state securities laws is available.
As a condition to the sale of the Old Notes, the Company and the initial
purchaser of the Old Notes entered into the Registration Agreement as of
November 4, 1998. Pursuant to the Registration Agreement, the Company agreed
that it would (i) file with the Commission a Registration Statement under the
Securities Act with respect to the New Notes by February 2, 1999; (ii) use its
best efforts to cause such Registration Statement to be declared effective under
the Securities Act by March 3, 1999; and (iii) consummate an offer of the New
Notes in exchange for surrender of the Old Notes by April 2, 1999. A copy of the
Registration Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Registration Statement of
which this Prospectus is a part is intended to satisfy certain of the Company's
obligations under the Registration Agreement and the Purchase Agreement.
RESALE OF THE NEW NOTES
Based upon no-action letters issued by the staff of the Commission to third
parties, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes would in general be freely transferable after
the Exchange Offer without further registration under the Securities Act if the
holder of the New Notes represents (i) that it is not an "affiliate," as defined
in Rule 405 of the Securities Act, of the Company, (ii) that it is acquiring the
New Notes in the ordinary course of its business and (iii) that it has no
arrangement or understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of the New Notes; provided that, in
the case of broker-dealers, a prospectus meeting the requirements of the
Securities Act be delivered as required. However, the Commission has not
considered the Exchange Offer in the context of a no-action letter and there can
be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
Holders of Old Notes wishing to accept the Exchange Offer must represent to the
Company that such conditions have been met. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer, where it acquired the
Old Notes exchanged for such New Notes for its own account as a result of
market-making or other trading activities, may be deemed to be an "underwriter"
within the meaning of the Securities Act and must acknowledge that it will
deliver a prospectus in connection with the resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
33
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of one year after consummation of the Exchange Offer, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. A broker-dealer that delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the civil liability
provisions under the Securities Act, and will be bound by the provisions of the
Registration Agreement (including certain indemnification and contribution
rights and obligations). See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus and
in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange any and all Old Notes
which are properly tendered on or prior to the Expiration Date and not withdrawn
as permitted below. The Company will issue $1,000 principal amount at maturity
of New Notes in exchange for each $1,000 principal amount at maturity of
outstanding Old Notes surrendered pursuant to the Exchange Offer. Old Notes may
be tendered only in integral multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of the
Old Notes except that (i) the exchange will be registered under the Securities
Act and hence the New Notes will not bear legends restricting their transfer,
(ii) the interest, interest rate step-up, original issue discount and cash
interest provisions will be modified or eliminated as appropriate and (iii)
holders of the New Notes will not be entitled to certain rights of holders of
Old Notes under the Registration Agreement, which rights with respect to Old
Notes will terminate upon the consummation of the Exchange Offer. The New Notes
will evidence the same debt as the Old Notes (which they replace) and will be
issued under, and be entitled to the benefits of, the same indenture.
As of the date of this Prospectus, an aggregate of $750,000,000 in principal
amount at maturity of the Old Notes is outstanding. This Prospectus, together
with the Letter of Transmittal, is first being sent on or about January __,
1999, to all holders of Old Notes known to the Company.
Holders of the Old Notes do not have any appraisal or dissenters' rights under
the indenture in connection with the Exchange Offer. The Company intends to
conduct the Exchange Offer in accordance with the provisions of the Registration
Agreement and the applicable requirements of the Securities Act, the Exchange
Act and the rules and regulations of the Commission thereunder. See "Description
of the 7.50% Notes--Exchange Offer; Registration Rights."
The Company expressly reserves the right, at any time or from time to time, to
extend the period of time during which the Exchange Offer is open, and thereby
delay acceptance for exchange of any Old Notes, by giving written notice of such
extension to the holders thereof as described below. During any such extension,
all Old Notes previously tendered will remain subject to the Exchange Offer and
34
may be accepted for exchange by the Company. Any Old Notes not accepted for
exchange for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer upon the occurrence of any of the conditions of the Exchange Offer
specified below under "--Certain Conditions of the Exchange Offer." The Company
will give written notice of any extension, amendment, nonacceptance or
termination to the holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release or
other public announcement no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth below
and the acceptance thereof by the Company will constitute a binding agreement
between the tendering holder and the Company upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to tender Old Notes
for exchange pursuant to the Exchange Offer must transmit a properly completed
and duly executed Letter of Transmittal, including all other documents required
by such Letter of Transmittal, to the Exchange Agent at one of the addresses set
forth below under "--Exchange Agent" on or prior to the Expiration Date. In
addition, either (i) certificates for such Old Notes must be received by the
Exchange Agent along with the Letter of Transmittal, or (ii) a timely
confirmation of a book-entry transfer including an Agent's Message (a
"Book-Entry Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH
RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trustee or other nominee and who wishes to tender
should contact such registered holder of Old Notes promptly and instruct such
registered holder of Old Notes to tender on behalf of the beneficial owner. If
such beneficial owner wishes to tender on its own behalf, such beneficial owner
must, prior to completing and executing the Letter of Transmittal and delivering
its Old Notes, either make appropriate arrangements to register ownership of the
Old Notes in such beneficial owner's name or obtain a properly completed power
of attorney from the registered holder of Old Notes. The transfer of record
ownership may take considerable time. If the Letter of Transmittal is signed by
35
a person or persons other than the registered holder or holders of Old Notes,
such Old Notes must be endorsed or accompanied by appropriate powers of
attorney, in either case signed exactly as the name or names of the registered
holder or holders that appear on the Old Notes.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein below). In the event that signatures
on a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trustee
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the Old Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by the registered holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or not to accept any
particular Old Notes whose acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Old Notes in
the Exchange Offer). The interpretation of the terms and conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of Old Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Old Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal or any Old Notes or powers of attorney are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
36
By tendering, each holder will represent to the Company, among other things,
(i) that it is not an "affiliate," as defined in Rule 405 of the Securities Act,
of the Company, or if it is an affiliate, it will comply with the registration
and prospectus delivery requirements of the Securities Act to the extent
applicable, (ii) that it is acquiring the New Notes in the ordinary course of
its business and (iii) at the time of the consummation of the Exchange Offer it
has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the New Notes. If the
holder is a broker-dealer that will receive New Notes for its own account in
exchange for Old Notes that were acquired as a result of market-making
activities or other trading activities, the holder may be deemed to be an
"underwriter" within the meaning of the Securities Act and is required to
acknowledge in the Letter of Transmittal that it will deliver a prospectus in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus, the holder will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "--Certain Conditions of the Exchange Offer" below. For purposes
of the Exchange Offer, the Company shall be deemed to have accepted properly
tendered Old Notes for exchange when, as and if the Company has given oral or
written notice thereof to the Exchange Agent, with written confirmation of any
oral notice to be given promptly thereafter.
The New Notes will bear interest at the same rate and on the same terms as the
Old Notes. Consequently, cash interest on the New Notes will accrue at a rate of
7.50% per annum and will be payable semiannually in arrears commencing on May 1,
1999 and thereafter on November 1 and May 1 of each year. Interest, if any, on
each New Note will accrue from the last interest payment date on which interest
was paid on the surrendered Old Note or, if no interest has been paid on such
Old Note, from the date on which cash interest on such Old Note would begin to
accrue. Consequently, holders whose Old Notes are accepted for exchange will be
deemed to have waived the right to receive any accrued but unpaid interest on
the Old Notes.
In all cases, the issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer, or if Old Notes are submitted for a greater amount than the holder
desires to exchange, such unaccepted or non-exchanged Old Notes will be returned
without expense to the tendering holder thereof (or, in the case of Old Notes
tendered by book-entry procedures described below, such non exchanged Old Notes
will be credited to an account maintained with such Book-Entry Transfer
37
Facility) designated by the tendering holder as promptly as practicable after
the expiration or termination of the Exchange Offer.
CERTAIN CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not be
required to accept for exchange, or to issue New Notes in exchange for, any Old
Notes and may terminate or amend the Exchange Offer as provided herein prior to
the Expiration Date, if because of any changes in law, or applicable
interpretations thereof by the Commission, or because any action or proceeding
is instituted or threatened in any court or governmental agency with respect to
the Exchange Offer, the Company determines that it is not permitted to effect
the Exchange Offer.
Holders may have certain rights and remedies against the Company under the
Registration Agreement should the Company fail to consummate the Exchange Offer,
notwithstanding a failure of the conditions stated above. Such conditions are
not intended to modify those rights or remedies in any respect.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect to
the Old Notes at the Book-Entry Transfer Facility for purposes of the Exchange
Offer within two business days after the date of this Prospectus, and any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal or facsimile thereof, or an
Agent's Message, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the Exchange
Agent at one of the addresses set forth below under "--Exchange Agent" on or
prior to the Expiration Date or the guaranteed delivery procedures described
below must be complied with.
The term "Agent's Message" means a message, transmitted by DTC to, and
received by, the Exchange Agent and forming a part of a book-entry confirmation,
which states that DTC has received an express acknowledgment from the tendering
participant, which acknowledgment states that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal, and the
Corporation may enforce the Letter of Transmittal against such participant.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
38
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent has received from such Eligible Institution a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in the form provided by the Company (by telegram, telex,
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of the Old Notes and the amount of Old Notes, stating that
the tender is being made thereby and guaranteeing that within five trading days
(on the Nasdaq Stock Market's National Market (the "Nasdaq National Market"))
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Notes, in proper form for transfer,
or a Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the Eligible
Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within five Nasdaq National
Market trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"--Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the amount of such Old Notes), and (where certificates
for Old Notes have been transmitted) specify the name in which such Old Notes
are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company whose determination shall be final and binding
on all parties. Any Old Notes so withdrawn will be deemed not to have been
validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes
which have been tendered for exchange but which are not exchanged for any reason
will be returned to the holder thereof without cost to such holder (or, in the
case of Old Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Old Notes will be credited to an account with
such Book-Entry Transfer Facility specified by the holder) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
39
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "--Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
EXCHANGE AGENT
Bankers Trust Company has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at the addresses set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
Delivery To: Bankers Trust Company, Exchange Agent
BY MAIL: BY HAND:
BT Services Tennessee, Inc. Bankers Trust Company
Reorganization Unit Corporate Trust and Agency Group
P.O. Box 292737 Receipt & Delivery Window
Nashville, TN 37229-2737 123 Washington Street, 1st Floor
New York, NY 10006
For information, call:
(800) 735-7777
Confirm: (615) 835-3572
Fax: (615) 835-3701
BY OVERNIGHT MAIL OR COURIER:
BT Services Tennessee, Inc.
Corporate Trust and Agency Group
Reorganization Unit
648 Grassmere Park Road
Nashville, TN 37211
DELIVERY OF A LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others soliciting
acceptances of the Exchange Offer.
The estimated cash expenses to be incurred in connection with the Exchange
Offer of approximately $245,000 will be paid by the Company.
40
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the New Notes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct the
Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering holder will be responsible for the payment of any
applicable transfer tax thereon.
REGULATORY MATTERS
The Company is not aware of any governmental or regulatory approvals that are
required in order to consummate the Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Old Notes
are urged to consult their financial and tax advisors in making their own
decisions on what action to take. See "Certain United States Federal Income Tax
Considerations."
The Old Notes that are not exchanged for the New Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may only be offered, sold, pledged or otherwise transferred (A)(i) to a person
whom the seller reasonably believes is a qualified institutional buyer within
the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A,
(ii) in an offshore transaction meeting the requirements of Rule 903 or Rule 904
of Regulation S under the Securities Act, or (iii) pursuant to an exemption from
registration under the Securities Act provided by Rule 144 thereunder (if
available) and (B) in accordance with all applicable securities laws of the
states of the United States. Under certain circumstances, the Company is
required to file a Shelf Registration Statement. See "Description of the 7.50%
Notes--Exchange Offer; Registration Rights."
PAYMENT OF ADDITIONAL INTEREST UPON REGISTRATION DEFAULT
In the event of a Registration Default (as hereinafter defined), additional
interest ("Liquidated Interest") will accrue on the 7.50% Notes (in addition to
the stated interest on the 7.50% Notes) from and including the date on which any
such Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured. Liquidated Interest will be payable in
cash semiannually in arrears each November 1 and May 1, at a rate per annum
equal to 0.50% of the principal amount at maturity of the 7.50% Notes during the
90-day period immediately following the occurrence of any Registration Default
and shall increase by 0.25% per annum of the principal amount at maturity of the
7.50% Notes at the end of each subsequent 90-day period, but in no event shall
such rates exceed 2.0% per annum in the aggregate regardless of the number of
41
Registration Defaults. See "Description of the 7.50% Notes--Exchange Offer;
Registration Rights."
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the New Notes
or the consummation of the Exchange Offer or any sale of New Notes to any
broker-dealer.
42
CAPITALIZATION
The following table sets forth as of September 30, 1998 (i) the historical
consolidated capitalization of the Company, (ii) the pro forma capitalization of
the Company assuming the acquisition of Icon had occurred on September 30, 1998,
and (iii) the pro forma capitalization of the Company, as adjusted to give
effect to the redemption of $87.5 million of 10 7/8% Notes, the repayment of
$57.3 million of our equipment credit facility, the offering of the 7.25% Notes
Due 2008, the offering of the Old Notes and the use of the proceeds from these
offerings. All share and per share information with respect to Qwest included
herein gives effect to the Qwest two-for-one stock split effected in February
1998 in the form of a stock dividend. This table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Historical Consolidated Financial Statements and the notes
thereto, incorporated by reference into this Prospectus.
Sept. 30, 1998
Pro Forma as
Actual Pro Forma Adjusted(1)
(in millions)
Current portion of long-term debt(2) $ 235.9 $ 235.9 $ 3.4
======= ======== ========
10 7/8% Notes $ 250.0 $ 250.0 $ 162.5
9.47% Notes 382.6 382.6 382.6
8.29% Notes 316.9 316.9 316.9
7.25% Notes Due 2007 351.7 351.7 351.7
7.50% Notes - - 750.0
7.25% Notes - - 300.0
Other long-term debt 85.9 85.9 28.6
------- ------- -------
Total long-term debt (excluding current
portion) 1,387.1 1,387.1 2,292.3
------- ------- -------
Stockholders' equity
Preferred stock, $.01 par value; 25.0
million shares authorized; no - - -
shares issued and outstanding. .
Common stock, $.01 par value; 600.0 million
shares authorized; 332.7 3.3 3.4 3.4
million shares issued and outstanding(3)
.
Additional paid-in capital 4,603.2 4,853.8 4,853.8
Accumulated deficit .
(854.5) (864.5) (864.5)
------- ------- -------
Total stockholders' equity .
3,752.0 3,992.7 3,992.7
Total capitalization $5,139.1 $5,379.8 $6,285.0
======== ======== ========
43
(1) The current portion of long-term debt was adjusted for the pay-down of
the Company's existing credit facility and lines of credit from the
proceeds of the 7.50% Notes in November 1998.
(2) The existing credit facility which expires December 31, 1998 and the
lines of credit are current liabilities and are included in current
portion of long-term debt.
(3) 35.0 million of the authorized shares of Common Stock are reserved for
issuance under the Equity Incentive Plan, 0.9 million of the authorized
shares of Common Stock are reserved for issuance under the Growth Share
Plan, 2.5 million of the authorized shares of Common Stock are reserved
for issuance under various 401(k) Plans of the Company, 0.8 million of
the authorized shares of Common Stock are reserved for issuance under
the Employee Stock Purchase Plan and 8.6 million of the authorized
shares of Common Stock are reserved for issuance under the warrant
issued to Anschutz Family Investment Company LLC. See
"Management-Equity Incentive Plan," "Management-Growth Share Plan" and
"Certain Transactions" in the documents incorporated by reference
herein.
44
DESCRIPTION OF THE 7.50% NOTES
GENERAL
The New Notes will be issued under an Indenture (the "Indenture") between the
Company and Bankers Trust Company, as trustee under the Indenture (the
"Trustee"). Copies of the Indenture are available from the Company on request.
For purposes of this description of the 7.50% Notes, the term "Company" refers
to Qwest Communications International Inc. and does not include its subsidiaries
except for purposes of financial data determined on a consolidated basis. For
purposes of this description of the 7.50% Notes, the term "7.50% Notes" refers
to the New Notes and the Old Notes collectively. The New Notes and the Old Notes
are considered collectively to be a single class for all purposes under the
Indenture, including, without limitation, waivers, amendments, redemptions and
Offers to Purchase.
The following summary of certain provisions of the Indenture does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and
to all of the provisions of the Indenture, including the definitions of certain
terms therein and those terms made a part of the Indenture by reference to the
Trust Indenture Act, as in effect on the date of the Indenture. The definitions
of certain capitalized terms used in the following summary are set forth below
under "--Certain Definitions."
The New Notes will be senior unsecured obligations of the Company, ranking
pari passu in right of payment with all existing and future senior unsecured
indebtedness of the Company, including the 10 7/8% Notes, the 9.47% Notes, the
8.29% Notes, the 7.25% Notes Due 2008 and the 7.25% Notes Due 2007, and will be
senior in right of payment to all existing and future indebtedness of the
Company expressly subordinated in right of payment to the 7.50% Notes. As of
September 30, 1998, the Company had $1,912.0 million of indebtedness
outstanding, none of which constituted secured indebtedness or subordinated
indebtedness.
The operations of the Company are conducted through its subsidiaries and,
therefore, the Company is dependent upon cash flow from those entities to meet
its obligations. The Company's subsidiaries will have no direct obligation to
pay amounts due on the 7.50% Notes and currently have no obligation to guarantee
the 7.50% Notes. As a result, the 7.50% Notes effectively will be subordinated
to all existing and future third-party indebtedness and other liabilities of the
Company's subsidiaries (including trade payables). As of September 30, 1998, on
a pro forma basis, after giving effect to the acquisition of Icon, the
redemption of $87.5 million of 10 7/8% Notes, the repayment of $57.3 million of
the equipment credit facility, the offering of the 7.25% Notes Due 2008, this
offering of the 7.50% Notes and the use of the proceeds therefrom, the total
liabilities of the Company's subsidiaries (after the elimination of loans and
advances by the Company to its subsidiaries) would have been approximately
$1,893.7 million, of which approximately $32.0 million in indebtedness was
secured by the assets of the borrowing subsidiaries. See "Description of Certain
Indebtedness." The Company expects that it or its subsidiaries will incur
45
substantial additional indebtedness in the future. Any rights of the Company and
its creditors, including the holders of 7.50% Notes, to participate in the
assets of any of the Company's subsidiaries upon any liquidation or
reorganization of any such subsidiary will be subject to the prior claims of
that subsidiary's creditors (including trade creditors). In addition, the
Company's operations have generated operating losses in recent years, and there
can be no assurance that the Company will be able to achieve or sustain
operating profitability, or generate sufficient positive cash flow to pay the
principal of and interest on the 7.50% Notes. See "Risk Factors--Holding Company
Structure; Subordination of the 7.50% Notes to Indebtedness of Subsidiaries,"
"Risk Factors--Substantial Indebtedness; Ability to Incur Additional Debt," and
"Risk Factors--Operating Losses and Working Capital Deficits."
Principal, Maturity and Interest
The 7.50% Notes will be limited in aggregate principal amount to $750,000,000
and will mature on November 1, 2008. Interest on the 7.50% Notes will accrue at
a rate of 7.50% per annum and will be payable semiannually in arrears on May 1
and November 1 of each year, commencing May 1, 1999 to the holders of record on
the immediately preceding April 15 and October 15. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months. Principal of,
premium, if any, and interest on the 7.50% Notes will be payable, and the 7.50%
Notes may be exchanged or transferred, at the office or agency of the Company,
which, unless otherwise provided by the Company, will be the offices of the
Trustee. At the option of the Company, interest may be paid by check mailed to
the registered holders at their registered addresses. The 7.50% Notes will be
issued without coupons and in fully registered form only, in minimum
denominations of $1,000 and integral multiples thereof. The 7.50% Notes will be
issued only against payment in immediately available funds. No service charge
will be made for any registration of transfer or exchange of the 7.50% Notes,
but the Company may require payment of a sum sufficient to cover any transfer
tax or other similar governmental charge payable in connection therewith. The
interest rate on the 7.50% Notes is subject to increase in the circumstances
(such additional interest being referred to as "Liquidated Interest") described
under "Exchange Offer; Registration Rights." All references herein to interest
on the 7.50% Notes shall include such Liquidated Interest, if appropriate.
Book-Entry System
The New Notes will initially be issued in the form of Global Securities (as
defined in the Indenture) held in book-entry form. The New Notes will be
deposited with the Trustee as custodian for the Depository, and the Depository
or its nominee will initially be the sole registered holder of the New Notes for
all purposes under the Indenture. Except as set forth below, a Global Security
may not be transferred except as a whole by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository. Upon the
issuance of a Global Security, the Depository or its nominee will credit, on its
internal system, the accounts of persons holding through it with the respective
principal amounts of the individual beneficial interest represented by such
Global Security purchased by such persons in the offering of the New Notes. Such
accounts shall initially be designated by the initial purchaser of the New Notes
46
with respect to New Notes placed by the initial purchaser for the Company.
Ownership of beneficial interests in a Global Security will be limited to
persons that have accounts with the Depository ("participants") or persons that
may hold interests through participants. Ownership of beneficial interests by
participants in a Global Security will be shown on, and the transfer of that
ownership interest will be effected only through, records maintained by the
Depository or its nominee for such Global Security. Ownership of beneficial
interests in such Global Security by persons that hold through participants will
be shown on, and the transfer of that ownership interest within such participant
will be effected only through, records maintained by such participant. The laws
of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such limits and such
laws may impair the ability to transfer beneficial interests in a Global
Security. Payment of principal of, premium, if any, and interest on New Notes
represented by any such Global Security will be made to the Depository or its
nominee, as the case may be, as the sole registered owner and the sole holder of
the New Notes represented thereby for all purposes under the Indenture. None of
the Company, the Trustee, any agent of the Company or the initial purchaser will
have any responsibility or liability for any aspect of the Depository's reports
relating to or payments made on account of beneficial ownership interests in a
Global Security representing any New Notes or for maintaining, supervising or
reviewing any of the Depository's records relating to such beneficial ownership
interests. The Company has been advised by the Depository that upon receipt of
any payment of principal of, premium, if any, or interest on any Global
Security, the Depository will immediately credit, on its book-entry registration
and transfer system, the accounts of participants with payments in amounts
proportionate to their respective beneficial interests in the principal or face
amount of such Global Security, as shown on the records of the Depository. The
Company expects that payments by participants to owners of beneficial interests
in a Global Security held through such participants will be governed by standing
instructions and customary practices as is now the case with securities held for
customer accounts registered in "street name" and will be the sole
responsibility of such participants. So long as the Depository or its nominee is
the registered owner or holder of such Global Security, the Depository or such
nominee, as the case may be, will be considered the sole owner or holder of the
New Notes represented by such Global Security for the purposes of receiving
payment on the New Notes, receiving notices and for all other purposes under the
Indenture and the New Notes. Beneficial interests in the New Notes will be
evidenced only by, and transfers thereof will be effected only through, records
maintained by the Depository and its participants. Except as provided above,
owners of beneficial interests in a Global Security will not be entitled to and
will not be considered the holders of such Global Security for any purposes
under the Indenture. Accordingly, each person owning a beneficial interest in a
Global Security must rely on the procedures of the Depository and, if such
person is not a participant, on the procedures of the participant through which
such person owns its interest, to exercise any rights of a holder under the
Indenture. The Company understands that under existing industry practices, in
the event that the Company requests any action of holders or that an owner of a
beneficial interest in a Global Security desires to give or take any action that
a holder is entitled to give or take under the Indenture, the Depository would
authorize the participants holding the relevant beneficial interest to give or
47
take such action, and such participants would authorize beneficial owners owning
through such participants to give or take such action or would otherwise act
upon the instructions of beneficial owners owning through them. The Depository
has advised the Company that it will take any action permitted to be taken by a
holder of New Notes (including the presentation of New Notes for exchange as
described below) only at the direction of one or more participants to whose
account with the Depository interests in the Global Security are credited and
only in respect of such portion of the aggregate principal amount of the New
Notes as to which such participant or participants has or have given such
direction. The Depository has advised the Company that the Depository is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a "banking organization" within the meaning of New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered under the Exchange Act. The Depository was created to hold the
securities of its participants and to facilitate the clearance and settlement of
securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the participants, thereby
eliminating the need for physical movement of securities certificates. The
Depository's participants include securities brokers and dealers (including the
initial purchaser), banks, trust companies, clearing corporations and certain
other organizations, some of whom (and/or their representatives) own the
Depository. Access to the Depository's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly.
Certificated New Notes
New Notes represented by a Global Security are exchangeable for certificated
New Notes only if (i) the Depository notifies the Company that it is unwilling
or unable to continue as a depository for such Global Security or if at any time
the Depository ceases to be a clearing agency registered under the Exchange Act,
and a successor depository is not appointed by the Company within 90 days, (ii)
the Company executes and delivers to the Trustee a notice that such Global
Security shall be so transferable, registrable and exchangeable, and such
transfer shall be registrable or (iii) there shall have occurred and be
continuing an Event of Default or an event which, with the giving of notice or
lapse of time or both, would constitute an Event of Default with respect to the
New Notes represented by such Global Security. Any Global Security that is
exchangeable for certificated New Notes pursuant to the preceding sentence will
be transferred to, and registered and exchanged for, certificated New Notes in
authorized denominations and registered in such names as the Depository or its
nominee holding such Global Security may direct. Subject to the foregoing, a
Global Security is not exchangeable, except for a Global Security of like
denomination to be registered in the name of the Depository or its nominee. In
the event that a Global Security becomes exchangeable for certificated New
Notes, (i) certificated New Notes will be issued only in fully registered form
in denominations of $1,000 or integral multiples thereof, (ii) payment of
principal, any repurchase price, and interest on the certificated New Notes will
be payable, and the transfer of the certificated New Notes will be registrable,
48
at the office or agency of the Company maintained for such purposes and (iii) no
service charge will be made for any issuance of the certificated New Notes,
although the Company may require payment of a sum sufficient to cover any tax or
governmental charge imposed in connection therewith. In addition, such
certificates will bear the legend referred to under "Notice to Investors--Rule
144A" (unless the Company determines otherwise in accordance with applicable
law) subject, with respect to such New Notes, to the provisions of such legend.
Optional Redemption
The 7.50% Notes will be subject to redemption at the option of the Company, in
whole or in part, at any time upon not less than 30 and not more than 60 days'
prior notice at a redemption price equal to the principal amount thereof, plus
accrued and unpaid interest thereon (if any) to the redemption date plus the
Applicable Make-Whole Premium. For purposes of this "Optional Redemption"
provision, the following definitions shall apply: "Applicable Make-Whole
Premium" means, with respect to any Note, the excess of (A) the present value at
the redemption date of the required interest and principal payments due on such
Note, computed using a discount rate equal to the Treasury Rate plus 37.5 basis
points, over (B) the then outstanding principal amount of such Note. "Treasury
Rate" means, with respect to any redemption date, the rate per annum equal to
the semiannual equivalent yield to maturity of the Comparable Treasury Issue (as
defined below), assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price (as
defined below) for such redemption date. "Comparable Treasury Issue" means the
United States Treasury security selected by a Reference Treasury Dealer (as
defined below) appointed by the Company as having a maturity comparable to the
remaining term of the 7.50% Notes to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such 7.50% Notes. "Comparable Treasury Price" means, with
respect to any redemption date, (i) the average of the bid and asked prices for
the Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) on the third business day preceding such redemption date, as
set forth in the daily statistical release (or any successor release) published
by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m.
Quotations for U.S. Government Securities" or (ii) if such release (or any
successor release) is not published or does not contain such prices on such
business day, (A) the average of the Reference Treasury Dealer Quotations (as
defined below) for such redemption date, after excluding the highest and lowest
such Reference Treasury Dealer Quotations, or (B) if the Company obtains fewer
than four such Reference Treasury Dealer Quotations, the average of all such
Quotations. "Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined by
the Company, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Company by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date. "Reference Treasury Dealer"
means each of Salomon Smith Barney Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Donaldson Lufkin & Jenrette Securities Corporation and Lehman
Brothers Inc. and their respective successors; provided, however, that if any of
49
the foregoing shall cease to be a primary U.S. Government securities dealer in
The City of New York (a "Primary Treasury Dealer"), the Company shall substitute
therefor another Primary Treasury Dealer.
Mandatory Redemption
Except as set forth under "--Certain Covenants--Change of Control" and
"--Certain Covenants-- Limitation on Asset Dispositions," the Company is not
required to make mandatory redemption payments or sinking fund payments with
respect to the 7.50% Notes.
Certain Covenants
Suspended Covenants
During any period of time (a "Suspension Period") that (i) the ratings
assigned to the 7.50% Notes by both the Rating Agencies are Investment Grade
Ratings and (ii) no Default has occurred and is continuing under the Indentures,
the Company and its Restricted Subsidiaries will not be subject to the
provisions of the Indenture described below under "--Limitation on Consolidated
Debt," "--Limitation on Debt and Preferred Stock of Restricted Subsidiaries,"
"--Limitation on Restricted Payments," "--Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries," "--Limitation on
Issuances of Certain Guarantees by, and Debt Securities of, Restricted
Subsidiaries," "--Limitation on Asset Dispositions," "--Limitation on Issuances
and Sales of Capital Stock of Restricted Subsidiaries," "--Transactions with
Affiliates and other Related Persons," clause (ii) of "--Limitation on Sale and
Leaseback Transactions" and clause (d) of "--Mergers, Consolidations and Certain
Sales of Assets" (collectively, the "Suspended Covenants"). In the event that
the Company and its Restricted Subsidiaries are not subject to the Suspended
Covenants with respect to the 7.50% Notes for any period of time as a result of
the preceding sentence and, subsequently, one or both Rating Agencies withdraws
or downgrades the ratings assigned to such 7.50% Notes below the required
Investment Grade Ratings, then the Company and its Restricted Subsidiaries will
thereafter again be subject to the Suspended Covenants and compliance with
respect to Restricted Payments made after the time of such withdrawal or
downgrade will be calculated in accordance with the terms of the covenant
described below under "Limitation on Restricted Payments" as if such covenant
had been in effect since the date of the Indenture. Notwithstanding the
foregoing, neither (a) the continued existence, after the date of such
withdrawal or downgrade, of facts and circumstances or obligations that were
Incurred or otherwise came into existence during a Suspension Period nor (b) the
performance of any such obligations, shall constitute a breach of any covenant
set forth in the Indenture or cause a Default or Event of Default thereunder;
provided that (1) the Company and its Restricted Subsidiaries did not Incur or
otherwise cause such facts and circumstances or obligations to exist in
anticipation of a withdrawal or downgrade below investment grade and (2) the
Company reasonably believed that such Incurrence or actions would not result in
such a withdrawal or downgrade. For purposes of clauses (1) and (2) in the
preceding sentence, anticipation and reasonable belief may be determined by the
Company and shall be conclusively evidenced by a board resolution to such effect
adopted in good faith by the
50
Board of Directors of the Company. The Indenture contains, among others, the
following covenants:
Limitation on Consolidated Debt. (a) The Company may not, and may not permit any
Restricted Subsidiary to, Incur any Debt, unless, after giving effect to the
application of the proceeds thereof, no Default or Event of Default would occur
as a consequence of such Incurrence or be continuing following such Incurrence
and either (i) the ratio of (A) the aggregate consolidated principal amount of
Debt of the Company outstanding as of the most recent available quarterly or
annual balance sheet, after giving pro forma effect to the Incurrence of such
Debt and any other Debt Incurred or repaid since such balance sheet date and the
receipt and application of the proceeds thereof, to (B) Consolidated Cash Flow
Available for Fixed Charges for the four full fiscal quarters next preceding the
Incurrence of such Debt for which consolidated financial statements are
available, determined on a pro forma basis as if any such Debt had been Incurred
and the proceeds thereof had been applied at the beginning of such four fiscal
quarters, would be less than 5.5 to 1.0 for Debt Incurred on or prior to April
1, 2000 and 5.0 to 1.0 for Debt Incurred thereafter, or (ii) the Company's
Consolidated Capital Ratio as of the most recent available quarterly or annual
balance sheet, after giving pro forma effect to the Incurrence of such Debt and
any other Debt Incurred or repaid since such balance sheet date and the receipt
and application of the proceeds thereof, is less than 2.0 to 1.0. As of
September 30, 1998, on a pro forma basis after giving effect to the acquisition
of Icon, the offering of the Old Notes, the offering of the 7.25% Notes and the
use of proceeds therefrom, the Company's Consolidated Capital Ratio would have
been approximately 0.6 to 1.0. (b) Notwithstanding the foregoing limitation, the
Company and any Restricted Subsidiary may Incur any and all of the following
(each of which shall be given independent effect): (i) Debt under the 7.50%
Notes, the Indenture and any Restricted Subsidiary Guarantee; (ii) (A) Debt
Incurred subsequent to March 31, 1997 under Credit Facilities in an aggregate
principal amount at any time outstanding not to exceed $150 million plus (B)
Debt Incurred subsequent to March 31, 1997 under one or more Credit Facilities
that are revolving credit facilities in an aggregate principal amount at any
time outstanding not to exceed the greater of (x) $100 million or (y) 85% of
Eligible Receivables; (iii) Purchase Money Debt, provided that the amount of
such Purchase Money Debt does not exceed 100% of the cost of the construction,
installation, acquisition or improvement of the applicable Telecommunications
Assets; (iv) Debt owed by the Company to any Restricted Subsidiary of the
Company or Debt owed by a Restricted Subsidiary of the Company to the Company or
a Restricted Subsidiary of the Company; provided, however, that upon either (x)
the transfer or other disposition by such Restricted Subsidiary or the Company
of any Debt so permitted to a Person other than the Company or another
Restricted Subsidiary of the Company or (y) the issuance (other than directors'
qualifying shares), sale, lease, transfer or other disposition of shares of
Capital Stock (including by consolidation or merger) of such Restricted
Subsidiary to a Person other than the Company or another such Restricted
Subsidiary, the provisions of this clause (iv) shall no longer be applicable to
such Debt and such Debt shall be deemed to have been Incurred by the issuer
thereof at the time of such transfer or other disposition; (v) Debt Incurred to
renew, extend, refinance, defease or refund (each, a "refinancing") the 7.50%
Notes, the notes issued under the Senior Note Indentures or Debt of the Company
51
Incurred pursuant to clause (iii) of this paragraph (b), in an aggregate
principal amount not to exceed the aggregate principal amount of and accrued
interest on the Debt so refinanced plus the amount of any premium required to be
paid in connection with such refinancing pursuant to the terms of the Debt so
refinanced or the amount of any premium reasonably determined by the board of
directors of the Company as necessary to accomplish such refinancing by means of
a tender offer or privately negotiated repurchase, plus the expenses of the
Company Incurred in connection with such refinancing; provided, however, that
Debt the proceeds of which are used to refinance the 7.50% Notes or Debt which
is pari passu to the 7.50% Notes or Debt which is subordinate in right of
payment to the 7.50% Notes shall only be permitted under this clause (v) if (A)
in the case of any refinancing of the 7.50% Notes or Debt which is pari passu to
the 7.50% Notes, the refinancing Debt is made pari passu to the 7.50% Notes or
constitutes Subordinated Debt, and, in the case of any refinancing of
Subordinated Debt, the refinancing Debt constitutes Subordinated Debt and (B) in
any case, the refinancing Debt by its terms, or by the terms of any agreement or
instrument pursuant to which such Debt is issued, (x) does not provide for
payments of principal of such Debt at stated maturity or by way of a sinking
fund applicable thereto or by way of any mandatory redemption, defeasance,
retirement or repurchase thereof by the Company (including any redemption,
retirement or repurchase which is contingent upon events or circumstances, but
excluding any retirement required by virtue of the acceleration of any payment
with respect to such Debt upon any event of default thereunder), in each case
prior to the time the same are required by the terms of the Debt being
refinanced and (y) does not permit redemption or other retirement (including
pursuant to an offer to purchase made by the Company) of such Debt at the option
of the holder thereof prior to the time the same are required by the terms of
the Debt being refinanced, other than a redemption or other retirement at the
option of the holder of such Debt (including pursuant to an offer to purchase
made by the Company) which is conditioned upon a change of control pursuant to
provisions substantially similar to those described under "--Change of Control";
(vi) Debt consisting of Permitted Interest Rate and Currency Protection
Agreements; (vii) Debt secured by Receivables originated by the Company or any
Restricted Subsidiary and related assets, provided that such Debt is nonrecourse
to the Company and any of its other Restricted Subsidiaries and provided further
that Receivables shall not be available at any time to secure Debt of the
Company under this clause (vii) to the extent that they are used at such time as
the basis for the Incurrence of Debt in excess of $100 million pursuant to
clause (ii)(B)(y) of this paragraph (b); and (viii) Debt not otherwise permitted
to be Incurred pursuant to clauses (i) through (vii) above, which, together with
any other outstanding Debt Incurred pursuant to this clause (viii), has an
aggregate principal amount not in excess of $25 million at any time outstanding.
Limitation on Debt and Preferred Stock of Restricted Subsidiaries. The Company
may not permit any Restricted Subsidiary that is not a Guarantor to Incur any
Debt or issue any Preferred Stock except any and all of the following (each of
which shall be given independent effect): (i) Restricted Subsidiary Guarantees;
(ii) Debt of Restricted Subsidiaries under Credit Facilities permitted to be
Incurred pursuant to clause (ii) of paragraph (b) of "--Limitation on
Consolidated Debt"; (iii) Purchase Money Debt of Restricted Subsidiaries
permitted to be Incurred pursuant to clause (iii) of paragraph (b) of
52
"--Limitation on Consolidated Debt"; (iv) Debt owed by a Restricted Subsidiary
of the Company to the Company or a Restricted Subsidiary of the Company
permitted to be Incurred pursuant to clause (iv) of paragraph (b) of
"--Limitation on Consolidated Debt"; (v) Debt of Restricted Subsidiaries
consisting of Permitted Interest Rate and Currency Protection Agreements
permitted to be Incurred pursuant to clause (vi) of paragraph (b) of
"--Limitation on Consolidated Debt"; (vi) Debt of Restricted Subsidiaries
secured by Receivables originated by the Company or any Restricted Subsidiary
and related assets permitted to be Incurred pursuant to clause (vii) of
paragraph (b) of "--Limitation on Consolidated Debt"; (vii) Debt of Restricted
Subsidiaries permitted to be Incurred pursuant to clause (viii) of paragraph (b)
of "--Limitation on Consolidated Debt"; (viii) Preferred Stock issued to and
held by the Company or a Restricted Subsidiary; (ix) Debt Incurred or Preferred
Stock issued by a Person prior to the time (A) such Person became a Restricted
Subsidiary, (B) such Person merges into or consolidates with a Restricted
Subsidiary or (C) another Restricted Subsidiary merges into or consolidates with
such Person (in a transaction in which such Person becomes a Restricted
Subsidiary), which Debt or Preferred Stock was not Incurred or issued in
anticipation of such transaction and was outstanding prior to such transaction;
and (x) Debt or Preferred Stock which is exchanged for, or the proceeds of which
are used to renew, extend, refinance, defease, refund or redeem any Debt of a
Restricted Subsidiary permitted to be Incurred pursuant to clause (iii) of this
paragraph or any Debt or Preferred Stock of a Restricted Subsidiary permitted to
be Incurred pursuant to clause (ix) hereof (or any extension or renewal thereof)
(for purposes hereof, a "refinancing"), in an aggregate principal amount, in the
case of Debt, or with an aggregate liquidation preference, in the case of
Preferred Stock, not to exceed the aggregate principal amount of the Debt so
refinanced or the aggregate liquidation preference of the Preferred Stock so
refinanced, plus the amount of any premium required to be paid in connection
with such refinancing pursuant to the terms of the Debt or Preferred Stock so
refinanced or the amount of any premium reasonably determined by the Company as
necessary to accomplish such refinancing by means of a tender offer or privately
negotiated repurchase, plus the amount of expenses of the Company and the
applicable Restricted Subsidiary Incurred in connection therewith and provided
the Debt or Preferred Stock Incurred or issued upon such refinancing, by its
terms, or by the terms of any agreement or instrument pursuant to which such
Debt or Preferred Stock is Incurred or issued, (x) does not provide for payments
of principal or liquidation value at the stated maturity of such Debt or
Preferred Stock or by way of a sinking fund applicable to such Debt or Preferred
Stock or by way of any mandatory redemption, defeasance, retirement or
repurchase of such Debt or Preferred Stock by the Company or any Restricted
Subsidiary (including any redemption, retirement or repurchase which is
contingent upon events or circumstances, but excluding any retirement required
by virtue of acceleration of such Debt upon an event of default thereunder), in
each case prior to the time the same are required by the terms of the Debt or
Preferred Stock being refinanced and (y) does not permit redemption or other
retirement (including pursuant to an offer to purchase made by the Company or a
Restricted Subsidiary) of such Debt or Preferred Stock at the option of the
holder thereof prior to the stated maturity of the Debt or Preferred Stock being
refinanced, other than a redemption or other retirement at the option of the
holder of such Debt or Preferred Stock (including pursuant to an offer to
purchase made by the Company
53
or a Restricted Subsidiary) which is conditioned upon the change of control of
the Company pursuant to provisions substantially similar to those contained in
the Indenture described under "--Change of Control," and provided further that
in the case of any exchange or redemption of Preferred Stock of a Restricted
Subsidiary, such Preferred Stock may only be exchanged for or redeemed with
Preferred Stock of such Restricted Subsidiary.
Limitation on Restricted Payments. The Company (i) may not, and may not permit
any Restricted Subsidiary to, directly or indirectly, declare or pay any
dividend, or make any distribution, in respect of its Capital Stock or to the
holders thereof, excluding any dividends or distributions which are made solely
to the Company or a Restricted Subsidiary (and, if such Restricted Subsidiary is
not a Wholly Owned Subsidiary, to the other stockholders of such Restricted
Subsidiary on a pro rata basis) or any dividends or distributions payable solely
in shares of its Capital Stock (other than Disqualified Stock) or in options,
warrants or other rights to acquire its Capital Stock (other than Disqualified
Stock); (ii) may not, and may not permit any Restricted Subsidiary to, purchase,
redeem, or otherwise retire or acquire for value (x) any Capital Stock of the
Company, any Restricted Subsidiary or any Related Person of the Company (other
than a permitted refinancing) or (y) any options, warrants or rights to purchase
or acquire shares of Capital Stock of the Company, any Restricted Subsidiary or
any Related Person of the Company or any securities convertible or exchangeable
into shares of Capital Stock of the Company, any Restricted Subsidiary or any
Related Person of the Company (other than a permitted refinancing), except, in
any such case, any such purchase, redemption or retirement or acquisition for
value paid to the Company or a Restricted Subsidiary (or, in the case of any
such purchase, redemption or other retirement or acquisition for value with
respect to a Restricted Subsidiary that is not a Wholly Owned Subsidiary, paid
to the Company or a Restricted Subsidiary, or to the other stockholders of such
Restricted Subsidiary that is not a Wholly Owned Subsidiary, on a pro rata
basis); (iii) may not make, or permit any Restricted Subsidiary to, make, any
Investment in, or payment on a Guarantee of any obligation of, any Person, other
than the Company or a Restricted Subsidiary; and (iv) may not, and may not
permit any Restricted Subsidiary to, redeem, defease, repurchase, retire or
otherwise acquire or retire for value, prior to any scheduled maturity,
repayment or sinking fund payment, Debt of the Company which is subordinate in
right of payment to the 7.50% Notes (other than a permitted refinancing) (each
of clauses (i) through (iv) being a "Restricted Payment") if: (1) an Event of
Default, or an event that with the passing of time or the giving of notice, or
both, would constitute an Event of Default, shall have occurred and be
continuing, or (2) upon giving effect to such Restricted Payment, the Company
could not Incur at least $1.00 of additional Debt pursuant to the terms of the
Indenture described in paragraph (a) of "--Limitation on Consolidated Debt"
above, or (3) upon giving effect to such Restricted Payment, the aggregate of
all Restricted Payments from March 31, 1997 exceeds the sum of: (a) 50% of
cumulative Consolidated Net Income (or, in the case that Consolidated Net Income
shall be negative, 100% of such negative amount) since the end of the last full
fiscal quarter prior to March 31, 1997 through the last day of the last full
fiscal quarter ending at least 45 days prior to the date of such Restricted
Payment, (b) plus $5 million, (c) less, in the case of any Designation with
respect to a Restricted Subsidiary that was made after March 31, 1997, an amount
54
equal to the Designation Amount with respect to such Restricted Subsidiary, (d)
plus, in the case of any Revocation made after March 31, 1997, an amount equal
to the lesser of the Designation Amount with respect to the Subsidiary with
respect to which such Designation was made or the Fair Market Value of the
Investment of the Company and its Restricted Subsidiaries in such Subsidiary at
the time of Revocation; provided, however, that the Company or a Restricted
Subsidiary of the Company may make any Restricted Payment with the aggregate net
cash proceeds received after March 31, 1997 as capital contributions to the
Company or from the issuance (other than to a Subsidiary) of Capital Stock
(other than Disqualified Stock) of the Company and warrants, rights or options
on Capital Stock (other than Disqualified Stock) of the Company and the
principal amount of Debt of the Company that has been converted into Capital
Stock (other than Disqualified Stock and other than by a Subsidiary) of the
Company after March 31, 1997. Notwithstanding the foregoing limitation, (i) the
Company and any Restricted Subsidiary may make Permitted Investments; (ii) the
Company may pay any dividend on Capital Stock of any class of the Company within
60 days after the declaration thereof if, on the date when the dividend was
declared, the Company could have paid such dividend in accordance with the
foregoing provisions; (iii) the Company may repurchase any shares of its Common
Stock or options to acquire its Common Stock from Persons who were formerly
directors, officers or employees of the Company or any of its Subsidiaries or
Affiliates, provided that the aggregate amount of all such repurchases made
pursuant to this clause (iii) shall not exceed $1 million in any twelve-month
period; (iv) the Company and any Restricted Subsidiary may refinance any Debt
otherwise permitted by clause (v) of paragraph (b) under "--Limitation on
Consolidated Debt" above or clause (x) under "--Limitation on Debt and Preferred
Stock of Restricted Subsidiaries" above; and (v) the Company and any Restricted
Subsidiary may retire or repurchase any Capital Stock of the Company or of any
Restricted Subsidiary in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company) of,
Capital Stock (other than Disqualified Stock) of the Company.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. (a) The Company may not, and may not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary (i) to pay dividends (in cash or otherwise)
or make any other distributions in respect of its Capital Stock owned by the
Company or any other Restricted Subsidiary or pay any Debt or other obligation
owed to the Company or any other Restricted Subsidiary; (ii) to make loans or
advances to the Company or any other Restricted Subsidiary; or (iii) to transfer
any of its property or assets to the Company or any other Restricted Subsidiary.
(b) Notwithstanding the foregoing limitation, the Company may, and may permit
any Restricted Subsidiary to, create or otherwise cause or suffer to exist any
such encumbrance or restriction (i) pursuant to any agreement in effect on March
31, 1997; (ii) any customary encumbrance or restriction applicable to a
Restricted Subsidiary that is contained in an agreement or instrument governing
or relating to Debt contained in any Credit Facilities or Purchase Money Debt,
provided that the provisions of such agreement permit the payment of interest
and mandatory payment or prepayment of principal pursuant to the terms of the
Indenture and the 7.50% Notes and other Debt that is solely an obligation of the
55
Company, but provided further that such agreement may nevertheless contain
customary net worth, leverage, invested capital and other financial covenants,
customary covenants regarding the merger of or sale of all or any substantial
part of the assets of the Company or any Restricted Subsidiary, customary
restrictions on transactions with Affiliates, and customary subordination
provisions governing Debt owed to the Company or any Restricted Subsidiary;
(iii) pursuant to an agreement relating to any Acquired Debt, which encumbrance
or restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person so acquired; (iv) pursuant to an agreement
effecting a renewal, refunding, permitted refinancing or extension of Debt
Incurred pursuant to an agreement referred to in clause (i), (ii) or (iii) of
this paragraph (b), provided, however, that the provisions contained in such
renewal, refunding or extension agreement relating to such encumbrance or
restriction are no more restrictive in any material respect than the provisions
contained in the agreement the subject thereof; (v) in the case of clause (iii)
of paragraph (a) above, restrictions contained in any security agreement
(including a Capital Lease Obligation) securing Debt of the Company or a
Restricted Subsidiary otherwise permitted under the Indenture, but only to the
extent such restrictions restrict the transfer of the property subject to such
security agreement; (vi) in the case of clause (iii) of paragraph (a) above,
customary nonassignment provisions entered into in the ordinary course of
business in leases and other agreements and customary restrictions contained in
asset sale agreements limiting the transfer of such property or assets pending
the closing of such sale; (vii) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement which has been entered into for the
sale or disposition of all or substantially all of the Capital Stock or assets
of such Restricted Subsidiary, provided that the consummation of such
transaction would not result in a Default or an Event of Default, that such
restriction terminates if such transaction is not consummated and that the
consummation or abandonment of such transaction occurs within one year of the
date such agreement was entered into; (viii) pursuant to applicable law; and
(ix) pursuant to the Indenture, the 7.50% Notes, the Senior Note Indentures and
the notes outstanding under the Senior Note Indentures.
Limitation on Liens. The Company may not, and may not permit any Restricted
Subsidiary to, Incur or suffer to exist any Lien on or with respect to any
property or assets now owned or acquired after March 31, 1997 to secure any Debt
without making, or causing such Restricted Subsidiary to make, effective
provision for securing the 7.50% Notes (x) equally and ratably with such Debt as
to such property for so long as such Debt will be so secured or (y) in the event
such Debt is Debt of the Company which is subordinate in right of payment to the
7.50% Notes, prior to such Debt as to such property for so long as such Debt
will be so secured. The foregoing restrictions shall not apply to: (i) Liens
existing on March 31, 1997 and securing Debt outstanding on March 31, 1997; (ii)
Liens in favor of the Company or any Restricted Subsidiary; (iii) Liens to
secure the 7.50% Notes; (iv) Liens to secure Restricted Subsidiary Guarantees;
(v) Liens to secure Debt under Credit Facilities permitted to be Incurred
pursuant to clause (ii) of paragraph (b) of "--Limitation on Consolidated Debt";
(vi) Liens on real or personal property of the Company or a Restricted
Subsidiary constructed, installed, acquired or constituting improvements made
after the date of original issuance of the 7.50% Notes to secure Purchase Money
56
Debt permitted to be Incurred pursuant to clause (iii) of paragraph (b) of
"--Limitation on Consolidated Debt"; provided, however, that (a) the principal
amount of any Debt secured by such a Lien does not exceed 100% of such purchase
price or cost of construction, installation or improvement of the property
subject to such Lien, (b) such Lien attaches to such property prior to, at the
time of or within 270 days after the acquisition, the completion of
construction, installation or improvement or the commencement of operation of
such property and (c) such Lien does not extend to or cover any property other
than the specific item of property (or portion thereof) acquired, constructed,
installed or constituting the improvements financed by the proceeds of such
Purchase Money Debt; (vii) Liens to secure Acquired Debt, provided, however,
that (a) such Lien attaches to the acquired asset prior to the time of the
acquisition of such asset and (b) such Lien does not extend to or cover any
other asset; (viii) Liens to secure Debt Incurred to extend, renew, refinance or
refund (or successive extensions, renewals, refinancings or refundings), in
whole or in part, Debt secured by any Lien referred to in the foregoing clauses
(i), (iii), (iv), (v), (vi) and (vii) so long as such Lien does not extend to
any other property and the principal amount of Debt so secured is not increased
except as otherwise permitted under clause (v) of paragraph (b) under
"--Limitation on Consolidated Debt" above or clause (x) under "--Limitation on
Debt and Preferred Stock of Restricted Subsidiaries" above; (ix) Liens to secure
debt consisting of Permitted Interest Rate and Currency Protection Agreements
permitted to be Incurred pursuant to clause (vi) of paragraph (b) under
"--Limitation on Consolidated Debt"; (x) Liens to secure Debt secured by
Receivables permitted to be Incurred pursuant to clause (vii) of paragraph (b)
under "--Limitation on Consolidated Debt"; (xi) Liens to secure Debt of
Restricted Subsidiaries permitted to be Incurred pursuant to clause (viii) of
paragraph (b) under "--Limitation on Consolidated Debt"; (xii) Liens not
otherwise permitted by the foregoing clauses (i) through (xi) in an amount not
to exceed 5% of the Company's Consolidated Tangible Assets; and (xiii) Permitted
Liens.
Limitation on Issuances of Certain Guarantees by, and Debt Securities of,
Restricted Subsidiaries. The Company may not (i) permit any Restricted
Subsidiary to, directly or indirectly, guarantee any Debt Securities of the
Company or (ii) permit any Restricted Subsidiary to issue any Debt Securities
unless, in either such case, such Restricted Subsidiary simultaneously executes
and delivers Restricted Subsidiary Guarantees providing for a Guarantee of
payment of the 7.50% Notes.
Limitation on Sale and Leaseback Transactions. The Company may not, and may not
permit any Restricted Subsidiary to, directly or indirectly, enter into, assume,
Guarantee or otherwise become liable with respect to any Sale and Leaseback
Transaction, other than a Sale and Leaseback Transaction between the Company or
a Restricted Subsidiary on the one hand and a Restricted Subsidiary or the
Company on the other hand, unless (i) the Company or such Restricted Subsidiary
would be entitled to Incur a Lien to secure Debt by reason of the provisions
described under "--Limitation on Liens" above, equal in amount to the
Attributable Value of the Sale and Leaseback Transaction without equally and
ratably securing the 7.50% Notes and (ii) the Sale and Leaseback Transaction is
treated as an Asset Disposition and all of the conditions of the Indenture
57
described under "--Limitation on Asset Dispositions" below (including the
provisions concerning the application of Net Available Proceeds) are satisfied
with respect to such Sale and Leaseback Transaction, treating all of the
consideration received in such Sale and Leaseback Transaction as Net Available
Proceeds for purposes of such covenant.
Limitation on Asset Dispositions. The Company may not, and may not permit any
Restricted Subsidiary to, make any Asset Disposition unless: (i) the Company or
the Restricted Subsidiary, as the case may be, receives consideration for such
disposition at least equal to the Fair Market Value for the assets sold or
disposed of as determined by the board of directors of the Company in good faith
and evidenced by a resolution of the board of directors of the Company filed
with the Trustee; and (ii) at least 75% of the consideration for such
disposition consists of cash or Cash Equivalents or the assumption of Debt of
the Company (other than Debt that is subordinated to the 7.50% Notes) or of the
Restricted Subsidiary and release from all liability on the Debt assumed. If the
aggregate amount of Net Available Proceeds within any 12-month period exceeds $5
million, then all such Net Available Proceeds shall be applied within 360 days
of the last such Asset Disposition (1) first, to the permanent repayment or
reduction of Debt then outstanding under any Credit Facility, to the extent such
agreements would require such application or prohibit payments pursuant to
clause (2) following; (2) second, to the extent of remaining Net Available
Proceeds, to make an Offer to Purchase outstanding 7.50% Notes at a price in
cash equal to 100% of the principal amount thereof plus accrued and unpaid
interest to the purchase date and, to the extent required by the terms thereof,
any other Debt of the Company that is pari passu with the Notes at a price no
greater than 100% of the principal amount thereof plus accrued and unpaid
interest to the purchase date (or 100% of the accreted value plus accrued and
unpaid interest and premium, if any, to the purchase date in the case of
original issue discount Debt); (3) third, to the extent of any remaining Net
Available Proceeds following the completion of the Offer to Purchase, to the
repayment of other Debt of the Company or Debt of a Restricted Subsidiary, to
the extent permitted under the terms thereof; and (4) fourth, to the extent of
any remaining Net Available Proceeds, to any other use as determined by the
Company which is not otherwise prohibited by the Indenture.
Limitation on Issuances and Sales of Capital Stock of Restricted Subsidiaries.
The Company may not, and may not permit any Restricted Subsidiary to, issue,
transfer, convey, sell or otherwise dispose of any shares of Capital Stock of a
Restricted Subsidiary or securities convertible or exchangeable into, or
options, warrants, rights or any other interest with respect to, Capital Stock
of a Restricted Subsidiary to any Person other than the Company or a Restricted
Subsidiary except (i) a sale of all of the Capital Stock of such Restricted
Subsidiary owned by the Company and any Restricted Subsidiary that complies with
the provisions described under "--Limitation on Asset Dispositions" above to the
extent such provisions apply, (ii) in a transaction that results in such
Restricted Subsidiary becoming a Permitted Joint Venture, provided (x) such
transaction complies with the provisions described under "--Limitation on Asset
Dispositions" above to the extent such provisions apply and (y) the Company's
remaining Investment in such Permitted Joint Venture would have been permitted
as a new Investment under the provisions of "--Limitation on Restricted
Payments"
58
above, (iii) the transfer, conveyance, sale or other disposition of shares
required by applicable law or regulation, (iv) if required, the issuance,
transfer, conveyance, sale or other disposition of directors' qualifying shares,
or (v) Disqualified Stock issued in exchange for, or upon conversion of, or the
proceeds of the issuance of which are used to redeem, refinance, replace or
refund shares of Disqualified Stock of such Restricted Subsidiary, provided that
the amounts of the redemption obligations of such Disqualified Stock shall not
exceed the amounts of the redemption obligations of, and such Disqualified Stock
shall have redemption obligations no earlier than those required by, the
Disqualified Stock being exchanged, converted, redeemed, refinanced, replaced or
refunded.
Transactions with Affiliates and Related Persons. The Company may not, and may
not permit any Restricted Subsidiary to, enter into any transaction (or series
of related transactions) with an Affiliate or Related Person of the Company
(other than the Company or a Restricted Subsidiary), including any Investment,
unless such transaction is on terms no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained in a comparable arm's-
length transaction with an entity that is not an Affiliate or Related Person and
is in the best interests of the Company or such Restricted Subsidiary, provided
that the Company or any Restricted Subsidiary may enter into (i) transactions
pursuant to the Company's existing tax sharing agreement entered into with
Anschutz Company described under the caption "Certain Relationships and Related
Transactions" in the Company's annual report on Form 10-K for the year ended
December 31, 1997, provided that any amendment of, supplement to or substitute
for such agreement is on terms that are no less favorable to the Company or such
Restricted Subsidiary than such existing agreement, (ii) transactions pursuant
to employee compensation arrangements approved by the board of directors of the
Company, either directly or indirectly, and (iii) Receivables Sales between the
Company or a Restricted Subsidiary and an Affiliate of the Company or such
Restricted Subsidiary, provided that such Receivables Sales satisfy the
provisions of clauses (i) and (ii) of "--Limitation on Asset Dispositions." For
any transaction that involves in excess of $10 million but less than or equal to
$15 million, the Company shall deliver to the Trustee an Officers' Certificate
stating that the transaction satisfies the above criteria. For any transaction
that involves in excess of $15 million, a majority of the disinterested members
of the board of directors of the Company shall determine that the transaction
satisfies the above criteria and shall evidence such a determination by a board
resolution filed with the Trustee or, in the event that there shall not be
disinterested members of the board of directors with respect to the transaction,
the Company shall file with the Trustee a written opinion stating that the
transaction satisfies the above criteria from an investment banking firm of
national standing in the United States which, in the good faith judgment of the
board of directors of the Company, is independent with respect to the Company
and its Affiliates and qualified to perform such task.
Change of Control. Within 30 days of the occurrence of a Change of Control, the
Company will be required to make an Offer to Purchase all outstanding 7.50%
Notes at a price in cash equal to 101% of the principal amount of the 7.50%
Notes plus any accrued and unpaid interest thereon, if any, to such purchase
date. A "Change of Control" will be deemed to have occurred at such time as (x)
59
a Rating Decline shall have occurred and (y) either (A) the sale, conveyance,
transfer or lease of all or substantially all of the assets of the Company to
any Person or any Persons acting together that would constitute a "group" (a
"Group") for purposes of Section 13(d) of the Exchange Act, together with any
Affiliates or Related Persons thereof, other than any Permitted Holder or any
Restricted Subsidiary, shall have occurred; (B) any Person or Group, together
with any Affiliates or Related Persons thereof, other than any Permitted Holder
or any Restricted Subsidiary, shall beneficially own (within the meaning of Rule
13d-3 under the Exchange Act, except that a Person will be deemed to have
beneficial ownership of all shares that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of time)
at least 50% of the aggregate voting power of all classes of Voting Stock of the
Company at a time when Permitted Holders own less than or equal to 25% of the
aggregate voting power of all classes of Voting Stock of the Company; or (C)
during any period of two consecutive years, Continuing Directors cease for any
reason to constitute a majority of the Company's board of directors then in
office. In the event that the Company makes an Offer to Purchase the 7.50%
Notes, the Company intends to comply with any applicable securities laws and
regulations, including any applicable requirements of Section 14(e) of, and Rule
14e-1 under, the Exchange Act. The existence of the holders' right to require,
subject to certain conditions, the Company to repurchase 7.50% Notes upon a
Change of Control may deter a third party from acquiring the Company in a
transaction that constitutes a Change of Control. If an Offer to Purchase is
made, there can be no assurance that the Company will have sufficient funds to
pay the Purchase Price for all 7.50% Notes tendered by holders seeking to accept
the Offer to Purchase. In addition, instruments governing other Debt of the
Company may prohibit the Company from purchasing any 7.50% Notes prior to their
Stated Maturity, including pursuant to an Offer to Purchase. See "Description of
Certain Indebtedness." In the event that an Offer to Purchase occurs at a time
when the Company does not have sufficient available funds to pay the Purchase
Price for all 7.50% Notes tendered pursuant to such Offer to Purchase or a time
when the Company is prohibited from purchasing the 7.50% Notes (and the Company
is unable either to obtain the consent of the holders of the relevant Debt or to
repay such Debt), an Event of Default would occur under the Indenture. In
addition, one of the events that constitutes a Change of Control under the
Indenture is a sale, conveyance, transfer or lease of all or substantially all
of the property of the Company. The Indenture will be governed by New York law,
and there is no established definition under New York law of "substantially all"
of the assets of a corporation. Accordingly, if the Company were to engage in a
transaction in which it disposed of less than all of its assets, a question of
interpretation could arise as to whether such disposition was of "substantially
all" of its assets and whether the Company was required to make an Offer to
Purchase. Except as described herein with respect to a Change of Control, the
Indenture does not contain any other provisions that permit holders of 7.50%
Notes to require that the Company repurchase or redeem 7.50% Notes in the event
of a takeover, recapitalization or similar restructuring.
Reports. The Company will file with the Trustee on the date on which it files
them with the Commission copies of the annual and quarterly reports and the
information, documents, and other reports that the Company is required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act ("SEC
60
Reports"). In the event the Company shall cease to be required to file SEC
Reports pursuant to the Exchange Act, the Company will nevertheless continue to
file such reports with the Commission (unless the Commission will not accept
such a filing) and the Trustee. The Company will furnish copies of the SEC
Reports to the holders of 7.50% Notes at the time the Company is required to
file the same with the Trustee and will make such information available to
investors who request it in writing.
Limitation on Designations of Unrestricted Subsidiaries. The Indenture will
provide that the Company will not designate any Subsidiary of the Company (other
than a newly created Subsidiary in which no Investment has previously been made)
as an "Unrestricted Subsidiary" under the Indenture (a "Designation") unless:
(a) no Default or Event of Default shall have occurred and be continuing at the
time of or after giving effect to such Designation; (b) immediately after giving
effect to such Designation, the Company would be able to Incur $1.00 of Debt
under paragraph (a) of "--Limitation on Consolidated Debt"; and (c) the Company
would not be prohibited under the Indenture from making an Investment at the
time of Designation (assuming the effectiveness of such Designation) in an
amount (the "Designation Amount") equal to the Fair Market Value of the net
Investment of the Company or any other Restricted Subsidiary in such Restricted
Subsidiary on such date. In the event of any such Designation, the Company shall
be deemed to have made an Investment constituting a Restricted Payment pursuant
to the covenant "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount. The Indenture will further provide that
neither the Company nor any Restricted Subsidiary shall at any time (x) provide
credit support for, or a guarantee of, any Debt of any Unrestricted Subsidiary
(including any undertaking, agreement or instrument evidencing such Debt);
provided that the Company or a Restricted Subsidiary may pledge Capital Stock or
Debt of any Unrestricted Subsidiary on a nonrecourse basis such that the pledgee
has no claim whatsoever against the Company other than to obtain such pledged
property, (y) be directly or indirectly liable for any Debt of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any Debt which provides
that the holder thereof may (upon notice, lapse of time or both) declare a
default thereon or cause the payment thereof to be accelerated or payable prior
to its final scheduled maturity upon the occurrence of a default with respect to
any Debt of any Unrestricted Subsidiary (including any right to take enforcement
action against such Unrestricted Subsidiary), except in the case of clause (x)
or (y) to the extent permitted under "--Limitation on Restricted Payments" and
"--Transactions with Affiliates and Related Persons." The Indenture will further
provide that a Designation may be revoked (a "Revocation") by a resolution of
the board of directors of the Company delivered to the Trustee, provided that
the Company will not make any Revocation unless: (a) no Default or Event of
Default shall have occurred and be continuing at the time of and after giving
effect to such Revocation; and (b) all Liens and Debt of such Unrestricted
Subsidiary outstanding immediately following such Revocation would, if Incurred
at such time, have been permitted to be Incurred at such time for all purposes
of the Indenture. All Designations and Revocations must be evidenced by
resolutions of the board of directors of the Company delivered to the Trustee
certifying compliance with the foregoing provisions.
Mergers, Consolidations and Certain Sales of Assets
61
The Company may not, in a single transaction or a series of related
transactions, (i) consolidate with or merge into any other Person or Persons or
permit any other Person to consolidate with or merge into the Company (other
than a merger of Qwest Corporation into the Company in which the Company shall
be the surviving Person) or (ii) directly or indirectly, transfer, sell, lease
or otherwise dispose of all or substantially all of its assets to any other
Person or Persons unless: (a) in a transaction in which the Company is not the
surviving Person or in which the Company sells, leases or otherwise disposes of
all or substantially all of its assets to any other Person, the resulting
surviving or transferee Person (the "successor entity") is organized under the
laws of the United States of America or any State thereof or the District of
Columbia and shall expressly assume, by a supplemental indenture executed and
delivered to the Trustee in form satisfactory to the Trustee, all of the
Company's respective obligations under the Indenture; (b) immediately before and
after giving effect to such transaction and treating any Debt which becomes an
obligation of the Company or a Restricted Subsidiary as a result of such
transaction as having been Incurred by the Company or such Restricted Subsidiary
at the time of the transaction, no Default or Event of Default shall have
occurred and be continuing; (c) immediately after giving effect to such
transaction, the Consolidated Net Worth of the Company (or other successor
entity to the Company) is equal to or greater than that of the Company
immediately prior to the transaction; (d) immediately after giving effect to
such transaction and treating any Debt which becomes an obligation of the
Company or a Restricted Subsidiary as a result of such transaction as having
been Incurred by the Company or such Restricted Subsidiary at the time of the
transaction, the Company (including any successor entity to the Company) could
Incur at least $1.00 of additional Debt pursuant to the provisions of the
Indenture described in paragraph (a) under "--Limitation on Consolidated Debt"
above; (e) if, as a result of any such transaction, property or assets of the
Company would become subject to a Lien prohibited by the provisions of the
Indenture described under "--Limitation on Liens" above, the Company or the
successor entity to the Company shall have secured the 7.50% Notes as required
by said covenant; and (f) certain other conditions are met.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Debt" means, with respect to any specified Person, (i) Debt of any
other Person existing at the time such Person merges with or into or
consolidates with or becomes a Subsidiary of such specified Person and (ii) Debt
secured by a Lien encumbering any asset acquired by such specified Person, which
Debt was not incurred in anticipation of, and was outstanding prior to, such
merger, consolidation or acquisition.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
62
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any transfer, conveyance, sale, lease or other
disposition by the Company or any Restricted Subsidiary in one or more related
transactions occurring within any 12-month period (including a consolidation or
merger or other sale of any such Restricted Subsidiary with, into or to another
Person in a transaction in which such Restricted Subsidiary ceases to be a
Restricted Subsidiary of the Company, but excluding a disposition by a
Restricted Subsidiary to the Company or a Restricted Subsidiary or by the
Company to a Restricted Subsidiary) of (i) shares of Capital Stock or other
ownership interests of a Restricted Subsidiary (other than as permitted by the
provisions of the Indenture described in clauses (iii), (iv) and (v) under the
caption "--Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries"), (ii) substantially all of the assets of the Company or any
Restricted Subsidiary representing a division or line of business or (iii) other
assets or rights of the Company or any Restricted Subsidiary outside of the
ordinary course of business (excluding any transfer, conveyance, sale, lease or
other disposition of equipment that is obsolete or no longer used by or useful
to the Company, provided that the Company has delivered to the Trustee an
Officers' Certificate stating that such criteria are satisfied); provided in
each case that the aggregate consideration for such transfer, conveyance, sale,
lease or other disposition is equal to $500,000 or more in any 12-month period
and provided further that the following shall not be Asset Dispositions: (x)
Permitted Telecommunications Capital Asset Dispositions, (y) exchanges of
Telecommunications Assets for other Telecommunications Assets where the Fair
Market Value of the Telecommunications Assets received is at least equal to the
Fair Market Value of the Telecommunications Assets disposed of or, if less, the
difference is received in cash and such cash is Net Available Proceeds and (z)
Liens permitted to be Incurred pursuant to the second paragraph under
"--Limitation on Liens."
"Attributable Value" means, as to any particular lease under which any Person is
at the time liable other than a Capital Lease Obligation, and at any date as of
which the amount thereof is to be determined, the total net amount of rent
required to be paid by such Person under such lease during the initial term
thereof as determined in accordance with generally accepted accounting
principles, discounted from the last date of such initial term to the date of
determination at a rate per annum equal to the discount rate which would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility,
operating and labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of penalty, such net amount shall also
include the lesser of the amount of such penalty (in which case no rent shall be
considered as required to be paid under such lease subsequent to the first date
63
upon which it may be so terminated) or the rent which would otherwise be
required to be paid if such lease is not so terminated.
"Attributable Value" means, as to a Capital Lease Obligation, the principal
amount thereof.
"Capital Lease Obligation" of any Person means the obligation to pay rent or
other payment amounts under a lease of (or other Debt arrangements conveying the
right to use) real or personal property of such Person which is required to be
classified and accounted for as a capital lease or a liability on the face of a
balance sheet of such Person in accordance with generally accepted accounting
principles (a "Capital Lease"). The stated maturity of such obligation shall be
the date of the last payment of rent or any other amount due under such lease
prior to the first date upon which such lease may be terminated by the lessee
without payment of a penalty. The principal amount of such obligation shall be
the capitalized amount thereof that would appear on the face of a balance sheet
of such Person in accordance with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person.
"Cash Equivalents" means (i) any Debt with a maturity of 365 days or less issued
or directly and fully guaranteed as insured by the United States or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof or such Debt constitutes a general
obligation of such country); (ii) deposits, certificates of deposit or
acceptances with a maturity of 365 days or less of any financial institution
that is a member of the Federal Reserve System, in each case having combined
capital and surplus and undivided profits (or any similar capital concept) of
not less than $500 million and whose senior unsecured debt is rated at least "A-
1" by Standard & Poor's Corporation or "P-1" by Moody's Investors Service, Inc.;
(iii) commercial paper with a maturity of 365 days or less issued by a
corporation (other than an Affiliate of the Company) organized under the laws of
the United States or any State thereof and rated at least "A-1" by Standard &
Poor's Corporation or "P-1" by Moody's Investors Service, Inc.; and (iv)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United States or
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States maturing within 365 days from the date of
acquisition.
"Common Stock" of any Person means Capital Stock of such Person that does not
rank prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Capital Ratio" of any Person as of any date means the ratio of (i)
the aggregate consolidated principal amount of Debt of such Person then
outstanding to (ii) the greater of either (a) the aggregate consolidated paid-in
64
capital of such Person as of such date or (b) the stockholders' equity as of
such date as shown on the consolidated balance sheet of such Person in
accordance with generally accepted accounting principles.
"Consolidated Cash Flow Available for Fixed Charges" for any period means the
Consolidated Net Income of the Company and its Restricted Subsidiaries for such
period increased by the sum of (i) Consolidated Interest Expense of the Company
and its Restricted Subsidiaries for such period, plus (ii) Consolidated Income
Tax Expense of the Company and its Subsidiaries for such period, plus (iii) the
consolidated depreciation and amortization expense or other non-cash write-offs
of assets included in the income statement of the Company and its Restricted
Subsidiaries for such period, plus (iv) any charge related to any premium or
penalty paid in connection with redeeming or retiring any Debt prior to its
stated maturity; provided, however, that there shall be excluded therefrom the
Consolidated Cash Flow Available for Fixed Charges (if positive) of any
Restricted Subsidiary (calculated separately for such Restricted Subsidiary in
the same manner as provided above for the Company) that is subject to a
restriction which prevents the payment of dividends or the making of
distributions to the Company or another Restricted Subsidiary to the extent of
such restriction.
"Consolidated Income Tax Expense" for any period means the aggregate amounts of
the provisions for income taxes of the Company and its Subsidiaries for such
period calculated on a consolidated basis in accordance with generally accepted
accounting principles.
"Consolidated Interest Expense" means for any period the interest expense
included in a consolidated income statement (excluding interest income) of the
Company and its Restricted Subsidiaries for such period in accordance with
generally accepted accounting principles, including without limitation or
duplication (or, to the extent not so included, with the addition of), (i) the
amortization of Debt discounts; (ii) any payments or fees with respect to
letters of credit, bankers' acceptances or similar facilities; (iii) fees with
respect to interest rate swap or similar agreements or foreign currency hedge,
exchange or similar agreements; (iv) Preferred Stock dividends of the Company
and its Subsidiaries (other than dividends paid in shares of Preferred Stock
that is not Disqualified Stock) declared and paid or payable; (v) accrued
Disqualified Stock dividends of the Company and its Restricted Subsidiaries,
whether or not declared or paid; (vi) interest on Debt guaranteed by the Company
and its Restricted Subsidiaries; and (vii) the portion of any Capital Lease
Obligation paid during such period that is allocable to interest expense.
"Consolidated Net Income" for any period means the net income (or loss) of the
Company and its Restricted Subsidiaries for such period determined on a
consolidated basis in accordance with generally accepted accounting principles;
provided that there shall be excluded therefrom (a) the net income (or loss) of
any Person acquired by the Company or a Restricted Subsidiary in a
pooling-of-interests transaction for any period prior to the date of such
transaction, (b) the net income (or loss) of any Person that is not a Restricted
Subsidiary except to the extent of the amount of dividends or other
distributions actually paid to the Company or a Restricted Subsidiary by such
Person during such
65
period, (c) gains or losses on Asset Dispositions by the Company or its
Restricted Subsidiaries, (d) all extraordinary gains and extraordinary losses,
determined in accordance with generally accepted accounting principles, (e) the
cumulative effect of changes in accounting principles, (f) non-cash gains or
losses resulting from fluctuations in currency exchange rates, (g) any non-cash
expense related to the issuance to employees or directors of the Company or any
Restricted Subsidiary or any Affiliate of the Company of (i) options to purchase
Capital Stock of the Company or such Restricted Subsidiary or (ii) other
compensatory rights (including under the Company's Growth Share Plan), provided,
in either case, that such options or rights, by their terms, can be redeemed
only for Capital Stock, (h) with respect to a Restricted Subsidiary that is not
a Wholly Owned Subsidiary, any aggregate net income (or loss) in excess of the
Company's or any Restricted Subsidiary's pro rata share of the net income (or
loss) of such Restricted Subsidiary that is not a Wholly Owned Subsidiary shall
be excluded and (i) the tax effect of any of the items described in clauses (a)
through (h) above; provided further that for purposes of any determination
pursuant to the provisions described under "--Limitation on Restricted
Payments," there shall further be excluded therefrom the net income (but not net
loss) of any Restricted Subsidiary that is subject to a restriction which
prevents the payment of dividends or the making of distributions to the Company
or another Restricted Subsidiary to the extent of such restriction.
"Consolidated Net Worth" of any Person means the stockholders' equity of such
Person, determined on a consolidated basis in accordance with generally accepted
accounting principles, less amounts attributable to Disqualified Stock of such
Person; provided that, with respect to the Company, adjustments following March
31, 1997 to the accounting books and records of the Company in accordance with
Accounting Principles Board Opinions Nos. 16 and 17 (or successor opinions
thereto) or otherwise resulting from the acquisition of control of the Company
by another Person shall not be given effect to.
"Consolidated Tangible Assets" of any Person means the total amount of assets
(less applicable reserves and other properly deductible items) which under
generally accepted accounting principles would be included on a consolidated
balance sheet of such Person and its Subsidiaries after deducting therefrom all
goodwill, trade names, trademarks, patents, unamortized debt discount and
expense and other like intangibles, which in each case under generally accepted
accounting principles would be included on such consolidated balance sheet.
"Continuing Director" means, as of any date of determination, any member of the
board of directors of the Company who (i) was a member of such board of
directors of the Company on March 31, 1997, or (ii) was nominated for election
or elected to the board of directors of the Company with the affirmative vote of
a majority of the Continuing Directors who were members of the board of
directors of the Company at the time of such nomination or election or the
affirmative vote of Permitted Holders.
"Credit Facilities" means one or more credit agreements, loan agreements or
similar facilities, secured or unsecured, entered into from time to time by the
Company and its Restricted Subsidiaries, and including any related notes,
Guarantees, collateral documents, instruments and agreements executed in
66
connection therewith, as the same may be amended, supplemented, modified,
restated or replaced from time to time.
"Debt" means (without duplication), with respect to any Person, whether recourse
is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(including securities repurchase agreements but excluding trade accounts payable
or accrued liabilities arising in the ordinary course of business), (v) every
Capital Lease Obligation of such Person, (vi) all Receivables Sales of such
Person, together with any obligation of such Person to pay any discount,
interest, fees, indemnities, penalties, recourse, expenses or other amounts in
connection therewith, (vii) all obligations to redeem Disqualified Stock issued
by such Person, (viii) every obligation under Interest Rate and Currency
Protection Agreements of such Person and (ix) every obligation of the type
referred to in clauses (i) through (viii) of another Person and all dividends of
another Person the payment of which, in either case, such Person has Guaranteed.
The "amount" or "principal amount" of Debt at any time of determination as used
herein represented by (a) any Debt issued at a price that is less than the
principal amount at maturity thereof, shall be the amount of the liability in
respect thereof determined in accordance with generally accepted accounting
principles, (b) any Receivables Sale shall be the amount of the unrecovered
capital or principal investment of the purchaser (other than the Company or a
Wholly Owned Subsidiary of the Company) thereof, excluding amounts
representative of yield or interest earned on such investment or (c) any
Disqualified Stock shall be the maximum fixed redemption or repurchase price in
respect thereof. "Debt Securities" means any debt securities (including any
guarantee of such securities) issued by the Company or any Restricted Subsidiary
of the Company in connection with a public offering or a private placement
(excluding Debt permitted to be Incurred under paragraph (b) of "--Limitation on
Consolidated Debt").
"Default" means any event, act or condition the occurrence of which is, or after
notice or the passage of time or both would be, an Event of Default.
"Disqualified Stock" of any Person means any Capital Stock of such Person which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of such Person, any Subsidiary of such Person or the
holder thereof, in whole or in part, on or prior to the final Stated Maturity of
the 7.50% Notes; provided, however, that any Preferred Stock which would not
constitute Disqualified Stock but for provisions thereof giving holders thereof
the right to require the Company to repurchase or redeem such Preferred Stock
upon the occurrence of a Change of Control occurring prior to the final Stated
Maturity of the 7.50% Notes shall not constitute Disqualified Stock if the
67
change of control provisions applicable to such Preferred Stock are no more
favorable to the holders of such Preferred Stock than the provisions applicable
to the 7.50% Notes contained in the covenant described under "--Change of
Control" and such Preferred Stock specifically provides that the Company will
not repurchase or redeem any such stock pursuant to such provisions prior to the
Company's repurchase of such 7.50% Notes as are required to be repurchased
pursuant to the covenant described under "--Change of Control."
"Eligible Institution" means a commercial banking institution that has combined
capital and surplus of not less than $500 million or its equivalent in foreign
currency, whose debt is rated "A" (or higher) according to Standard & Poor's
Ratings Service, a division of McGraw Hill, Inc. (or any successor to the rating
agency business thereof) or Moody's Investors Service, Inc. (or any successor to
the rating agency business thereof) at the time as of which any investment or
rollover therein is made.
"Eligible Receivables" means, at any time, Receivables of the Company and its
Restricted Subsidiaries, as evidenced on the most recent quarterly consolidated
balance sheet of the Company as at a date at least 45 days prior to such time,
less Receivables of the Company or any Restricted Subsidiary employed to secure
Debt Incurred under clause (vii) of paragraph (b) of "--Limitation on
Consolidated Debt."
"Event of Default" has the meaning set forth under "Events of Default" below.
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or any
successor act), and the rules and regulations thereunder (or respective
successors thereto).
"Fair Market Value" means, with respect to any asset or property, the price that
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under pressure
or compulsion to complete the transaction. Unless otherwise specified in the
Indenture, Fair Market Value shall be determined by the board of directors of
the Company acting in good faith and shall be evidenced by a resolution of the
board of directors of the Company delivered to the Trustee.
"Government Securities" means direct obligations of, or obligations guaranteed
by, the United States of America for the payment of which guarantee or
obligations the full faith and credit of the United States is pledged and which
have a remaining weighted average life to maturity of not less than one year
from the date of investment therein.
"Guarantee" by any Person means any obligation, contingent or otherwise, of such
Person guaranteeing, or having the economic effect of guaranteeing, any Debt of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including, without limitation, any obligation of such Person,
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or to purchase (or to advance or supply funds for the purchase of)
any security for the payment of such Debt, (ii) to purchase property, securities
or services for the purpose of assuring the holder of such Debt of the payment
68
of such Debt, or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Debt (and "Guaranteed", "Guaranteeing"
and "Guarantor" shall have meanings correlative to the foregoing); provided,
however, that the Guarantee by any Person shall not include endorsements by such
Person for collection or deposit, in either case, in the ordinary course of
business.
"Guarantor" means a Restricted Subsidiary of the Company that has executed a
Restricted Subsidiary Guarantee.
"Incur" means, with respect to any Debt or other obligation of any Person, to
create, issue, incur (by conversion, exchange or otherwise), assume, Guarantee
or otherwise become liable in respect of such Debt or other obligation including
by acquisition of Subsidiaries or the recording, as required pursuant to
generally accepted accounting principles or otherwise, of any such Debt or other
obligation on the balance sheet of such Person (and "Incurrence", "Incurred",
"Incurrable" and "Incurring" shall have meanings correlative to the foregoing);
provided, however, that a change in generally accepted accounting principles
that results in an obligation of such Person that exists at such time becoming
Debt shall not be deemed an Incurrence of such Debt and that neither the accrual
of interest nor the accretion of original issue discount shall be deemed an
Incurrence of Debt.
"Interest Rate or Currency Protection Agreement" of any Person means any forward
contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars and similar
agreements) relating to, or the value of which is dependent upon, interest rates
or currency exchange rates or indices.
"Investment" by any Person means any direct or indirect loan, advance or other
extension of credit or capital contribution (by means of transfers of cash or
other property to others or payments for property or services for the account or
use of others, or otherwise) to, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Debt issued by, any
other Person, including any payment on a Guarantee of any obligation of such
other Person.
"Investment Grade Rating" means a rating equal to or higher than Baa3 (or the
equivalent) and BBB- (or the equivalent) by Moody's Investors Service, Inc. (or
any successor to the rating agency business thereof) and Standard & Poor's
Ratings Service, a division of McGraw Hill, Inc. (or any successor to the rating
agency business thereof), respectively.
"Lien" means, with respect to any property or assets, any mortgage or deed of
trust, pledge, hypothecation, assignment, Receivables Sale, deposit arrangement,
security interest, lien, charge, easement (other than any easement not
materially impairing usefulness), encumbrance, preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
on or with respect to such property or assets (including, without limitation,
any conditional sale or other title retention agreement having substantially the
69
same economic effect as any of the foregoing). For purposes of this definition
the sale, lease, conveyance or other transfer by the Company or any Subsidiary
of, including the grant of indefeasible rights of use or equivalent arrangements
with respect to, dark or lit communications fiber capacity or communications
conduit shall not constitute a Lien.
"Net Available Proceeds" from any Asset Disposition by any Person means cash or
cash equivalents received (including amounts received by way of sale or
discounting of any note, installment receivable or other receivable, but
excluding any other consideration received in the form of assumption by the
acquiror of Debt or other obligations relating to such properties or assets)
therefrom by such Person, net of (i) any portion thereof Invested within 360
days of such Asset Disposition in Telecommunications Assets, (ii) all legal,
title and recording tax expenses, commissions and other fees and expenses
Incurred and all federal, state, provincial, foreign and local taxes required to
be accrued as a liability as a consequence of such Asset Disposition, (iii) all
payments made by such Person or its Subsidiaries on any Debt which is secured by
such assets in accordance with the terms of any Lien upon or with respect to
such assets or which must by the terms of such Lien, or in order to obtain a
necessary consent to such Asset Disposition or by applicable law, be repaid out
of the proceeds from such Asset Disposition, (iv) all distributions and other
payments made to minority interest holders in Subsidiaries of such Person or
Permitted Joint Ventures as a result of such Asset Disposition and (v)
appropriate amounts to be provided by such Person or any Subsidiary thereof, as
the case may be, as a reserve in accordance with generally accepted accounting
principles against any liabilities associated with such assets and retained by
such Person or any Subsidiary thereof, as the case may be, after such Asset
Disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination costs
associated with such Asset Disposition, in each case as determined by the board
of directors of such Person, in its reasonable good faith judgment evidenced by
a resolution of the board of directors filed with the Trustee; provided,
however, that any reduction in such reserve within twelve months following the
consummation of such Asset Disposition will be for all purposes of the Indenture
and the 7.50% Notes as a new Asset Disposition at the time of such reduction
with Net Available Proceeds equal to the amount of such reduction.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company by
first class mail, postage prepaid, to each holder of 7.50% Notes at its address
appearing in the Note Register on the date of the Offer offering to purchase up
to the principal amount of 7.50% Notes specified in such Offer at the purchase
price specified in such Offer (as determined pursuant to the Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 30 days or more than 60
days after the date of such Offer and a settlement date (the "Purchase Date")
for purchase of 7.50% Notes within five Business Days after the Expiration Date.
The Company shall notify the Trustee at least 15 Business Days (or such shorter
period as is acceptable to the Trustee) prior to the mailing of the Offer of the
Company's obligation to make an Offer to Purchase, and the Offer shall be mailed
by the Company or, at the Company's request, by the Trustee in the name and at
70
the expense of the Company. The Offer shall contain information concerning the
business of the Company and its Subsidiaries which the Company in good faith
believes will enable such holders to make an informed decision with respect to
the Offer to Purchase (which at a minimum will include (i) the most recent
annual and quarterly financial statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in the
documents required to be filed with the Trustee pursuant to the Indenture (which
requirements may be satisfied by delivery of such documents together with the
Offer), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such financial statements referred to in
clause (i) (including a description of the events requiring the Company to make
the Offer to Purchase), (iii) if applicable, appropriate pro forma financial
information concerning the Offer to Purchase and the events requiring the
Company to make the Offer to Purchase and (iv) any other information required by
applicable law to be included therein). The Offer shall contain all instructions
and materials necessary to enable such holders to tender 7.50% Notes pursuant to
the Offer to Purchase. The Offer shall also state: a. the Section of the
Indenture pursuant to which the Offer to Purchase is being made; b. the
Expiration Date and the Purchase Date; c. the aggregate principal amount of the
outstanding 7.50% Notes offered to be purchased by the Company pursuant to the
Offer to Purchase (including, if less than 100%, the manner by which such has
been determined pursuant to the section hereof requiring the Offer to Purchase)
(the "Purchase Amount"); d. the purchase price to be paid by the Company for
each $1,000 aggregate principal amount of 7.50% Notes accepted for payment (as
specified pursuant to the Indenture) (the "Purchase Price"); e. that the holder
may tender all or any portion of the 7.50% Notes registered in the name of such
holder and that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount; f. the place or places where 7.50% Notes
are to be surrendered for tender pursuant to the Offer to Purchase; g. that any
7.50% Notes not tendered or tendered but not purchased by the Company will
continue to accrue interest; h. that on the Purchase Date the Purchase Price
will become due and payable upon each Note being accepted for payment pursuant
to the Offer to Purchase and that interest thereon, if any, shall cease to
accrue on and after the Purchase Date; i. that each holder electing to tender a
Note pursuant to the Offer to Purchase will be required to surrender such Note
at the place or places specified in the Offer prior to the close of business on
the Expiration Date (such Note being, if the Company or the Trustee so requires,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the holder thereof
or his attorney duly authorized in writing); j. that holders will be entitled to
withdraw all or any portion of 7.50% Notes tendered if the Company (or their
Paying Agent) receives, not later than the close of business on the Expiration
Date, a telegram, telex, facsimile transmission or letter setting forth the name
of the holder, the principal amount of the Note the holder tendered, the
certificate number of the Note the holder tendered and a statement that such
holder is withdrawing all or a portion of his tender; k. that (a) if 7.50% Notes
in an aggregate principal amount less than or equal to the Purchase Amount are
duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company
shall purchase all such 7.50% Notes and (b) if 7.50% Notes in an aggregate
principal amount at maturity in excess of the Purchase Amount are tendered and
not withdrawn pursuant to the Offer to Purchase, the Company shall purchase
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7.50% Notes having an aggregate principal amount equal to the Purchase Amount on
a pro rata basis (with such adjustments as may be deemed appropriate so that
only 7.50% Notes in denominations of $1,000 or integral multiples thereof shall
be purchased); and l. that in the case of any holder whose Note is purchased
only in part, the Company shall execute, and the Trustee shall authenticate and
deliver to the holder of such Note without service charge, a new 7.50% Note or
7.50% Notes, of any authorized denomination as requested by such holder, in an
aggregate principal amount at maturity equal to and in exchange for the
unpurchased portion of the Note so tendered. Any Offer to Purchase shall be
governed by and effected in accordance with the Offer for such Offer to
Purchase.
"Officers' Certificate" means a certificate signed by the Chairman of the board
of directors of the Company, a Vice Chairman of the board of directors of the
Company, the President or a Vice President, and by the Chief Financial Officer,
the Chief Accounting Officer, the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company and delivered to the Trustee,
which shall comply with the Indenture.
"Opinion of Counsel" means an opinion of counsel acceptable to the Trustee (who
may be counsel to the Company, including an employee of the Company).
"Permitted Holders" means any Person who was the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of stock of the Company on March
31, 1997 and any Affiliates of such Person (i) who were Affiliates of such
Person on March 31, 1997 or (ii) who were formed, directly or indirectly, by any
such Person after March 31, 1997 provided, however, that Persons who were
beneficial owners (within the meaning of Rule 13d-3 under the Exchange Act) of
such Person on March 31, 1997 continued to be beneficial owners (within the
meaning of Rule 13d-3 under the Exchange Act) at the time of formation of such
Affiliate.
"Permitted Interest Rate or Currency Protection Agreement" of any Person means
any Interest Rate or Currency Protection Agreement entered into with one or more
financial institutions in the ordinary course of business that is designed to
protect such Person against fluctuations in interest rates or currency exchange
rates with respect to Debt Incurred and which shall have a notional amount no
greater than the payments due with respect to the Debt being hedged thereby and
not for purposes of speculation.
"Permitted Investments" means (a) Cash Equivalents; (b) Investments in prepaid
expenses, negotiable instruments held for collection and lease, utility and
workers' compensation, performance and other similar deposits; (c) loans,
advances or extensions of credit to employees and directors made in the ordinary
course of business and consistent with past practice; (d) obligations under
Interest Rate or Currency Protection Agreements; (e) bonds, notes, debentures
and other securities received as a result of Asset Dispositions pursuant to and
in compliance with "--Limitation on Asset Dispositions"; (f) Investments made in
the ordinary course of business as partial payment for constructing a network
relating to a Telecommunications Business; (g) commercially reasonable
extensions of trade credit; (h) Investments in any Person as a result of which
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such Person becomes a Restricted Subsidiary; (i) Investments in Permitted Joint
Ventures in an aggregate amount not to exceed $25 million; (j) Investments in
Affiliates or Related Persons in an aggregate amount not to exceed $11 million,
provided that the making of such Investments is permitted under "--Transactions
with Affiliates and Related Persons"; and (k) Investments in an aggregate amount
not to exceed $15 million consisting of the contribution by the Company or any
Restricted Subsidiary of assets located in Mexico to joint ventures in which the
Company or a Restricted Subsidiary has an interest.
"Permitted Joint Venture" means a corporation, partnership or other entity other
than a Restricted Subsidiary engaged in one or more Telecommunications
Businesses over which the Company and/or one or more Strategic Investors have,
directly or indirectly, the power to direct the policies, management and
affairs.
"Permitted Liens" means (a) Liens for taxes, assessments, governmental charges,
levies or claims which are not yet delinquent or which are being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with generally accepted
accounting principles shall have been made therefor; (b) other Liens incidental
to the conduct of the Company's and its Restricted Subsidiaries' businesses or
the ownership of its property and assets not securing any Debt, and which do not
in the aggregate materially detract from the value of the Company's and its
Restricted Subsidiaries' property or assets when taken as a whole, or materially
impair the use thereof in the operation of its business; (c) Liens with respect
to assets of a Restricted Subsidiary granted by such Restricted Subsidiary to
the Company or a Restricted Subsidiary to secure Debt owing to the Company or
such Restricted Subsidiary; (d) Liens, pledges and deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of statutory obligations; (e) Liens, pledges or
deposits made to secure the performance of tenders, bids, leases, public or
statutory obligations, sureties, stays, appeals, indemnities, performance or
other similar bonds and other obligations of like nature Incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (f) zoning restrictions, servitudes, easements, rights-of-way,
restrictions and other similar charges or encumbrances Incurred in the ordinary
course of business which, in the aggregate, do not materially detract from the
value of the property subject thereto or materially interfere with the ordinary
conduct of the business of the Company or its Restricted Subsidiaries; (g) Liens
arising out of judgments or awards against or other court proceedings concerning
the Company or any Restricted Subsidiary with respect to which the Company or
such Restricted Subsidiary is prosecuting an appeal or proceeding for review and
the Company or such Restricted Subsidiary is maintaining adequate reserves in
accordance with generally accepted accounting principles; and (h) any interest
or title of a lessor in the property subject to any lease other than a Capital
Lease.
"Permitted Telecommunications Capital Asset Disposition" means the transfer,
conveyance, sale, lease or other disposition of a capital asset that is a
Telecommunications Asset (including fiber, conduit and related equipment), (i)
the proceeds of which are treated as revenues by the Company in accordance with
73
generally accepted accounting principles and (ii) that, in the case of the sale
of fiber, would not result in the Company retaining less than 24 fibers per
route mile on any segment of the Company's network.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or agency or political subdivision thereof or any other entity.
"Preferred Dividends" for any Person means for any period the quotient
determined by dividing the amount of dividends and distributions paid or accrued
(whether or not declared) on Preferred Stock of such Person during such period
calculated in accordance with generally accepted accounting principles, by 1
minus the maximum statutory income tax rate then applicable to the Company
(expressed as a decimal).
"Preferred Stock" of any Person means Capital Stock of such Person of any class
or classes (however designated) that ranks prior, as to the payment of dividends
or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Public Equity Offering" means an underwritten public offering of common stock
made on a primary basis by the Company pursuant to a registration statement
filed with, and declared effective by, the Commission in accordance with the
Securities Act.
"Purchase Money Debt" means Debt Incurred at any time within 270 days of, and
for the purposes of financing all or any part of the cost of, the construction,
installation, acquisition or improvement by the Company or any Restricted
Subsidiary of the Company of any new Telecommunications Assets constructed,
installed, acquired or improved after March 31, 1997, provided that the proceeds
of such Debt are expended for such purposes within such 270-day period.
"Rating Agencies" means Moody's Investors Service, Inc. (or any successor to the
rating agency business thereof) and Standard & Poor's Ratings Service, a
division of McGraw Hill, Inc. (or any successor to the rating agency business
thereof).
"Rating Decline" means the 7.50% Notes cease to be rated B` (or the equivalent
thereof) or better by Standard & Poor's Corporation or B2 (or the equivalent
thereof) or better by Moody's Investors Service, Inc.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money, excluding
allowances for doubtful accounts.
"Receivables Sale" of any Person means any sale of Receivables of such Person
(pursuant to a purchase facility or otherwise), other than in connection with a
disposition of the business operations of such Person relating thereto or a
disposition of defaulted Receivables for purposes of collection and not as a
financing arrangement.
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"Related Person" of any Person means any other Person directly or indirectly
owning (a) 5% or more of the outstanding Common Stock of such Person (or, in the
case of a Person that is not a corporation, 5% or more of the outstanding equity
interest in such Person) or (b) 5% or more of the combined outstanding voting
power of the Voting Stock of such Person.
"Restricted Subsidiary" means a Subsidiary of the Company, or of a Restricted
Subsidiary that is a Wholly Owned Subsidiary of the Company, that has not been
designated by the board of directors of the Company (by a board resolution
delivered to the Trustee) as an Unrestricted Subsidiary pursuant to and in
compliance with "--Limitations on Designations of Unrestricted Subsidiaries."
"Restricted Subsidiary Guarantee" means a supplemental indenture to the
Indenture in form satisfactory to the Trustee, providing for an unconditional
Guarantee of payment in full of the principal of, premium, if any, and interest
on the 7.50% Notes. Any such Restricted Subsidiary Guarantee shall not be
subordinate in right of payment to any Debt of the Restricted Subsidiary
providing the Restricted Subsidiary Guarantee.
"Sale and Leaseback Transaction" of any Person means an arrangement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 365 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any Person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Senior Note Indentures" means (i) the Indenture dated as of March 31, 1997
between the Company and Bankers Trust Company, as trustee thereunder, relating
to the Company's 10 7/8% Senior Notes Due 2007 (which were subsequently
exchanged for the Company's 10 7/8% Series B Senior Notes Due 2007) and the
Indenture dated as of August 28, 1997, pursuant to which such 10 7/8% Series B
Senior Notes Due 2007 were issued, (ii) the Indenture dated as of October 15,
1997 between the Company and Bankers Trust Company, as trustee thereunder,
relating to the Company's 9.47% Series B Senior Discount Notes Due 2007 and
(iii) the Indenture dated as of January 29, 1998 between the Company and Bankers
Trust Company, as trustee thereunder, relating to the Company's 8.29% Series B
Senior Discount Notes Due 2008.
"Stated Maturity," when used with respect to a Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Strategic Investor" means a corporation, partnership or other entity engaged in
one or more Telecommunications Businesses that has, or 80% or more of the Voting
Stock of which is owned by a Person that has, an equity market capitalization,
75
at the time of its initial Investment in the Company or in a Permitted Joint
Venture with the Company, in excess of $2 billion.
"Subordinated Debt" means Debt of the Company as to which the payment of
principal of (and premium, if any) and interest and other payment obligations in
respect of such Debt shall be subordinate to the prior payment in full of the
7.50% Notes to at least the following extent: (i) no payments of principal of
(or premium, if any) or interest on or otherwise due in respect of such Debt may
be permitted for so long as any default in the payment of principal (or premium,
if any) or interest on the 7.50% Notes exists; (ii) in the event that any other
Default exists with respect to the 7.50% Notes, upon notice by 25% or more in
principal amount of the 7.50% Notes to the Trustee, the Trustee shall have the
right to give notice to the Company and the holders of such Debt (or trustees or
agents therefor) of a payment blockage, and thereafter no payments of principal
of (or premium, if any) or interest on or otherwise due in respect of such Debt
may be made for a period of 179 days from the date of such notice; and (iii)
such Debt may not (x) provide for payments of principal of such Debt at the
stated maturity thereof or by way of a sinking fund applicable thereto or by way
of any mandatory redemption, defeasance, retirement or repurchase thereof by the
Company (including any redemption, retirement or repurchase which is contingent
upon events or circumstances but excluding any retirement required by virtue of
acceleration of such Debt upon an event of default thereunder), in each case
prior to the final Stated Maturity of the 7.50% Notes or (y) permit redemption
or other retirement (including pursuant to an offer to purchase made by the
Company) of such other Debt at the option of the holder thereof prior to the
final Stated Maturity of the 7.50% Notes, other than a redemption or other
retirement at the option of the holder of such Debt (including pursuant to an
offer to purchase made by the Company) which is conditioned upon a change of
control of the Company pursuant to provisions substantially similar to those
described under "--Change of Control" (and which shall provide that such Debt
will not be repurchased pursuant to such provisions prior to the Company's
repurchase of the 7.50% Notes required to be repurchased by the Company pursuant
to the provisions described under "--Change of Control").
"Subsidiary" of any Person means (i) a corporation more than 50% of the combined
voting power of the outstanding Voting Stock of which is owned, directly or
indirectly, by such Person or by one or more other Subsidiaries of such Person
or by such Person and one or more Subsidiaries thereof or (ii) any other Person
(other than a corporation) in which such Person, or one or more other
Subsidiaries of such Person or such Person and one or more other Subsidiaries
thereof, directly or indirectly, has at least a majority ownership and power to
direct the policies, management and affairs thereof.
"Telecommunications Assets" means all assets, rights (contractual or otherwise)
and properties, whether tangible or intangible, used or intended for use in
connection with a Telecommunications Business.
"Telecommunications Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities, (ii) constructing, creating, developing
or marketing communications related network equipment, software and other
76
devices foruse in a telecommunications business or (iii) evaluating,
participating or pursuing any other activity or opportunity that is primarily
related to those identified in (i) or (ii) above; provided that the
determination of what constitutes a Telecommunications Business shall be made in
good faith by the board of directors of the Company.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as such
pursuant to and in compliance with "--Limitation on Designations of Unrestricted
Subsidiaries."
"Voting Stock" of any Person means Capital Stock of such Person which ordinarily
has voting power for the election of directors (or persons performing similar
functions) of such Person, whether at all times or only for so long as no senior
class of securities has such voting power by reason of any contingency.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person all of
the outstanding Voting Stock or other ownership interests (other than directors'
qualifying shares) of which shall at the time be owned by such Person or by one
or more Wholly Owned Subsidiaries of such Person or by such Person and one or
more Wholly Owned Subsidiaries of such Person.
Events of Default
The following will be Events of Default under the Indenture:
(a) failure to pay principal of (or premium, if any, on) any Note when due;
(b) failure to pay any interest on any Note when due, continued for 30 days;
(c) default in the payment of principal and interest on 7.50% Notes required to
be purchased pursuant to an Offer to Purchase as described under "--Change of
Control" when due and payable;
(d) failure to perform or comply with the provisions described under "--Mergers,
Consolidations and Certain Sales of Assets" and "--Limitation on Asset
Dispositions";
(e) failure to perform any other covenant or agreement of the Company under the
Indenture or the 7.50% Notes continued for 60 days after written notice to the
Company by the Trustee or holders of at least 25% in aggregate principal amount
of the outstanding 7.50% Notes;
(f) default under the terms of any instrument evidencing or securing Debt of the
Company or any Restricted Subsidiary having an outstanding principal amount of
$10 million individually or in the aggregate which default results in the
acceleration of the payment of such indebtedness or constitutes the failure to
pay such indebtedness when due (after expiration of any applicable grace
period);
(g) the rendering of a final judgment or judgments (not subject to appeal)
against the Company or any Restricted Subsidiary in an amount in excess of $10
77
million which remains undischarged or unstayed for a period of 45 days after the
date on which the right to appeal has expired; and
(h) certain events of bankruptcy, insolvency or reorganization affecting the
Company or any Restricted Subsidiary.
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default (as defined) shall occur and be continuing,
the Trustee will not be under any obligation to exercise any of its rights or
powers under the Indenture at the request or direction of any of the holders of
7.50% Notes, unless such holders shall have offered to the Trustee reasonable
indemnity. Subject to such provisions for the indemnification of the Trustee,
the holders of a majority in aggregate principal amount of the outstanding 7.50%
Notes will have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee.
If any Event of Default (other than an Event of Default described in clause
(h) above) shall occur and be continuing, either the Trustee or the holders of
at least 25% in aggregate principal amount at maturity of the outstanding 7.50%
Notes may accelerate the maturity of all 7.50% Notes; provided, however, that
after such acceleration, but before a judgment or decree based on acceleration,
the holders of a majority in aggregate principal amount of the outstanding 7.50%
Notes may, under certain circumstances, rescind and annul such acceleration if
all Events of Default, other than the non-payment of accelerated principal, have
been cured or waived as provided in the Indenture. If an Event of Default
specified in clause (h) above occurs, the outstanding 7.50% Notes will ipso
facto become immediately due and payable without any declaration or other act on
the part of the Trustee or any holder. For information as to waiver of defaults,
see "--Amendment, Supplement and Waiver."
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default (as defined) and unless also the holders of at least 25% in aggregate
principal amount of the outstanding 7.50% Notes shall have made written request
and offered reasonable indemnity to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the holders of a majority
in aggregate principal amount of the outstanding 7.50% Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a holder of a Note for enforcement of payment of the principal of
and premium, if any, or interest on such Note on or after the respective due
dates expressed in such Note. The Company will be required to furnish to the
Trustee quarterly a statement as to the performance by the Company of certain of
its obligations under the Indenture and as to any default in such performance.
Amendment, Supplement and Waiver
The Company and the Trustee may, at any time and from time to time, without
notice to or consent of any holder of 7.50% Notes, enter into one or more
78
indentures supplemental to the Indenture (1) to evidence the succession of
another Person to the Company and the assumption by such successor of the
covenants of the Company in the Indenture and the 7.50% Notes; (2) to add to the
covenants of the Company, for the benefit of the holders, or to surrender any
right or power conferred upon the Company by the Indenture; (3) to add any
additional Events of Default; (4) to provide for uncertificated 7.50% Notes in
addition to or in place of certificated 7.50% Notes; (5) to evidence and provide
for the acceptance of appointment under the Indenture of a successor Trustee;
(6) to secure the 7.50% Notes; or (7) to cure any ambiguity in the Indenture to
correct or supplement any provision in the Indenture which may be inconsistent
with any other provision therein or to add any other provisions with respect to
matters or questions arising under the Indenture; provided such actions shall
not adversely affect the interests of the holders in any material respect. With
the consent of the holders of not less than a majority in principal amount of
the outstanding 7.50% Notes, the Company and the Trustee may enter into one or
more indentures supplemental to the Indenture for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or modifying in any manner the rights of the holders, provided
that no such supplemental indenture shall, without the consent of the holder of
each outstanding Note (1) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or alter the redemption provisions
thereof, or reduce the principal amount thereof (or premium, if any), or the
interest thereon that would be due and payable upon maturity thereof, or change
the place of payment where, or the coin or currency in which, any Note or any
premium or interest thereon is payable, or impair the right to institute suit
for the enforcement of any such payment on or after the maturity thereof; (2)
reduce the percentage in principal amount of the outstanding 7.50% Notes, the
consent of whose holders is necessary for any such supplemental indenture or
required for any waiver of compliance with certain provisions of the Indenture
or certain Defaults thereunder; (3) subordinate in right of payment, or
otherwise subordinate, the 7.50% Notes to any other Debt; or (4) modify any
provision of this paragraph (except to increase any percentage set forth
herein). The holders of not less than a majority in principal amount of the
outstanding 7.50% Notes may, on behalf of the holders of all the 7.50% Notes,
waive any past Default under the Indenture and its consequences, except Default
(1) in the payment of the principal of (or premium, if any) or interest on any
Note, or (2) in respect of a covenant or provision hereof which under the
proviso to the prior paragraph cannot be modified or amended without the consent
of the holder of each outstanding Note affected.
Satisfaction and Discharge of the Indenture, Defeasance
The Company may terminate its obligations under the Indenture when (i) either
(A) all outstanding 7.50% Notes have been delivered to the Trustee for
cancellation or (B) all such 7.50% Notes not theretofore delivered to the
Trustee for cancellation have become due and payable, will become due and
payable within one year or are to be called for redemption within one year under
irrevocable arrangements satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name and at the expense of the Company, and the
Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire indebtedness on
79
the 7.50% Notes not theretofore delivered to the Trustee for cancellation, for
principal of (or premium, if any, on) and interest to the date of deposit or
maturity or date of redemption on such 7.50% Notes; (ii) the Company has paid or
caused to be paid all other sums payable by the Company under the Indenture; and
(iii) the Company has delivered an Officers' Certificate and an Opinion of
Counsel relating to compliance with the conditions set forth in the Indenture.
The Company, at its election, shall (a) be deemed to have paid and discharged
its debt on the 7.50% Notes and the Indenture shall cease to be of further
effect as to all outstanding 7.50% Notes (except as to (i) rights of
registration of transfer, substitution and exchange of 7.50% Notes and the
Company's right of optional redemption, (ii) rights of holders to receive
payments of principal of, premium, if any, and interest on such 7.50% Notes (but
not the Purchase Price referred to under "--Change of Control") and any rights
of the holders with respect to such amounts, (iii) the rights, obligations and
immunities of the Trustee under the Indenture and (iv) certain other specified
provisions in the Indenture) or (b) cease to be under any obligation to comply
with certain restrictive covenants including those described under "--Certain
Covenants," after the irrevocable deposit by the Company with the Trustee, in
trust for the benefit of the holders, at any time prior to the maturity of the
7.50% Notes, of (A) money in an amount, (B) Government Securities which through
the payment of interest and principal will provide, not later than one day
before the due date of payment in respect of the 7.50% Notes, money in an
amount, or (C) a combination thereof, sufficient to pay and discharge the
principal of, and interest on, the 7.50% Notes then outstanding on the dates on
which any such payments are due in accordance with the terms of the Indenture
and of the 7.50% Notes. Such defeasance or covenant defeasance shall be deemed
to occur only if certain conditions are satisfied, including, among other
things, delivery by the Company to the Trustee of an Opinion of Counsel
acceptable to the Trustee to the effect that (i) such deposit, defeasance and
discharge will not be deemed, or result in, a taxable event for federal income
tax purposes with respect to the holders; and (ii) the Company's deposit will
not result in the Trust or the Trustee being subject to regulation under the
Investment Company Act of 1940, as amended.
Governing Law
The Indenture and the 7.50% Notes will be governed by the laws of the State of
New York.
The Trustee
Bankers Trust Company will be the Trustee under the Indenture and the Senior
Note Indentures. The Trustee's current address is Four Albany Street, New York,
New York 10006. The holders of not less than a majority in principal amount of
the outstanding 7.50% Notes will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee, subject to certain exceptions. Except during the continuance of an
Event of Default, the Trustee will perform only such duties as are specifically
set forth in the Indenture. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured or waived), the Trustee will be
required, in the exercise of its rights and powers under the Indenture, to use
80
the degree of care of a prudent person in the conduct of such person's own
affairs.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company, as
such, shall have any liability for any obligations of the Company under the
7.50% Notes or the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation, solely by reason of its status as
a director, officer, employee, incorporator or stockholder of the Company. By
accepting a Note each holder waives and releases all such liability (but only
such liability). The waiver and release are part of the consideration for
issuance of the 7.50% Notes. Nevertheless, such waiver may not be effective to
waive liabilities under the federal securities laws and it has been the view of
the Commission that such a waiver is against public policy.
Transfer and Exchange
A holder may transfer or exchange 7.50% Notes in accordance with the Indenture.
The Company, the Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture.
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company has entered into a registration rights agreement with the initial
purchaser (the "Registration Agreement") pursuant to which the Company agreed,
for the benefit of the holders of the Old Notes, at the Company's cost, (a) by
February 2, 1999, to file a registration statement (a "Registration Statement")
with the Commission with respect to a registered offer to exchange the Old Notes
for the New Notes, (b) to use its best efforts to cause such Registration
Statement to be declared effective under the Securities Act by March 3, 1999,
and (c) to consummate the Exchange Offer by April 2, 1999. For each Old Note
surrendered to the Company pursuant to the Exchange Offer, the holder of such
Old Note will receive an Exchange Note having a principal amount at maturity
equal to that of the surrendered Old Note.
Based upon no-action letters issued by the staff of the Commission to third
parties, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes would in general be freely transferable after
the Exchange Offer without further registration under the Securities Act if the
holder of the New Notes represents (i) that it is not an "affiliate," as defined
in Rule 405 of the Securities Act, of the Company, (ii) that it is acquiring the
New Notes in the ordinary course of its business and (iii) that it has no
arrangement or understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of the New Notes; provided that, in
the case of broker-dealers, a prospectus meeting the requirements of the
Securities Act be delivered as required. However, the Commission has not
considered the Exchange Offer in the context of a no-action letter and there can
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be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
Holders of Old Notes wishing to accept the Exchange Offer must represent to the
Company that such conditions have been met. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer, where it acquired the
Old Notes exchanged for such New Notes for its own account as a result of
market-making or other trading activities, may be deemed to be an "underwriter"
within the meaning of the Securities Act and must acknowledge that it will
deliver a prospectus in connection with the resale of such New Notes. The Letter
of Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, for a
period of one year after consummation of the Exchange Offer, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. A broker-dealer that delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the civil liability
provisions under the Securities Act, and will be bound by the provisions of the
Registration Agreement (including certain indemnification and contribution
rights and obligations). See "The Exchange Offer--Resale of the New Notes" and
"Plan of Distribution."
Each holder of the Old Notes (other than certain specified holders) who wishes
to exchange Old Notes for New Notes in the Exchange Offer will be required to
represent that (a) it is not an affiliate of the Company, (b) any New Notes to
be received by it will be acquired in the ordinary course of its business and
(c) at the time of commencement of the Exchange Offer, it has no arrangement
with any person to participate in the distribution (within the meaning of the
Securities Act) of the New Notes. If the holder is a broker-dealer (a
"Participating Broker-Dealer") who acquired the Old Notes for its own account as
a result of market-making or other trading activities, it may be deemed to be an
"underwriter" within the meaning of the Securities Act and will be required to
acknowledge that it must deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Commission
has taken the position that Participating Broker-Dealers may fulfill their
prospectus delivery requirements with respect to the New Notes (other than a
resale of an unsold allotment from the original sale of the Old Notes) with the
prospectus contained in the Exchange Offer Registration Statement. Under the
Registration Agreement, the Company is required to allow Participating
Broker-Dealers and other persons, if any, subject to similar prospectus delivery
requirements to use the prospectus contained in the Exchange Offer Registration
Statement in connection with the resale of such New Notes.
If, (i) because of any change in law or applicable interpretations thereof by
the Commission's staff, the Company determines upon advice of its outside
counsel that it is not permitted to effect the Exchange Offer as contemplated by
the Registration Agreement, or (ii) for any other reason the Exchange Offer is
not consummated within 180 days of the closing date of the Old Notes, or (iii)
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the initial purchaser so requests with respect to Old Notes held by it following
consummation of the Exchange Offer, or (iv) any holder of Old Notes (other than
the initial purchaser of the Old Notes) is not eligible to participate in the
Exchange Offer or (v) if the initial purchaser participates in the Exchange
Offer or acquires New Notes issued and delivered to it by the Company in
exchange for Old Notes, such purchaser does not receive freely tradeable New
Notes in exchange for Old Notes constituting any portion of an unsold allotment,
the Company will, at its cost, (a) as promptly as practicable, file a shelf
registration statement (a "Shelf Registration Statement") with the Commission
relating to the offer and sale of the Old Notes or the New Notes, (b) cause such
Shelf Registration Statement to be declared effective under the Securities Act
and (c) use its best efforts to keep such Shelf Registration Statement
continuously effective under the Securities Act for a period of three years or
such shorter period that will terminate when all the Old Notes or New Notes, as
applicable, covered by such Shelf Registration Statement have been sold. The
Company will, in the event of filing such a Shelf Registration Statement,
provide to each holder of the Old Notes copies of the prospectus that is a part
of such Shelf Registration Statement, notify each such holder when such Shelf
Registration Statement for the Old Notes has been filed with the Commission and
when such Shelf Registration Statement or any post-effective amendment thereto
has become effective and take certain other actions as are required to permit
unrestricted resales of the 7.50% Notes. A holder of 7.50% Notes that sells such
7.50% Notes pursuant to a Shelf Registration Statement generally will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Agreement which are
applicable to such a holder (including certain indemnification and contribution
rights and obligations).
The Old Notes provide that if (i) the Registration Statement has not been
filed with the Commission within 90 days after the closing date of the Old Notes
or declared effective within 150 days after the closing date of the Old Notes,
or the Exchange Offer has not been consummated within 180 days after the closing
date of the Old Notes or (ii) in lieu thereof, the Shelf Registration Statement
has not been filed with the Commission and declared effective within 210 days
after the closing date of the Old Notes or (iii) after either the Registration
Statement or the Shelf Registration Statement has been declared effective, as
the case may be, such Registration Statement thereafter ceases to be effective
or usable (subject to certain exceptions) in connection with resales of Old
Notes or New Notes in accordance with and during the periods specified in the
Registration Agreement (each such event referred to in clauses (i) through
(iii), a "Registration Default"), additional interest ("Liquidated Interest")
will accrue on the Old Notes (in addition to the stated interest on the Old
Notes) from and including the date on which any such Registration Default shall
occur up to but excluding the date on which all Registration Defaults have been
cured. Liquidated Interest will be payable in cash semiannually in arrears each
November 1 and May 1, at a rate per annum equal to 0.50% of the principal amount
of the Old Notes during the 90-day period immediately following the occurrence
of any Registration Default and shall increase by 0.25% per annum of the
principal amount of the Old Notes at the end of each subsequent 90-day period,
83
but in no event shall such rates exceed 2.00% per annum in the aggregate
regardless of the number of Registration Defaults.
The summary herein of certain provisions of the Registration Agreement does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Registration Agreement, a copy of
which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
84
DESCRIPTION OF CERTAIN INDEBTEDNESS
In March 1997, the Company issued and sold $250.0 million in principal amount
of its 10 7/8% Senior Notes Due 2007 (the "10 7/8% Notes"), the proceeds of
which were used to repay certain indebtedness of the Company and also to fund
capital expenditures for the construction and activation of the Company's
network. Unamortized issuance costs totaling approximately $8.0 million are
being amortized over the term of the 10 7/8% Notes. Interest on the 10 7/8%
Notes is payable semi-annually on April 1 and October 1 of each year, commencing
on October 1, 1997, and the principal amount of the 10 7/8% Notes is due and
payable in full on April 1, 2007. The 10 7/8% Note Indenture contains certain
covenants that, among other things, limit the ability of the Company and certain
of its subsidiaries (the "Restricted Subsidiaries") to incur additional
indebtedness and issue preferred stock, pay dividends or make other
distributions, repurchase capital stock or subordinated indebtedness, create
certain liens, enter into certain transactions with affiliates, sell assets of
the Company or its Restricted Subsidiaries, issue or sell capital stock of the
Company's Restricted Subsidiaries or enter into certain mergers and
consolidations. In addition, under certain limited circumstances, the Company
will be required to offer to purchase the 10 7/8% Notes at a price equal to 100%
of the principal amount thereof plus accrued and unpaid interest to the date of
purchase with the excess proceeds of certain asset sales. In the event of a
Change of Control (as defined in the 10 7/8% Note indenture), holders of the 10
7/8% Notes will have the right to require the Company to purchase all of their
10 7/8% Notes at a price equal to 101% of the aggregate principal amount thereof
plus accrued and unpaid interest. Generally, the 10 7/8% Notes are redeemable,
at the option of the Company, in whole or in part at stated premiums over par on
or after April 1, 2002, and up to 35% of the 10 7/8% Notes may be redeemed at a
premium over par prior to April 1, 2000 with the proceeds of certain public
stock offerings.
In August 1997, the Company completed a registered exchange of new 10 7/8%
Notes (with terms identical in all material respects to the originally issued 10
7/8% Notes) for all of the originally issued 10 7/8% Notes. The Company received
no proceeds from and recognized no profit on the exchange transaction, and no
change in the financial condition of the Company occurred as a result of the
exchange transaction. In December 1998, the Company redeemed $87.5 million of
its 10 7/8% Notes.
In October 1997, the Company issued $555.9 million in principal amount at
maturity of its 9.47% Senior Discount Notes Due 2007 (the "9.47% Notes"),
85
generating net proceeds of approximately $342.1 million, after deducting
offering costs which are included in intangible and other long-term assets and
are being amortized to interest expense over the term of the 9.47% Notes. The
net proceeds were used to fund capital expenditures for continuing construction
and activation of the Company's network and to fund further growth in the
business. The 9.47% Notes accrete at a rate of 9.47% per annum, compounded
semi-annually, to an aggregate principal amount of $555.9 million by October 15,
2002. The principal amount of the 9.47% Notes is due and payable in full on
October 15, 2007. The 9.47% Notes are redeemable at the Company's option, in
whole or in part, at any time on or after October 15, 2002, at specified
redemption prices over par. In addition, prior to October 15, 2000, the Company
may use the net cash proceeds from certain specified equity transactions to
redeem up to 35% of the 9.47% Notes at specified redemption prices over par.
Cash interest on the 9.47% Notes will not accrue until October 15, 2002, and
thereafter will accrue at a rate of 9.47% per annum, and will be payable
semi-annually in arrears commencing on April 15, 2003 and thereafter on April 15
and October 15 (each an interest payment date) of each year. The Company has the
option of commencing the accrual of cash interest on an interest payment date on
or after October 15, 2000, in which case the outstanding principal amount at
maturity of the 9.47% Notes will, on such interest payment date, be reduced to
the then accreted value, and cash interest will be payable on each interest
payment date thereafter. The indenture for the 9.47% Notes contains certain
covenants that are substantially identical to the 10 7/8% Notes described above.
See "Description of the Notes."
In March 1998, the Company completed a registered exchange of new 9.47% Notes
(with terms identical in all material respects to the originally issued 9.47%
Notes) for all of the originally issued 9.47% Notes. The Company received no
proceeds from and recognized no profit on the exchange transaction, and no
change in the financial condition of the Company occurred as a result of the
exchange transaction.
In January 1998, the Company issued $450.5 million in principal amount at
maturity of its 8.29% Senior Discount Notes Due 2008 (the "8.29% Notes"),
generating net proceeds of approximately $299.2 million, after deducting
offering costs which are included in intangible and other long-term assets and
will be amortized to interest expense over the term of the 8.29% Notes. The net
proceeds were used to fund capital expenditures for continuing construction and
activation of the Company's network and to fund further growth in the business.
The 8.29% Notes accrete at a rate of 8.29% per annum, compounded semi-annually,
to an aggregate principal amount of $450.5 million by February 1, 2003. The
principal amount of the 8.29% Notes is due and payable in full on February 1,
2008. The 8.29% Notes are redeemable at the Company's option, in whole or in
part, at any time on or after February 1, 2003, at specified redemption prices
over par. In addition, prior to February 1, 2001, the Company may use the net
cash proceeds from certain specified equity transactions to redeem up to 35% of
the 8.29% Notes at specified redemption prices over par. Cash interest on the
8.29% Notes will not accrue until February 1, 2003, and thereafter will accrue
at a rate of 8.29% per annum, and will be payable semi-annually in arrears
commencing on August 1, 2003 and thereafter on February 1 and August 1 (each an
interest payment date) of each year. The Company has the option of commencing
86
the accrual of cash interest on an interest payment date on or after February 1,
2001, in which case the outstanding principal amount at maturity of the 8.29%
Notes will, on such interest payment date, be reduced to the then accreted
value, and cash interest will be payable on each interest payment date
thereafter. The indenture for the 8.29% Notes contains certain covenants that
are substantially identical to the 10 7/8% Notes and the 9.47% Notes described
above.
In July 1998, the Company completed a registered exchange of new 8.29% Notes
(with terms identical in all material respects to the originally issued 8.29%
Notes) for all of the originally issued 8.29% Notes. The Company received no
proceeds from and recognized no profit on the exchange transaction, and no
change in the financial condition of the Company occurred as a result of the
exchange transaction.
In connection with the acquisition of LCI, the Company assumed LCI's existing
debt instruments, including $350.0 million of 7.25% Senior Notes due 2007 (the
"7.25% Notes Due 2007").
In November 1998, the Company issued and sold the 7.50% Notes, the proceeds of
which were used to fund initiatives to further develop and deploy the Company's
network, gain additional market share in the traditional telecommunications
market segment, expand the Qwest data market strategy and to fund general
working capital needs. Pending the application of the net proceeds of the
offering of the 7.50% Notes, the Company applied a portion of the proceeds to
pay down the outstanding balances under the Company's existing credit
facilities. Unamortized issuance costs totaling approximately $9.0 million are
being amortized over the term of the 7.50% Notes. Interest on the 7.50% Notes is
payable semi-annually on May 1 and November 1 of each year, commencing on May 1,
1999, and the principal amount of the 7.50% Notes is due and payable in full on
November 1, 2008. The indenture for the 7.50% Notes contains certain covenants
that are substantially identical to the 10 7/8% Notes, the 9.47% Notes and the
8.29% Notes described above, except that under the indenture for the 7.50%
Notes, the Company has no obligation to comply with most of the covenants during
any period when the 7.50% Notes have been assigned investment grade ratings. If
the 7.50% Notes later lose an investment grade rating, the covenants will again
apply. See "Description of the Notes."
In connection with the sale of the 7.50% Notes, the Company agreed to make an
offer to exchange new notes, registered under the Securities Act and with terms
identical in all material respects to the 7.50% Notes, for the 7.50% Notes or,
alternatively, to file a shelf registration statement under the Act with respect
to the 7.50% Notes.
In late November 1998, the Company issued and sold $300.0 million in principal
amount of its 7.25% Notes Due 2008, the proceeds of which were used to fund
initiatives to further develop and deploy the Company's network, gain additional
market share in the traditional telecommunications market segment, expand the
Qwest data market strategy and to fund general working capital needs. These
initiatives (which may be effected directly by the Company or through joint
venture and similar arrangements) will include construction, development and
87
lighting of the Company's network, expansion of the data and other business
services offered by the Company, development of sales channels and other needs.
Unamortized issuance costs totaling approximately $2.3 million are being
amortized over the term of the 7.25% Notes Due 2008. Interest on the 7.25% Notes
is payable semi-annually on May 1 and November 1 of each year, commencing on May
1, 1999, and the principal amount of the 7.25% Notes Due 2008 is due and payable
in full on November 1, 2008. The indenture for the 7.25% Notes contains certain
covenants that are substantially identical to the 10 7/8% Notes, the 9.47%
Notes, the 8.29% Notes and the 7.50% Notes described above, except that, like
the 7.50% Notes, under the indenture for the 7.25% Notes Due 2008, the Company
has no obligation to comply with most of the covenants during any period when
the 7.25% Notes Due 2008 have been assigned investment grade ratings. If the
7.25% Notes Due 2008 later lose an investment grade rating, the covenants will
again apply.
In connection with the sale of the 7.25% Notes Due 2008, the Company agreed to
make an offer to exchange new notes, registered under the Securities Act and
with terms identical in all material respects to the 7.25% Notes Due 2008, for
the 7.25% Notes Due 2008 or, alternatively, to file a shelf registration
statement under the Securities Act with respect to the 7.25% Notes Due 2008.
Credit Facility and Lines of Credit
In connection with the acquisition of LCI, the Company assumed a $250.0
million revolving credit facility (the "Credit Facility") from a syndicate of
banks. The Company also assumed three separate discretionary line of credit
agreements (the "Lines of Credit") with commercial banks providing for total
borrowings of up to $75.0 million.
The Credit Facility bears interest at a rate consisting of two components: the
base rate component is dependent upon a market indicator; the second component
varies from 0.30% to 0.75%, based on the more favorable of the relationship of
borrowings levels to operating cash flow (the "leverage ratio") or senior
unsecured debt rating. As of September 30, 1998, the Company had $215.0 million
outstanding under the Credit Facility at an interest rate of 6.0%. The Credit
Facility contains various financial covenants including a leverage ratio
requirement. As of September 30, 1998, the Company was in compliance with all
Credit Facility covenants. The Credit Facility expired on December 31, 1998. In
November 1998, the outstanding balance under the Credit Facility was repaid with
a portion of the proceeds from the 7.50% Notes.
As of September 30, 1998, $17.5 million was outstanding on the Lines of Credit
at an interest rate of 6.3%. In November 1998, the outstanding balances under
the Lines of Credit were repaid with a portion of the proceeds from the 7.50%
Notes. Two of the Lines of Credit expired on Dec. 31, 1998. As of December 31,
1998 the Company had $25.0 million available on the remaining Line of Credit.
On November 5, 1998, the Company executed a commitment letter with its three
lead banks to syndicate an unsecured credit facility of between $500 million and
$750 million. The lead banks agreed to a minimum aggregate commitment of $250.0
million with the remainder expected to be provided by other banks to be added to
88
the syndicate. Subsequent to this, the Company obtained other financing through
the issuance of $300.0 million of 7.25% Senior Notes due 2008 and through an
investment in the Company of $200.0 million by Microsoft Corporation. As a
result of entering into these transactions, the closing of the credit facility
was postponed. The Company is currently in the process of obtraining a new
unsecured $750.0 million to $1.0 billion credit facility through a syndicate of
banks. Consummation of the new credit facility is conditioned, among other
things, on the execution of a mutually satisfactory credit agreement. The
Company and the syndicate of banks are working toward closing in the first
quarter of 1999.
Accounts Receivable Securitization
As of September 30, 1998, the Company, through its wholly-owned subsidiary,
LCI, maintained an agreement to sell a percentage ownership interest in a
defined pool of trade accounts receivable (the "Securitization Program"). Under
the Securitization Program, LCI SPC I, Inc. ("SPC"), a single-purpose subsidiary
of the Company, sold accounts receivable. SPC had approximately $150.0 million
of accounts receivable available for sale and had sold a total of approximately
$125.0 million as of September 30, 1998.
In October 1998, the Company borrowed approximately $67.0 million under a
demand note payable to a bank. This demand note was utilized to reacquire the
ownership interest in a portion of the pool of trade accounts receivable that
were sold under the Securitization Program. The remaining portion of such
accounts was reacquired with cash. In November 1998, the outstanding balance
under the demand note was repaid with a portion of the proceeds of the 7.50%
Notes.
89
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
General
The following is a general discussion of certain of the expected United
States federal income tax consequences applicable to holders of the Old Notes
who purchased the Old Notes for cash pursuant to the Offering, exchange the Old
Notes for New Notes pursuant to this Exchange Offer and hold the Old Notes and
will hold the New Notes as capital assets (such persons are referred to herein
as "Holders"). This discussion is intended only as a descriptive summary and
does not purport to be a complete technical analysis or listing of all potential
tax considerations that may be relevant to Holders. Qwest has received an
opinion of its counsel, Holme Roberts & Owen LLP, that the following describes
the material United States federal income tax consequences expected to result to
Holders, subject to the conditions and limitations described herein. This
discussion is based on the current provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the applicable Treasury regulations
("Regulations"), and public administrative and judicial interpretations of the
Code and Regulations, all of which are subject to change, which changes could be
applied retroactively. This discussion is also based on the information
contained in this Prospectus and the related documents, and on certain
representations from Qwest as to factual matters. This discussion does not cover
all aspects of United States federal taxation that may be relevant to, or the
actual tax effect that any of the
90
matters described herein will have on, particular Holders and does not address
foreign, state, or local tax consequences.
Qwest has not sought and will not seek any ruling from the Internal Revenue
Service (the "Service") with respect to the 7.50% Notes. There can be no
assurance that the Service will not take a different position concerning the tax
consequences of the exchange of Old Notes for New Notes or the ownership or
disposition of the New Notes, or that the Service's position would not be
sustained by a court.
The United States federal income tax consequences to a Holder may vary
depending upon the Holder's particular situation or status. Holders that are
subject to special rules under the Code (including insurance companies,
tax-exempt organizations, mutual funds, retirement plans, financial
institutions, dealers in securities or foreign currency, persons that hold the
7.50% Notes as part of a "straddle" or as a "hedge" against currency risk or in
connection with a conversion transaction, persons that have a functional
currency other than the United States dollar, investors in pass-through
entities, traders in securities that elect to mark to market, and except as
expressly addressed herein, Non-U.S. Holders (as defined below)) may be subject
to special rules not discussed below.
As used in this discussion, the term "U.S. Holder" means a Holder that, for
United States federal income tax purposes, is (i) a citizen or resident of the
United States, (ii) a corporation, partnership, or other entity created or
organized in or under the laws of the United States, of the District of
Columbia, or of any State, (iii) an estate the income of which is subject to
United States federal income tax, regardless of its source, or (iv) a trust if
(a) a court within the United States is able to exercise primary supervision
over the administration of the trust and (b) one or more United States persons
have the authority to control all substantial decisions of the trust. The term
"Non-U.S. Holder" means a Holder that is, for United States federal income tax
purposes, not a U.S. Holder.
THIS DISCUSSION IS FOR GENERAL INFORMATION PURPOSES ONLY. EACH HOLDER IS
URGED TO CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH
PERSON OF EXCHANGING OLD NOTES FOR NEW NOTES AND OF HOLDING AND DISPOSING OF THE
NEW NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ALL FOREIGN, STATE, OR
LOCAL TAX LAWS AND OF ANY CHANGE IN FEDERAL INCOME TAX LAW OR ADMINISTRATIVE OR
JUDICIAL INTERPRETATION THEREOF SINCE THE DATE OF THIS PROSPECTUS.
Although there is no direct authority as to whether the exchange of Old
Notes for New Notes pursuant to the Exchange Offer will be treated as a taxable
exchange for United States federal income tax purposes, it is the opinion of
Holme Rboberts & Owen LLP, counsel to Qwest, that based on its analysis of
applicable law, such exchange should not be treated as a taxable exchange for
United States federal income tax purposes. A Holder should not recognize gain or
loss upon the exchange of Old Notes for New Notes pursuant to the Exchange Offer
and, upon such exchange, should have the same adjusted tax basis in and holding
period for the New Notes as it had in the Old Notes immediately prior to the
exchange.
Original Issue Discount
Qwest was advised by the Initial Purchaser at the time of the sale of the
Old Notes that the Initial Purchaser intended to sell the Old Notes at a price
equal to 99.324% of the stated principal amount of the Old Notes, and Qwest
believes that substantially all of the Old Notes were sold to investors at that
price. This discussion is therefore based on the assumption that the Old Notes
were not issued with an amount of original issue discount in excess of the de
minimis exception under the Code, and thus, that the original issue discount
amount, if any, will be considered zero for United States federal income tax
purposes. Each U.S. Holder is required to include stated
91
interest on the 7.50% Notes in gross income in accordance with such U.S.
Holder's regular method of tax accounting.
Effect of Liquidated Interest
Pursuant to the Registration Agreement, Qwest has agreed to commence a
registered Exchange Offer pursuant to a Registration Statement or to cause the
7.50% Notes to be registered under the Securities Act pursuant to a Shelf
Registration Statement within the time periods set forth therein. If the
applicable deadlines are not met with respect to the Exchange Offer or the Shelf
Registration Statement, additional interest (in the form of Liquidated Interest)
will accrue and be payable semiannually with respect to the 7.50% Notes. See
"Exchange Offer Registration Rights" and "Description of the 7.50% Notes."
Although the treatment is not free from doubt, the provision for the payment of
Liquidated Interest probably constitutes contingent payments for purposes of
computing original issue discount. Qwest believes that it is unlikely that the
Exchange Offer and Shelf Registration Statement requirements of the Registration
Agreement will not be met, and thus, that Liquidated Interest will be required
to be paid with respect to the 7.50% Notes. Accordingly, Qwest intends to treat
the Liquidated Interest contingency as remote and thus that it will not occur
for purposes of computing original issue discount. If, contrary to this
assumption, Liquidated Interest is triggered, then the additional interest will
be reportable as income at that time or will be reflected as original issue
discount on the 7.50% Notes. Also, if Liquidated Interest is triggered, the U.S.
Holder may be subject to special rules applicable to gains or losses recognized
on the disposition of a contingent payment debt instrument.
Market Discount
Under the market discount rules of the Code, a U.S. Holder who purchases a
7.50% Note at a "market discount" will generally be required to treat any gain
recognized on the disposition of the 7.50% Note as ordinary income to the extent
of the lesser of such gain or the portion of the market discount that accrued
during the period that the U.S. Holder held such 7.50% Note. Market discount is
generally defined as the amount by which a U.S. Holder's purchase price for a
7.50% Note is less than the stated redemption price at maturity (the stated
principal amount in this case) of the 7.50% Note on the date of purchase,
subject to a statutory de minimis exception. A U.S. Holder who acquires a 7.50%
Note at a market discount may be required to defer all or a portion of any
interest expense that otherwise may be deductible on any indebtedness incurred
or continued to purchase or carry such 7.50% Note until the retirement of the
7.50% Note, or if earlier, the U.S. Holder disposes of the 7.50% Note in a
taxable transaction. A U.S. Holder who has elected under applicable Code
provisions to include market discount in income annually as such discount
accrues will not, however, be required to treat any gain recognized as ordinary
income or to defer any deductions for interest expense under these rules. This
election to include market discount in income currently, once made, applies to
all market discount obligations acquired on or after the first day of the
taxable year to which the election applies and may not be revoked without the
consent of the Service. Holders should consult their tax advisors as to the
portion of any gain that would be taxable as ordinary income
92
under these provisions and any other consequences of the market discount rules
that may apply to them in particular.
Amortizable Bond Premium
Generally, if the tax basis of an obligation held as a capital asset exceeds
the amount payable at maturity of the obligation, such excess will constitute
amortizable bond premium that the holder of such debt instrument may elect,
under section 171 of the Code, to amortize as an offset to interest income under
the constant yield method over the period from its acquisition date to the
obligation's maturity date subject to special rules for early call provisions. A
U.S. Holder who elects to amortize bond premium must reduce its tax basis in the
related 7.50% Notes by the amount of the aggregate amortization allowable as
amortizable bond premium. An election to amortize bond premium applies to all
obligations with amortizable bond premium held by the electing U.S. Holder at
the beginning of the first taxable year to which the election applies or
thereafter acquired by the U.S. Holder and is irrevocable without the consent of
the Service.
Sale, Retirement, or Other Taxable Disposition
Upon the sale, retirement, or other taxable disposition of a 7.50% Note, a
U.S. Holder will generally recognize gain or loss measured by the difference
between (i) the amount of cash plus the fair market value of property received
in exchange therefor (except to the extent attributable to accrued interest not
previously taken into account) and (ii) the U.S. Holder's adjusted tax basis in
the 7.50% Note. If the 7.50% Note has market discount or amortizable bond
premium, appropriate adjustments may be required in computing the U.S. Holder's
adjusted tax basis for the 7.50% Note. Any gain or loss on the sale, retirement,
or other taxable disposition of a 7.50% Note, measured as described above, will
generally be capital gain or loss (except as discussed under "-Market
Discount"). In the case of an individual U.S. Holder, such capital gain will be
taxable at various preferential rates, depending on such U.S. Holder's holding
period for the 7.50% Note at the time of disposition.
With respect to tax matters related to legal defeasance and covenant
defeasance in certain circumstances, see "Description of the 7.50%
Notes-Satisfaction and Discharge of the Indenture, Defeasance."
Backup Withholding
The backup withholding rules of the Code require a payor to deduct and
withhold a tax amount if (i) the payee fails to furnish a taxpayer
identification number ("TIN") to the payor, (ii) the Service notifies the payor
that the TIN furnished by the payee is incorrect, (iii) the payee has failed to
report properly the receipt of a "reportable payment" and the Service has
notified the payor that withholding is required, or (iv) there has been a
failure on the part of the payee to certify under penalty of perjury that the
payee is not subject to withholding under section 3406 of the Code. If any one
93
of the events discussed above occurs, Qwest or its paying agent or other
withholding agent will be required to withhold a tax equal to 31 percent of
any "reportable payment" which includes, among other things, interest
actually paid and amounts paid through brokers in retirement of securities.
Any amount withheld from a payment to a U.S. Holder under the backup
withholding rules will be allowed as a refund or credit against such U.S.
Holder's United States federal income tax, provided that the required
information is furnished to the Service. Certain U.S. Holders (including,
among others, corporations) are not subject to the backup withholding or
information reporting requirements.
Certain Tax Consequences to Non-U.S. Holders
General. The following discussion is for general information purposes only
and does not purport to cover all aspects of United States federal taxation that
may apply to, or the actual tax effect that any of the matters described herein
will have on, any particular Non-U.S. Holder. Non-U.S. Holders are urged to
consult their tax advisors as to the particular tax consequences to them of
purchasing, holding and disposing of the 7.50% Notes.
Portfolio Interest Exemption. A Non-U.S. Holder not engaged in any U.S.
trade or business will generally, under the portfolio interest exemption of the
Code, not be subject to United States federal income taxes or United States
federal withholding tax, on payments of principal, if any, on the 7.50% Notes,
and interest paid on the 7.50% Notes, provided that (i) the Non-U.S. Holder does
not actually or constructively own 10 percent or more of the total combined
voting power of all classes of stock of Qwest entitled to vote, (ii) the
Non-U.S. Holder is not (a) a bank receiving interest pursuant to a loan
agreement entered into in the ordinary course of its trade or business or (b) a
controlled foreign corporation that is related to Qwest through stock ownership,
(iii) such interest is not effectively connected with a United States trade or
business and (iv) either (a) the beneficial owner of the 7.50% Notes certifies
to Qwest or its agent, under penalties of perjury, that it is not a U.S. Holder
and provides a completed IRS Form W-8 ("Certificate of Foreign Status") or (b) a
securities clearing organization, bank, or other financial institution which
holds customers' securities in the ordinary course of its trade or business (a
"financial institution") and holds the 7.50% Notes, certifies to Qwest or it
agent, under penalties of perjury, that it has received Form W-8 from the
beneficial owner or that it has received from another financial institution a
Form W-8 and furnishes the payor with a copy thereof and none of the persons
reviewing the relevant certification or IRS Form has actual knowledge that the
certification or any statement on the IRS Form is false. If any of the
situations described in proviso (i), (ii), or (iv) of the preceding sentence do
not exist, interest on the 7.50% Notes, when paid, is subject to United
States withholding tax at the rate of 30 percent, unless an income tax treaty
between the United States and the country of which the Non-U.S. Holder is a tax
resident provides for the elimination or reduction in the rate of United States
federal withholding tax. Interest for this purpose includes income, other than
capital gains, received from the sale or exchange of the 7.50% Notes or from a
payment on the 7.50% Notes to the extent of unpaid interest accrued while the
7.50% Notes were held by a Non-U.S. Holder and the amounts so accrued were not
previously subject to United States withholding tax.
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Effectively Connected Income. If a Non-U.S. Holder is engaged in a trade or
business in the United States and interest on the 7.50% Notes is effectively
connected with the conduct of such trade or business, such Non-U.S. Holder,
although exempt from United States federal withholding tax as discussed in the
preceding paragraph (or by reason of the delivery of a properly completed IRS
Form 4224), will be subject to United States federal income tax on such interest
and on any gain realized on the sale, exchange, or other disposition of a Note
in the same manner as if it were a U.S. Holder. In addition, if such Non-U.S.
Holder is a foreign corporation, it may be subject to a branch profits tax equal
to 30 percent of its effectively connected earnings and profits for that taxable
year, subject to certain adjustments, unless it qualifies for a lower rate under
an applicable income tax treaty.
Federal Estate Tax. 7.50% Notes owned or treated as owned by an individual who
is neither a United States citizen nor a United States resident (as defined for
United States federal estate tax purposes) at the time of death will be excluded
from the individual's gross estate for United States federal estate tax purposes
and will not be subject to United States federal estate tax if the individual
does not own, actually or constructively, 10% or more of the total combined
voting power of all classes of stock of Qwest entitled to vote and, at the time
of such individual's death, payments with respect to such 7.50% Notes would not
have been effectively connected to the conduct by such individual of a trade or
business in the United States.
Disposition of the 7.50% Notes. A Non-U.S. Holder generally will not be
subject to United States federal income tax on any gain realized in connection
with the sale, exchange, or retirement of the 7.50% Notes, unless: (i)(a) the
gain is effectively connected with a trade or business carried on by the
Non-U.S. Holder within the United States or (b) if a tax treaty applies, the
gain is generally attributable to the United States permanent establishment
maintained by the Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is
an individual, such Non-U.S. Holder is present in the United States for 183 days
or more in the taxable year of disposition, and certain other conditions are
satisfied, or (iii) the Non-U.S. Holder is subject to tax pursuant to provisions
of the Code applicable to United States expatriates.
Information Reporting and Backup Withholding Tax. In general, there is no
United States information reporting requirement or backup withholding tax on
payments to Non-U.S. Holders who provide the appropriate certification described
above regarding qualification for the portfolio interest exemption from United
States federal income tax for payments of interest on the 7.50% Notes.
In general, backup withholding and information reporting will not apply to a
payment of the gross proceeds of a sale of the 7.50% Notes effected at a foreign
office of a broker. If, however, such broker is, for United States federal
income tax purposes, a United States person, a controlled foreign corporation, a
foreign person, 50 percent or more of whose gross income for certain periods is
derived from activities that are effectively connected with the conduct of a
trade or business in the United States, or (in the case of payments made after
December 31, 1999) a foreign partnership with certain connections to the United
States, such payments will not be subject to backup withholding, but will be
95
subject to information reporting, unless (i) such broker has documentary
evidence in its records that the beneficial owner is a Non-U.S. Holder and
certain other conditions are met or (ii) the beneficial owner otherwise
establishes an exemption.
Payment by Qwest of principal on the 7.50% Notes or payment by a United States
office of a broker of the proceeds of a sale of the 7.50% Notes is subject to
both backup withholding and information reporting unless the beneficial owner
provides a completed IRS Form W-8 which certifies under penalties of perjury
that it is a Non-U.S. Holder who meets all the requirements for exemption from
United States federal income tax on any gain from the sale, exchange, or
retirement of the 7.50% Notes. Backup withholding is not an additional tax. Any
amounts withheld under the backup withholding rules will be allowed as a refund
or a credit against such Non-U.S. Holder's United States federal income tax
liability, provided the required information is furnished to the Service.
Recently promulgated Regulations (the "New Regulations") would modify the
procedures to be followed by Non-U.S. Persons and payors of interest and sale
proceeds in complying with the United States federal withholding, backup
withholding, and information reporting rules, and the availability of any
exemption therefrom. The New Regulations are not currently effective, but will
generally be effective for payments made after December 31, 1999. In general,
the New Regulations do not significantly alter the current substantive
withholding and information requirements, but unify current certification
procedures and forms and clarify reliance standards. The New Regulations impose
more stringent conditions on the ability of financial intermediaries acting for
Non-U.S. Holders to provide certifications on behalf of Non-U.S. Holders. Each
Holder of a Note is strongly urged to consult its tax advisor regarding the
effect of the New Regulations on the purchase, ownership and disposition of the
7.50% Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. The Company has agreed that for a period of one year after
consummation of the Exchange Offer, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
The Company will not receive any proceeds from any sale of New Notes by any
broker-dealer. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
96
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of one year after consummation of the Exchange Offer, the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the letter of transmittal. The Company has agreed to pay all expenses
incident to the Company's performance of, or compliance with, the Registration
Agreement and all expenses incident to the Exchange Offer (including the
expenses of one counsel for the holders of the Old Notes) other than commissions
or concessions of any brokers or dealers, and will indemnify the holders
(including any broker-dealers) and certain parties related to the holders
against certain liabilities, including liabilities under the Securities Act.
The Company has not entered into any arrangements or understandings with any
person to distribute the New Notes to be received in the Exchange Offer.
LEGAL MATTERS
The validity of the New Notes and certain other legal matters in connection
with the New Notes offered hereby are being passed upon for the Company by Holme
Roberts & Owen LLP, Denver, Colorado with respect to matters of United States
law. Certain United States federal income tax matters will be passed upon for
the Company by Holme Roberts & Owen LLP, Denver, Colorado.
EXPERTS
The consolidated financial statements and schedule of Qwest Communications
International Inc. and subsidiaries as of December 31, 1997 and 1996 and for
each of the years in the three-year period ended December 31, 1997 have been
incorporated herein and in the Registration Statement by reference in reliance
upon the report pertaining to such consolidated financial statements, dated
February 24, 1998, except as to note 22, which is as of March 8, 1998, and the
report dated February 24, 1998 pertaining to such schedule, of KPMG LLP,
independent certified public accountants, incorporated herein and in the
Registration Statement by reference, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements and schedules of LCI International, Inc.
and subsidiaries as of December 31, 1997 and 1996 and for each of the years in
the three-year period ended December 31, 1997 incorporated by reference herein
have been audited by Arthur Andersen LLP, independent public accountants as
stated in their reports also incorporated by reference herein.
97
The consolidated financial statements of Phoenix Network, Inc. as of December
31, 1997 and 1996 and for each of the years in the three-year period ended
December 31, 1997 have been audited by Grant Thornton LLP, independent certified
public accountants.
The financial statements of SuperNet, Inc. as of and for the year ended June
30, 1997 have been audited by Dollinger, Smith & Co., independent certified
public accountants.
The consolidated financial statements of Icon CMT Corp. as of December 31, 1996
and 1997 and for each of the three years in the period ended December 31, 1997,
have been incorporated herein by reference to the Registration Statement (No.
333-65095) on Form S-4 of Qwest Communications International Inc. dated
September 30, 1998, as amended by Amendment No. 1 to the S-4 dated December 10,
1998. Such financial statements, except as they relate to Frontier Media Group,
Inc. as of December 31, 1996 and 1997 and for each of the two years in the
period ended December 31, 1997, have been audited by PricewaterhouseCoopers LLP,
independent accountants, and insofar as they relate to Frontier Media Group,
Inc. as of December 31, 1996 and 1997 and for each of the two years in the
period ended December 31, 1997, by Ernst & Young LLP, independent accountants.
98
QWEST COMMUNICATIONS INTERNATIONAL INC.
OFFER TO EXCHANGE
7.50% SERIES B SENIOR DISCOUNT NOTES DUE 2008 FOR ANY AND ALL OF ITS
OUTSTANDING 7.50% SENIOR DISCOUNT NOTES DUE 2008
[LOGO]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ___DAY,
__________ __, 1999, UNLESS EXTENDED; PROVIDED IT MAY NOT BE EXTENDED BEYOND
_________ __, 1999.
PROSPECTUS
DATED JANUARY __, 1999
99
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") empowers a
Delaware corporation to indemnify any persons who are, or are threatened to be
made, parties to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of such corporation), by reason of the fact that
such person is or was an officer or director of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, if such
officer or director acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe such officer's or director's conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of the corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation in the performance of his duty. Where an officer or
director is successful on the merits or otherwise in the defense of any action
referred to above, the corporation must indemnify such officer or director
against the expenses which such officer or director actually and reasonably
incurred.
In accordance with Section 102(b)(7) of the DGCL, the Company's Certificate of
Incorporation provides that directors shall not be personally liable for
monetary damages for breaches of their fiduciary duty as directors except for
(i) breaches of their duty of loyalty to the Company or its stockholders, (ii)
acts or omissions not in good faith or which involve intentional misconduct or
knowing violations of law, (iii) certain transactions under Section 174 of the
DGLC (unlawful payment of dividends or unlawful stock purchases or redemptions)
or (iv) transactions from which a director derives an improper personal benefit.
The effect of this provision is to eliminate the personal liability of directors
for monetary damages for actions involving a breach of their fiduciary duty of
care, including any actions involving gross negligence.
The Certificate of Incorporation and the By-laws of the Company provide for
indemnification of the Company's officers and directors to the fullest extent
permitted by applicable law, except that the By-laws provide that the Company is
required to indemnify an officer or director in connection with a proceeding
initiated by such person only if the proceeding was authorized by the Board of
Directors of the Company. In addition, the Company maintains insurance policies
which provide coverage for its officers and directors in certain situations
where the Company cannot directly indemnify such officers or directors.
100
Pursuant to Section 145 of the DGCL and the Certificate of Incorporation and
the By-laws of the Company, the Company maintains directors' and officers'
liability insurance coverage.
101
ITEM 21. EXHIBITS AND FINANCIAL DATA SCHEDULES.
(a) The following is a complete list of Exhibits filed as part of this
Registration Statement, which are incorporated herein:
EXHIBIT NO.
1.1 Purchase Agreement dated October 28, 1998, between the Company and
Salomon Smith Barney Inc.
3.1** Amended and Restated Certificate of Incorporation of Qwest.
3.2 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of Qwest (incorporated by reference to the exhibit of
the same number to Qwest's Registration Statement on Form S-3 (File
No. 333-58617) filed July 7, 1998).
3.3 Bylaws of Qwest (incorporated by reference to exhibit 3 in Qwest's
Form 10-Q for the quarter ended September 30, 1997 (File No. 000-
22609)).
4.1(a)*** Indenture dated as of October 15, 1997 with Bankers Trust Company
(including form of Qwest's 9.47% Senior Discount Notes due 2007 and
9.47% Series B Senior Discount Notes due 2007 as an exhibit thereto).
4.1(b)****Indenture dated as of August 28, 1997 with Bankers Trust Company
(including form of Qwest's 10 7/8% Series B Senior Notes due 2007 as
an exhibit thereto).
4.1(c)****Indenture dated as of January 29, 1998 with Bankers Trust Company
(including form of Qwest's 8.29% Senior Discount Notes due 2008 and
8.29% Series B Senior Discount Notes due 2008 as an exhibit thereto).
4.1(d) Indenture dated as of November 27, 1998 with Bankers Trust Company
(including form of the Company's 7.25% Senior Discount Notes Due
2008 and 7.25% Series B Senior Discount Notes Due as an exhibit
thereto).
4.1(e) Indenture dated as of November 4, 1998 with Bankers Trust Company
(including form of the Company's 7.50% Senior Discount Notes Due 2008
and 7.50% Series B Senior Discount Notes Due as an exhibit thereto).
4.2(a) Registration Agreement dated November 4, 1998 with Salomon Brothers
Inc. relating to the Company's 7.50% Senior Discount Notes Due 2008.
102
4.2(b) Registration Agreement dated November _, 1998 with Salomon Brothers
Inc. relating to the Company's 7.25% Senior Discount Notes Due 2008.
4.3 Third Amended and Restated Credit Agreement, dated as of September 5,
1997, by and among LCI International Inc., First Union National Bank,
Nationsbank of Texas, N.A., and the Bank of New York (incorporated by
reference to exhibit 4(c)(xv) in LCI's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997).
4.4 Indenture dated as of June 23, 1997 between LCI International, Inc.,
and First Trust National Association, as trustee, Providing for the
Issuance of Senior Debt Securities, including Resolutions of the
Pricing Committee of the Board of Directors establishing the terms of
the 7.25% Senior Notes due June 15, 2007 (incorporated by reference
to exhibit 4(c) in LCI's Current Report on Form 8-K dated June 23,
1997).
5.1 Opinion of Holme Roberts & Owen LLP with respect to the legality of
the securities being registered.
8.1 Opinion of Holme Roberts & Owen LLP with respect to certain tax
matters.
10.1** Growth Share Plan, as amended, effective October 1, 1996.
10.2** Employment Agreement dated December 21, 1996 with Joseph P. Nacchio.
10.3** Promissory Note dated November 20, 1996 and Severance Agreement
dated December 1, 1996 with Robert S. Woodruff.
10.4**** Equity Compensation Plan for Non-Employee Directors.
10.5**+ IRU Agreement dated as of October 18, 1996 with Frontier
Communications International Inc.
10.6**+ IRU Agreement dated as of February 26, 1996 with WorldCom Network
Services, Inc.
10.7**+ IRU Agreement dated as of May 2, 1997 with GTE.
10.8** Equity Incentive Plan.
10.9**** Employment Agreement dated March 7, 1997 with Stephen M. Jacobsen.
10.10**** Employment Agreement dated October 8, 1997 with Lewis O. Wilks.
10.11**** Employment Agreement dated September 26, 1997 with Brij Khandelwal.
103
10.12**** Employment Agreement dated September 19, 1997 with Larry Seese.
10.13**** Growth Share Plan Agreement with Joseph P. Nacchio, effective January
1, 1997, and Amendment thereto.
10.14**** Non-Qualified Stock Option Agreement with Joseph P. Nacchio,
effective June 1997.
10.15 Employment Agreement, dated as of October 18, 1993, between LCI
International Management Services, Inc. and Joseph A. Lawrence
(incorporated by reference to LCI's Annual Report on Form 10-K for
the year ended December 31, 1994).*
10.16 LCI International, Inc. 1992 Stock Option Plan (incorporated by
reference to LCI's Registration Statement No. 33-60558).*
10.17 LiTel Communications, Inc. 1993 Stock Option Plan (incorporated by
reference to LCI's Registration Statement No. 33-60558).*
10.18 LCI International, Inc. 1994/1995 Stock Option Plan (incorporated by
reference to LCI's Annual Report on Form 10-K for the year ended
December 31, 1993).*
10.19 LCI International, Inc. and Subsidiaries Nonqualified Stock Option
Plan for Directors (incorporated by reference to LCI's Registration
Statement No. 33-67368).*
10.20 LCI International, Inc. 1995/1996 Stock Option (incorporated by
reference to LCI's Proxy Statement for the 1995 Annual Meeting of
Shareowners).*
10.21 Employment Agreement, dated as of March 20, 1994, between LCI
International, Inc. and H. Brian Thompson (incorporated by reference
to LCI's Annual Report on Form 10-K for the year ended December 31,
1994).*
10.22 LCI International Management Services, Inc. Supplemental Executive
Retirement Plan (incorporated by reference to LCI's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1995).*
10.23 Employment Agreement, dated as of October 1, 1995 between LCI
International Management Services, Inc., and Larry Bouman
(incorporated by reference to exhibit 10(1)(xviii) in LCI's Annual
Report on Form 10-K for the year ended December 31, 1995).*
10.24 1997/1998 LCI International, Inc. Stock Option Plan (incorporated by
reference to exhibit 10(1)(xxi) in LCI's Annual Report on Form 10-K
for the year ended December 31, 1996).*
10.25 LCI International, Inc. and Subsidiaries Executive Incentive
104
Compensation Plan (incorporated by reference to exhibit 10(1)(xxii)
in LCI's Annual Report on Form 10-K for the year ended December 31,
1996).*
10.26 Contractor Agreement dated January 18, 1993 by and between LCI
International Telecom Corp. and American Communications Network, Inc.
(incorporated by reference to LCI's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1995). Portions of this exhibit have
been omitted pursuant to a request for confidential treatment.*
10.27 Transfer and Administrative Agreement among Enterprise Funding
Corporation, LCI SPC I, Inc., LCI International Telecom Corp.,
NationsBank, N.A. and certain other parties thereto, dated August 29,
1996 (incorporated by reference to exhibit 10(r)(i) in LCI's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1996).
10.28 Receivables Purchase Agreement dated August 29, 1996, among LCI
International Telecom Corp. and LCI SPC I, Inc. (incorporated by
reference to exhibit 10(r)(ii) in LCI's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996).
10.29 Subordinated Intercompany Revolving Note, dated August 29, 1996,
issued to LCI International Telecom Corp. by LCI SPC I, Inc.
(incorporated by reference to exhibit 10(r)(iii) in LCI's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1996).
10.30 Support Agreement, dated August 29, 1996, by LCI International, Inc.
in favor of LCI SPC I, Inc. (incorporated by reference to exhibit
10(r)(iv) in LCI's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1996).
10.31 Participation Agreement dated as of November 1996 among LCI
International, Inc., as the Construction Agent and as the Lessee,
First Security Bank, National Association, as the Owner Trustee under
the Stuart Park Trust the various banks and lending institutions
which are parties thereto from time to time as the Holders, the
various banks and lending institutions which are parties thereto from
time to time as the Lenders and NationsBank of Texas, N.A., as the
Agent for the Lenders (incorporated by reference to exhibit 10(s)(i)
in LCI's Annual Report on Form 10-K for the year ended December 31,
1996).
10.32 Unconditional Guaranty Agreement dated as of November 15, 1996 made
by LCI International, Inc., as Guarantor in favor of NationsBank of
Texas, N.A., as Agent for the ratable benefit of the Tranche A
Lenders (incorporated by reference to exhibit 10(s)(ii) in LCI's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.33 Agency Agreement between LCI International, Inc., as the
105
Construction Agent and First Security Bank, National Association, as
the Owner Trustee under the Stuart Park Trust as the Lessor dated as
of November 15, 1996 (incorporated by reference to exhibit 10(s)(iii)
in LCI's Annual Report on Form 10-K for the year ended December 31,
1996).
10.34 Deed of Lease Agreement dated as of November 15, 1996 between First
Security Bank, National Association as the Owner Trustee under the
Stuart Park Trust, as Lessor and LCI International, Inc. as Lessee
(incorporated by reference to exhibit 10(s)(iv) in LCI's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.35* Equity Compensation Plan for Non-Employee Directors.
12.1 Statement re Computation of Ratios.
21.1 Subsidiaries of the Registrant (incorporated by reference to the
exhibit of the same number in Form S-4 (File No. 333-65095)
23.1 Consent of KPMG LLP.
23.2 Consent of Arthur Andersen LLP.
23.3 Consent of Grant Thornton LLP.
23.4 Consent of PricewaterhouseCoopers LLP.
23.5 Consent of Ernst & Young LLP.
23.6 Consent of Dollinger, Smith & Co.
23.7 Consent of Holme Roberts & Owen LLP (contained in Exhibit 5.1).
24.1 Power of Attorney. Included on the signature page hereof.
25 Form T-1, Statement of Eligibility of Bankers Trust Company.
- - --------
*Indicates executive compensation plans and arrangements.
** Incorporated by reference to the exhibit of the same number in Form S-1
as declared effective on June 23, 1997 (File No. 333-25391).
*** Incorporated by reference to exhibit 4.1 in Form S-4 as declared
effective on January 5, 1998 (File No. 333-42847).
**** Incorporated by reference to the exhibit of the same number in Qwest's Form
10-K for the year ended December 31, 1997.
+ Portions have been omitted pursuant to a request for confidential
106
treatment.
(b) Financial Statement Schedules. The following is a complete list of
financial statement schedules filed as part of this Registration Statement,
which are incorporated by reference herein from Amendment No. 1 to Registration
Statement on Form S-4 (File No. 333-65095):
Schedule Number
II-A Qwest Communications International Inc.
Valuation and Qualifying Accounts
II-B LCI International Inc.
Valuation and Qualifying Accounts
II-C Icon CMT Corp.
Valuation and Qualifying Accounts
ITEM 22. UNDERTAKINGS.
(a) The undersigned Company hereby undertakes:
(1) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) under the Securities Act of 1933, as amended (the
"Securities Act"), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415 under the Securities Act, will be filed as a part
of an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceedings) is
107
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The undersigned Company hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned Company hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned Company hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(f) The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of Prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum aggregate
108
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed part of the registration statement as
of the time it was declared effective.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED QWEST
COMMUNICATIONS INTERNATIONAL INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED, IN THE
CITY OF DENVER, STATE OF COLORADO, ON JANUARY 29, 1999.
Qwest Communications International Inc.
By: /s/ ROBERT S. WOODRUFF
NAME: ROBERT S. WOODRUFF
TITLE: Executive Vice President--Finance
109
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS, ROBERT W. WOODRUFF, HIS ATTORNEY-IN-FACT, WITH
THE POWER OF SUBSTITUTION, FOR HIM IN ANY AND ALL CAPACITIES, TO SIGN ANY AND
ALL AMENDMENTS TO THIS REGISTRATION STATEMENT (INCLUDING POST-EFFECTIVE
AMENDMENTS), AND TO FILE THE SAME, WITH EXHIBITS THERETO AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, HEREBY
RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEY-IN-FACT, OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE CAPACITY DATE
Chairman of the
/s/ PHILIP F. ANSCHUTZ Board JANUARY 29,
PHILIP F. ANSCHUTZ 1999
Director, President
- ---------------------------------- and Chief Executive JANUARY 29,
JOSEPH P. NACCHIO Officer (Principal 1999
Executive Officer)
Director and
Executive Vice JANUARY 29,
/s/ ROBERT S. WOODRUFF President--Finance 1999
ROBERT S. WOODRUFF and Chief Financial
Officer (Principal
Financial Officer
and Principal
Accounting Officer)
/s/ CANNON Y. HARVEY Director JANUARY 29,
CANNON Y. HARVEY 1999
/s/ JORDAN L. HAINES Director JANUARY 29,
JORDAN L. HAINES 1999
/s/ DOUGLAS M. KARP Director JANUARY 29,
DOUGLAS M. KARP 1999
- ---------------------------------- Director JANUARY 29,
VINOD KHOSLA 1999
110
Director
- ---------------------------------- JANUARY 29,
RICHARD T. LIEBHABER 1999
Director
/s/ DOUGLAS L. POLSON JANUARY 29,
DOUGLAS L. POLSON 1999
Director
/s/ CRAIG D. SLATER JANUARY 29,
CRAIG D. SLATER 1999
Director
/s/ W. THOMAS STEPHENS JANUARY 29,
W. THOMAS STEPHENS 1999
Director
/s/ ROY A. WILKENS JANUARY 29,
ROY A. WILKENS 1999