AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1995
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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U S WEST, INC. COLORADO 84-0926774
U S WEST CAPITAL FUNDING, INC. COLORADO 84-1028672
U S WEST FINANCING I DELAWARE APPLIED FOR
U S WEST FINANCING II DELAWARE APPLIED FOR
U S WEST FINANCING III DELAWARE APPLIED FOR
(Exact name of Registrant as (State of other Jurisdiction of (I.R.S. Employer
Specified in its Charter) Incorporation or Organization) Identification Number)
7800 EAST ORCHARD ROAD
ENGLEWOOD, COLORADO 80111
(303) 793-6500
(Name, address, including zip code, and telephone number, including area code,
of each registrant's principal executive offices)
------------------------
STEPHEN E. BRILZ, ESQ.
U S WEST, INC.
7800 EAST ORCHARD ROAD
ENGLEWOOD, COLORADO 80111
(303) 793-6626
(Name, address, including zip code, and telephone number
of agent for service for each registrant)
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
DENNIS J. BLOCK, ESQ.
AKIKO MIKUMO, ESQ.
WEIL, GOTSHAL & MANGES
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153
(212) 310-8000
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Approximate date of commencement of proposed sale to the public: From time
to time after the effective date of the Registration Statement, as determined by
market conditions.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box. /X/
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 1, 1995
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED MAY __, 1995) [LOGO]
PREFERRED SECURITIES
U S WEST FINANCING I
% TRUST ORIGINATED PREFERRED SECURITIES-SM- ("TOPRS-SM- ")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
U S WEST, INC.
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The % Trust Originated Preferred Securities (the "Preferred
Securities") offered hereby evidence preferred undivided beneficial interests in
the assets of U S WEST Financing I, a statutory business trust formed under the
laws of the State of Delaware ("U S WEST Financing"). U S WEST, Inc., a Colorado
corporation ("U S WEST"), will directly or indirectly own all the common
securities (the "Common Securities" and, together with the Preferred Securities,
the "Trust Securities") representing undivided beneficial interests in the
assets of U S WEST Financing. U S WEST Financing exists for the sole purpose of
issuing the Preferred Securities and Common Securities and investing the
proceeds thereof in an equivalent amount of % Subordinated Deferrable Interest
Notes due 2025 ("Subordinated Debt Securities") of U S WEST Capital Funding,
Inc., a Colorado corporation and wholly-owned subsidiary of U S WEST ("Capital
Funding"). The Subordinated Debt Securities are fully and unconditionally
guaranteed (the "Debt Guarantee") on a subordinated basis as to payment of
principal, premium, if any, and interest by U S WEST. Upon an event of default
under the Declaration (as defined herein), the holders of the Preferred
Securities will have a preference over the holders of the Common Securities with
respect to payments in respect of distributions and payments upon liquidation,
redemption and otherwise.
(CONTINUED ON NEXT PAGE)
------------------------
SEE "INVESTMENT CONSIDERATIONS" FOR CERTAIN INFORMATION RELEVANT TO AN
INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND CIRCUMSTANCES
DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE PREFERRED SECURITIES MAY
BE DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.
The Preferred Securities have been approved for listing, subject to official
notice of issuance, on the New York Stock Exchange, Inc. (the "New York Stock
Exchange"). Trading of the Preferred Securities on the New York Stock Exchange
is expected to commence within a 30 day period after the initial delivery of the
Preferred Securities. See "Underwriting."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING U S WEST
OFFERING PRICE (1) COMMISSION (2) FINANCING (3)(4)
Per Preferred Security................. $25.00 (3) $25.00
Total.................................. (3)
<FN>
(1) Plus accrued distributions, if any, from , 1995.
(2) U S WEST, Capital Funding and U S WEST Financing have agreed to indemnify
the several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in Subordinated Debt Securities, Capital
Funding has agreed to pay to the Underwriters as compensation
("Underwriters' Compensation") for their arranging the investment therein
of such proceeds, $ per Preferred Security (or $ in the
aggregate); provided, that such compensation for sales of 10,000 or more
Preferred Securities to a single purchaser will be $ per Preferred
Security. Therefore, to the extent of such sales, the actual amount of
Underwriters Compensation will be less than the aggregate amount specified
in the preceding sentence. See "Underwriting."
(4) Expenses of the offering which are payable by Capital Funding are estimated
to be $ .
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The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Preferred Securities will be made only in book-entry form
through the facilities of The Depository Trust Company on or about ,
1995.
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MERRILL LYNCH & CO.
------------------------
The date of this Prospectus Supplement is May __, 1995.
- -SM-__ "Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
(CONTINUED FROM PREVIOUS PAGE)
____Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of ___% of the liquidation amount of $25 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on March 31, June 30, September 30 and December 31 of each
year commencing June 30, 1995 ("distributions"). The payment of distributions
out of moneys held by U S WEST Financing, and payments on liquidation of U S
WEST Financing or the redemption of Preferred Securities, as set forth below,
are guaranteed by U S WEST (the "Preferred Securities Guarantee") to the extent
U S WEST Financing has funds available therefor as described under "Description
of the Preferred Securities Guarantees" in the accompanying Prospectus. The
obligations of U S WEST under the Preferred Securities Guarantee are subordinate
and junior in right of payment to all other liabilities of U S WEST, including
the Debt Guarantee, and PARI PASSU with the most senior preferred stock issued
by U S WEST. The obligations of Capital Funding under the Subordinated Debt
Securities are subordinate and junior in right of payment to all present and
future Senior Indebtedness (as defined herein) of Capital Funding, which
aggregated approximately $1.4 billion at December 31, 1994, all of which is and
will be fully and unconditionally guaranteed by U S WEST. The obligations of U S
WEST under the Debt Guarantee are subordinate and junior in right of payment to
all present and future Senior Indebtedness of U S WEST, which aggregated
approximately $3.5 billion at December 31, 1994 (including the Senior
Indebtedness of Capital Funding).
____The distribution rate and the distribution and other payment dates for the
Preferred Securities will correspond to the interest rate and interest and other
payment dates on the Subordinated Debt Securities, which, together with the Debt
Guarantee, will be the sole assets of U S WEST Financing. As a result, if
principal or interest is not paid on the Subordinated Debt Securities, or
payments are not made under the Debt Guarantee, no amounts will be paid on the
Preferred Securities. If Capital Funding does not make principal or interest
payments on the Subordinated Debt Securities, and U S WEST does not make such
payments under the Debt Guarantee, U S WEST Financing will not have sufficient
funds to make distributions on the Preferred Securities, in which event the
Preferred Securities Guarantee will not apply to such distributions until U S
WEST Financing has sufficient funds available therefor.
____Capital Funding has the right to defer payments of interest on the
Subordinated Debt Securities by extending the interest payment period on the
Subordinated Debt Securities, at any time, for up to 20 consecutive quarters
(each, an "Extension Period"). If interest payments are so deferred,
distributions will also be deferred. Despite such deferral, distributions will
continue to accrue with interest thereon (to the extent permitted by applicable
law) at an annual rate of ___% per annum, and during any Extension Period,
holders of Preferred Securities will be required to include deferred interest
income in their gross income for United States federal income tax purposes in
advance of receipt of the cash interest payments attributable to such deferred
income. There could be multiple Extension Periods of varying lengths throughout
the term of the Subordinated Debt Securities. See "Description of the
Subordinated Debt Securities and the Debt Guarantee -- Options to Extend
Interest Payment Period," "Investment Considerations -- Option to Extend
Interest Payment Period" and "Certain Federal Income Tax Consequences --
Original Issue Discount, Premium and Market Discount."
____The Subordinated Debt Securities are redeemable by Capital Funding (in whole
or in part) from time to time, on or after ___________, 2000 or at any time in
certain circumstances upon the occurrence of a Tax Event (as defined herein). If
Capital Funding redeems Subordinated Debt Securities, U S WEST Financing must
redeem Trust Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Subordinated Debt Securities so redeemed at
$25 per Preferred Security plus accrued and unpaid distributions thereon (the
"Redemption Price") to the date fixed for redemption. See "Description of the
Preferred Securities -- Mandatory Redemption." The Preferred Securities will be
redeemed upon maturity of the Subordinated Debt Securities. The Subordinated
Debt Securities mature on ___________, 2025, but the maturity date may be
extended once only for up to an additional 19 years at the option of Capital
Funding, provided certain financial covenants are met. See "Description of the
Subordinated Debt Securities and the Debt Guarantee -- Option to Extend Maturity
Date." In addition, upon the occurrence of a Special Event (as defined herein)
arising from a change in law or a change in legal interpretation, unless the
Subordinated Debt Securities are redeemed in the limited circumstances described
below, U S WEST Financing shall be dissolved with the result that the
Subordinated Debt Securities, together with the Debt Guarantees, will be
distributed to the holders of the Preferred Securities, on a pro rata basis, in
lieu of any cash distribution. In the case of a Special Event that is a Tax
Event, Capital Funding will have the right in certain circumstances to redeem
the Subordinated Debt Securities, which would result in the redemption by U S
WEST Financing of the Trust Securities in the same amount on a pro rata basis.
If the Subordinated Debt Securities are distributed to the holders of the
Preferred Securities, Capital Funding will use its best efforts to have the
Subordinated Debt Securities listed on the New York Stock Exchange or on such
other exchange as the Preferred Securities are then listed. See "Description of
the Preferred Securities -- Special Event Redemption or Distribution" and
"Description of the Subordinated Debt Securities and the Debt Guarantee."
____In the event of the voluntary or involuntary dissolution, winding up or
termination of U S WEST Financing, the holders of the Preferred Securities will
be entitled to receive, for each Preferred Security, a liquidation amount of $25
plus accrued and unpaid distributions thereon (including interest thereon) to
the date of payment, unless in connection with such dissolution, the
Subordinated Debt Securities are distributed to the holders of the Preferred
Securities. See "Description of the Preferred Securities -- Liquidation
Distribution Upon Dissolution."
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
S-2
U S WEST, INC.
SUMMARY FINANCIAL INFORMATION
The summary financial data below should be read in conjunction with the
financial statements and notes thereto included in U S WEST's Annual Report on
Form 10-K for the year ended December 31, 1994. See "Incorporation of Certain
Documents by Reference" in the accompanying Prospectus. The summary financial
data for the five years ended December 31, 1994 are derived from the
consolidated financial statements of U S WEST which have been audited by Coopers
& Lybrand L.L.P., independent certified public accountants. See "Experts" in the
accompanying Prospectus.
YEAR ENDED DECEMBER 31,
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1994 1993 1992 1991 1990
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(IN MILLIONS, EXCEPT PER SHARE DATA)
CONSOLIDATED INCOME STATEMENT DATA:
Sales and other revenues................... $ 10,953 $10,294 $ 9,823 $ 9,528 $ 9,369
Income from continuing
operations................................ 1,426(1) 476(2) 1,076 840(4) 1,145
Net income (loss).......................... 1,426 (2,806)(2) (614)(3) 553(4) 1,199
Earnings per common share from continuing
operations................................ 3.14(1) 1.13(2) 2.61 2.09(4) 2.97
Earnings (loss) per common share........... 3.14 (6.69)(2) (1.49)(3) 1.38(4) 3.11
Dividends per common share................. $ 2.14 $ 2.14 $ 2.12 $ 2.08 $ 2.00
Weighted average common shares outstanding
(in thousands)............................ 453,316 419,365 412,518 401,332 386,012
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD
END):
Short-term borrowings...................... $ 2,837 $ 1,776 $ 583 $ 367 $ 438
Long-term debt............................. 5,101 5,423 4,847 5,602 4,709
Preferred stock subject to mandatory
redemption................................ 51 -- -- -- --
Shareholders' equity....................... 7,382 5,861 8,268 9,587 9,240
Total assets............................... 23,204 20,680 23,461 23,375 22,160
<FN>
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(1) 1994 income from continuing operations included a gain of $105 ($0.23 per
share) on the sale of 24.4 percent of U S WEST's joint venture interest in
cable television and telephone operations in the United Kingdom (TeleWest
Communications plc), a gain of $41 ($0.09 per share) on the sale of U S
WEST's paging unit and a gain of $51 ($0.11 per share) on the sale of
certain rural telephone exchanges.
(2) 1993 income from continuing operations included a restructuring charge of
$610 ($1.46 per share) and a charge of $54 ($0.13 per share) for the
cumulative effect on deferred taxes of the 1993 federally mandated increase
in income tax rates. Net income included charges of $100 ($0.24 per share)
for the estimated loss on disposal of discontinued operations and $20
($0.04 per share) for the cumulative effect on deferred taxes of the
federally mandated increase in income tax rates related to discontinued
operations. Net income also included extraordinary charges of $3,123 ($7.45
per share) for the discontinuance of SFAS No. 71, "Accounting for the
Effects of Certain Types of Regulation," and $77 ($0.18 per share) for the
early extinguishment of debt.
(3) 1992 net income included the effects of accounting charges totaling $1,793
($4.35 per share) related to the adoption of SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions," and SFAS No.
112, "Employers' Accounting for Postemployment Benefits."
(4) 1991 includes a restructuring charge that reduced income from continuing
operations by $230 ($0.57 per share) and income from discontinued
operations by $360 ($0.90 per share).
S-3
THE FOLLOWING INFORMATION CONCERNING U S WEST, CAPITAL FUNDING, U S WEST
FINANCING, THE PREFERRED SECURITIES, THE PREFERRED SECURITIES GUARANTEE, THE
SUBORDINATED DEBT SECURITIES AND THE DEBT GUARANTEE SUPPLEMENTS, AND SHOULD BE
READ IN CONJUNCTION WITH, THE INFORMATION CONTAINED IN THE ACCOMPANYING
PROSPECTUS. CAPITALIZED TERMS USED IN THIS PROSPECTUS SUPPLEMENT HAVE THE SAME
MEANINGS AS IN THE ACCOMPANYING PROSPECTUS.
U S WEST, INC.
U S WEST is a diversified global communications company engaged in the
telecommunications, directory publishing, wireless communications and multimedia
businesses. Telecommunications services are provided by U S WEST's principal
subsidiary, U S WEST Communications, Inc. ("U S WEST Communications"), to more
than 25 million residential and business customers in the states of Arizona,
Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota,
Oregon, South Dakota, Utah, Washington and Wyoming (collectively, the "U S WEST
Region"). Directory publishing, wireless communications and multimedia services
are provided by other U S WEST subsidiaries to customers inside and outside the
U S WEST Region.
U S WEST CAPITAL FUNDING, INC.
Capital Funding is a wholly-owned subsidiary of U S WEST and was
incorporated under the laws of the State of Colorado in June 1986. Capital
Funding was incorporated for the sole purpose of providing financing to U S WEST
and its affiliates through the issuance of indebtedness guaranteed by U S WEST
and has no independent operations.
U S WEST FINANCING I
U S WEST Financing is a statutory business trust formed under Delaware law
pursuant to (i) a declaration of trust, dated as of March 1, 1995, executed by U
S WEST, as sponsor (the "Sponsor"), and the trustees of U S WEST Financing (the
"U S WEST Trustees") and (ii) the filing of a certificate of trust with the
Delaware Secretary of State on March 1, 1995. Such declaration will be amended
and restated in its entirety (as so amended and restated, the "Declaration")
substantially in the form filed as an exhibit to the Registration Statement of
which this Prospectus Supplement and the accompanying Prospectus form a part.
The Declaration will be qualified as an indenture under the Trust Indenture Act
of 1939, as amended (the "Trust Indenture Act"). Upon issuance of the Preferred
Securities, the purchasers thereof will own all of the Preferred Securities. U S
WEST will directly or indirectly acquire Common Securities in an aggregate
liquidation amount equal to 3% of the total capital of U S WEST Financing. U S
WEST Financing exists for the exclusive purposes of (i) issuing the Trust
Securities representing undivided beneficial interests in the assets of U S WEST
Financing, (ii) investing the gross proceeds of the Trust Securities in the
Subordinated Debt Securities and the Debt Guarantee and (iii) engaging in only
those other activities necessary or incidental thereto.
Pursuant to the Declaration, the number of U S WEST Trustees will initially
be five. Three of the U S WEST Trustees (the "Regular Trustees") will be persons
who are employees or officers of, or affiliated with, U S WEST. The fourth
trustee will be a financial institution unaffiliated with U S WEST that will
serve as property trustee under the Declaration and as indenture trustee for
purposes of the Trust Indenture Act (the "Property Trustee"). The fifth U S WEST
Trustee will be a financial institution or an affiliate thereof which maintains
a principal place of business or residence in the State of Delaware (the
"Delaware Trustee"). The First National Bank of Chicago will act as the Property
Trustee and its affiliate will act as the Delaware Trustee until removed or
replaced by the holder of the Common Securities. The First National Bank of
Chicago will also act as indenture trustee under the Preferred Securities
Guarantee (the "Preferred Guarantee Trustee"). See "Description of the Preferred
Securities Guarantees" in the accompanying Prospectus. In certain circumstances,
the holders of a majority of the Preferred Securities will be entitled to
appoint one Regular Trustee (a "Special Regular Trustee"), who need not be an
officer or employee of, or otherwise affiliated with, U S WEST. See "Description
of the Preferred Securities -- Voting Rights."
S-4
The Property Trustee will hold title to the Subordinated Debt Securities and
the Debt Guarantee for the benefit of the holders of the Trust Securities and
the Property Trustee will have the power to exercise all rights, powers and
privileges under the Indenture (as defined herein) as the holder of the
Subordinated Debt Securities and the Debt Guarantee. In addition, the Property
Trustee will maintain exclusive control of a segregated non-interest bearing
bank account (the "Property Account") to hold all payments made in respect of
the Subordinated Debt Securities and the Debt Guarantee for the benefit of the
holders of Trust Securities. The Property Trustee will make payments of
distributions and payments on liquidation, redemption and otherwise to the
holders of the Trust Securities out of funds from the Property Account. The
Preferred Guarantee Trustee will hold the Preferred Securities Guarantee for the
benefit of the holders of the Preferred Securities. Subject to the right of the
holders of the Preferred Securities to appoint a Special Regular Trustee, U S
WEST, as the direct or indirect holder of all the Common Securities, will have
the right to appoint, remove or replace any U S WEST Trustee and to increase or
decrease the number of U S WEST Trustees, provided that the number of U S WEST
Trustees shall be at least three, a majority of which shall be Regular Trustees.
Capital Funding will pay all fees and expenses related to U S WEST Financing and
the offering of the Trust Securities, the payment of which will be fully and
unconditionally guaranteed by U S WEST. See "Description of the Subordinated
Debt Securities and the Debt Guarantee -- Miscellaneous."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are as set forth in the
Declaration, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. See "Description of the Preferred Securities."
RECENT DEVELOPMENTS
THE RECAPITALIZATION PLAN.__On April 10, 1995, U S WEST announced a plan
(the "Recapitalization Plan") to create two classes of common stock intended to
reflect separately the performance of U S WEST's telecommunications and
multimedia businesses. One class of common stock (the "Communications Stock")
would principally reflect the performance of the telecommunications businesses
of U S WEST Communications and certain other subsidiaries of U S WEST in the U S
WEST Region (the "Communications Group"). The other class of common stock (the
"MediaVision Stock") would reflect the performance of U S WEST's cable and
telephony operations outside the U S WEST Region, as well as U S WEST's
wireless, directory publishing and multimedia content and services operations
both inside and outside the U S WEST Region (the "MediaVision Group"). Under the
Recapitalization Plan, the existing common stock of U S WEST would be converted
into Communications Stock and shareholders of U S WEST would receive a tax-free
distribution of MediaVision Stock. The Recapitalization Plan would enable U S
WEST to report the results of the MediaVision Group separately from the results
of the Communications Group and thereby give shareholders a better understanding
of these businesses without diminishing the benefits of remaining a single
corporation. Investors would be afforded the ability to invest in either or both
stocks depending upon their investment objectives. The Recapitalization Plan
will require the approval of U S WEST's shareholders. U S WEST expects to seek
such approval at a special meeting of shareholders to be called for that purpose
in the fall of 1995. The Recapitalization Plan will not affect the offer and
sale of the Preferred Securities, the ability of U S WEST to issue the Debt
Guarantee or the Preferred Securities Guarantee, or the ability of Capital
Funding to issue the Subordinated Debt Securities. In addition, the
Recapitalization Plan will not result in the transfer of any assets from U S
WEST or any of its subsidiaries or alter the legal nature of U S WEST's
obligations to its creditors, including its obligations under the Preferred
Securities Guarantee and the Debt Guarantee. Creditors of U S WEST, including
the holders of the Preferred Securities, will continue to benefit from the cash
flow of the subsidiaries comprising both the Communications Group and the
MediaVision Group, subject to the satisfaction of obligations by such
subsidiaries. U S WEST does not believe the Recapitalization Plan will have any
adverse effect on its credit rating.
____CABLE ACQUISITION.__On December 6, 1994, U S WEST acquired Wometco Cable
Corp. and the assets of Atlanta Cable Partners, L.P. and Georgia Cable Partners
(the "Atlanta Cable Properties") for approximately $1.2 billion. Together, the
Atlanta Cable Properties serve approximately 65% of the cable customers in the
S-5
Atlanta, Georgia metropolitan area. U S WEST expects that it will offer local
exchange services as well as multimedia services in the Atlanta area as a result
of this acquisition. The Atlanta Cable Properties will be included in the
MediaVision Group.
____WIRELESS JOINT VENTURES.__On July 25, 1994, AirTouch Communications
("AirTouch") and U S WEST announced an agreement to combine their domestic
cellular operations. This partnership will have a presence in 9 of the top 20
cellular markets in the country and will form the third largest cellular company
in the United States, with more than 53 million potential customers ("POPs").
The transaction is expected to close in the second quarter of 1995 upon
obtaining certain federal and state regulatory approvals. By combining their
domestic cellular operations, U S WEST and AirTouch will create opportunities
for new cost efficiencies in equipment purchasing, information systems,
distribution, marketing and advertising. Each company's cellular operations
initially will continue to operate as separately owned entities, but upon
closing will report to a wireless management company, which will oversee both
companies' domestic cellular operations and provide management and support
services. The wireless management company will be managed by a committee
comprised of the president and chief operating officer of AirTouch, three other
AirTouch representatives, three representatives of U S WEST and one mutually
agreed upon independent representative. AirTouch's initial equity ownership of
this partnership will be approximately 70% and U S WEST's will be 30%. A merger
of the two companies' domestic cellular operations will take place upon the
earlier of July 25, 1998, the lifting of certain restrictions imposed on U S
WEST in connection with the divestiture by AT&T Corp. of its local telephone
businesses, or at any time at AirTouch's option. The agreement gives U S WEST
strategic flexibility, including the right to exchange its interest in the joint
venture for up to 19.9% of AirTouch common stock, with any excess amounts to be
received in the form of AirTouch non-voting preferred stock. AirTouch and U S
WEST also formed an equally owned partnership to bid on personal communications
services ("PCS") licenses.
____In October 1994, a partnership between AirTouch and U S WEST and a
partnership between Bell Atlantic Corporation ("Bell Atlantic") and NYNEX
Corporation ("NYNEX") formed PCS Primeco, L.P. ("PCS Primeco") for the purpose
of bidding on PCS licenses being auctioned by the Federal Communications
Commission (the "FCC"). The objective of PCS Primeco is to build and operate PCS
networks where its partners do not operate cellular networks, thus enabling them
to establish a national wireless network. In the FCC auction, which concluded in
March 1995, PCS Primeco was awarded PCS licenses in 11 markets covering 57
million POPs, including licenses in Chicago, Dallas, Tampa, Houston, Miami and
New Orleans. PCS Primeco will be governed by a board made up of three Bell
Atlantic-NYNEX representatives and three AirTouch-U S WEST representatives. The
four companies also formed a partnership to develop a national branding and
marketing strategy and a common "look and feel" for wireless customers. The
cellular properties of AirTouch and U S WEST will not be merged with those of
Bell Atlantic and NYNEX.
____TELEWEST INITIAL PUBLIC OFFERING.__In 1994, TeleWest Communications plc
("TeleWest"), a venture with Tele-Communications, Inc., completed an initial
public offering of its common stock. U S WEST's interest in TeleWest was reduced
from 50% to 37.8% as a result of the offering, but based on the offering price,
its interest is valued at $1.1 billion. TeleWest provides cable television and
telephone services in the United Kingdom over a multimedia network which has
been designed to provide a wide range of interactive and integrated
entertainment, telecommunications and information services as they become
available in the future. TeleWest owns all or part of 23 franchises in the
United Kingdom that encompass 3.6 million homes. Through TeleWest, U S WEST
gains experience in packaging video and telephone services that it intends to
utilize in its operations outside the United Kingdom. U S WEST's interest in
TeleWest will be included in the MediaVision Group.
S-6
INVESTMENT CONSIDERATIONS
____Prospective purchasers of Preferred Securities should carefully review the
information contained elsewhere in this Prospectus Supplement and in the
accompanying Prospectus and should particularly consider the following matters:
RANKING OF SUBORDINATED OBLIGATIONS UNDER PREFERRED SECURITIES GUARANTEE,
SUBORDINATED DEBT SECURITIES AND DEBT GUARANTEE
____U S WEST's obligations under the Preferred Securities Guarantee are
subordinate and junior in right of payment to all liabilities of U S WEST,
including the Debt Guarantee, and PARI PASSU with the most senior preferred
stock issued by U S WEST. The obligations of Capital Funding under the
Subordinated Debt Securities are subordinate and junior in right of payment to
all present and future Senior Indebtedness of Capital Funding, all of which are,
and will be, fully and unconditionally guaranteed by U S WEST. The obligations
of U S WEST under the Debt Guarantee are subordinate and junior in right of
payment to all present and future Senior Indebtedness of U S WEST. At December
31, 1994, Senior Indebtedness of U S WEST and Capital Funding aggregated
approximately $3.5 billion and $1.4 billion, respectively. There are no terms in
the Preferred Securities, the Subordinated Debt Securities, the Preferred
Securities Guarantee or the Debt Guarantee that limit U S WEST's ability to
incur additional indebtedness, including indebtedness that ranks senior to the
Preferred Securities Guarantee and the Debt Guarantee. See "Description of the
Preferred Securities Guarantees" and "Description of the Subordinated Debt
Securities and the Debt Guarantees -- Subordination" in the accompanying
Prospectus.
RIGHTS UNDER THE PREFERRED SECURITIES GUARANTEE
____The Preferred Securities Guarantee guarantees to the holders of the
Preferred Securities the payment of (i) any accrued and unpaid distributions
which are required to be paid on the Preferred Securities, to the extent U S
WEST Financing shall have funds available therefor, (ii) the Redemption Price,
including all accrued and unpaid distributions, with respect to Preferred
Securities called for redemption by U S WEST Financing, to the extent U S WEST
Financing has funds available therefor and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of U S WEST Financing (other than in
connection with the distribution of Subordinated Debt Securities to the holders
of Preferred Securities or a redemption of all of the Preferred Securities), the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on the Preferred Securities to the date of payment, to the extent
U S WEST Financing has funds available therefor and (b) the amount of assets of
U S WEST Financing remaining available for distribution to holders of the
Preferred Securities in liquidation of U S WEST Financing. The holders of a
majority in liquidation amount of the Preferred Securities have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Preferred Guarantee Trustee or to direct the exercise of any
trust or power conferred upon the Preferred Guarantee Trustee under the
Preferred Securities Guarantee. If the Preferred Guarantee Trustee fails to
enforce the Preferred Securities Guarantee, any holder of Preferred Securities
may, after a period of 30 days has elapsed from such holders written request to
the Preferred Guarantee Trustee to enforce the Preferred Securities Guarantee,
institute a legal proceeding directly against U S WEST to enforce the Preferred
Guarantee Trustee's rights under the Preferred Securities Guarantee, without
first instituting a legal proceeding against U S WEST Financing, the Preferred
Guarantee Trustee or any other person or entity. If Capital Funding were to
default in its obligation to pay amounts payable on the Subordinated Debt
Securities and U S WEST were to default on its obligations under the Debt
Guarantee, U S WEST Financing would lack available funds for the payment of
distributions or amounts payable on redemption of the Preferred Securities or
otherwise, and in such event holders of the Preferred Securities would not be
able to rely upon the Preferred Securities Guarantee for payment of such
amounts. Instead, holders of the Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as registered holder of the
Subordinated Debt Securities against Capital Funding pursuant to the terms of
the Subordinated Debt Securities and against U S WEST under the Debt Guarantee
and may also vote to appoint a Special Regular Trustee, who shall have the same
rights, powers and privileges as the other Regular Trustees. See "Description of
the Preferred Securities Guarantees -- Status of the Preferred Securities
Guarantees" and "Description of the Subordinated Debt Securities and
S-7
the Debt Guarantees -- Subordination" in the accompanying Prospectus. The
Declaration provides that each holder of Preferred Securities by acceptance
thereof agrees to the provisions of the Preferred Securities Guarantee and the
Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
____If (i) U S WEST fails to pay distributions in full on the Preferred
Securities for six consecutive quarterly distribution periods or (ii) a
Declaration Event of Default (as defined herein) occurs and is continuing, then
the holders of Preferred Securities would rely on the enforcement by the
Property Trustee of its rights as a holder of the Subordinated Debt Securities
and Debt Guarantee against Capital Funding and U S WEST. In addition, the
holders of a majority in aggregate liquidation amount of the Preferred
Securities will have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the Property Trustee or to
direct the exercise of any trust or power conferred upon the Property Trustee
under the Declaration, including the right to direct the Property Trustee to
exercise the remedies available to it as a holder of the Subordinated Debt
Securities and Debt Guarantee. If the Property Trustee fails to enforce its
rights under the Subordinated Debt Securities or the Debt Guarantee, a holder of
Preferred Securities may, after a period of 30 days has elapsed from such
holder's written request to the Property Trustee to enforce such rights,
institute a legal proceeding directly against Capital Funding or U S WEST to
enforce the Property Trustee's rights under the Subordinated Debt Securities or
the Debt Guarantee, as the case may be, without first instituting any legal
proceeding against the Property Trustee or any other person or entity,
including, in the case of the Debt Guarantee, against Capital Funding. Upon the
occurrence of any of the events described in clauses (i) or (ii) above, the
holders of the Preferred Securities also will be entitled, by majority vote, to
appoint a Special Regular Trustee, who shall have the same rights, powers and
privileges as the other Regular Trustees.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
____Capital Funding has the right under the Indenture to defer payments of
interest on the Subordinated Debt Securities by extending the interest payment
period at any time, and from time to time, on the Subordinated Debt Securities.
As a consequence of such an extension, quarterly distributions on the Securities
would be deferred (but despite such deferral would continue to accrue with
interest thereon) by U S WEST Financing during any such extended interest
payment period. Such right to extend the interest payment period for the
Subordinated Debt Securities is limited to a period not exceeding 20 consecutive
quarters. In the event that Capital Funding exercises this right to defer
payments of interest, then (a) U S WEST and Capital Funding shall not (and, if
it is a wholly-owned subsidiary of U S WEST, U S WEST shall cause U S WEST
Communications not to) declare or pay any dividend on, make any distributions
with respect to, or redeem, purchase or make a liquidation payment with respect
to, any of its capital stock, including, in the case of U S WEST, the
Communications Stock and the Media Vision Stock, and (b) U S WEST and Capital
Funding shall not make any payment of interest, principal or premium, if any, on
or repay, repurchase or redeem any debt securities issued by U S WEST or Capital
Funding which rank pari passu with or junior to the Subordinated Debt
Securities. Prior to the termination of any such extension period, Capital
Funding may further extend the interest payment period, provided that such
Extension Period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters. Upon the termination of any
Extension Period and the payment of all amounts then due, Capital Funding may
select a new Extension Period, subject to the above requirements. See
"Description of the Preferred Securities -- Distributions" and "Description of
the Subordinated Debt Securities and the Debt Guarantee -- Option to Extend
Interest Payment Period."
____Should Capital Funding exercise its rights to defer payments of interest by
extending the interest payment period, each holder of Preferred Securities will
continue to accrue income for United States federal income tax purposes in
respect of the deferred interest allocable to its Preferred Securities. As a
result, holders of Preferred Securities will recognize income for United States
federal income tax purposes in advance of the receipt of cash and will not
receive the cash from U S WEST Financing related to such income if such holder
disposes of its Preferred Securities prior to the record date for the date on
which distributions of such amounts are made. Capital Funding has no current
intention of exercising its right to defer payments of interest by extending the
interest payment period on the Subordinated Debt Securities.
S-8
However, should Capital Funding determine to exercise such right in the future,
the market price of the Preferred Securities is likely to be affected. A holder
that disposes of its Preferred Securities during an Extension Period, therefore,
might not receive the same return on its investment as a holder that continues
to hold its Preferred Securities. In addition, as a result of the existence of
Capital Funding's right to defer interest payments, the market price of the
Preferred Securities (which represent an undivided beneficial interest in the
Subordinated Debt Securities) may be more volatile than other securities on
which original issue discount accrues that do not have such rights. See "Certain
Federal Income Tax Consequences -- Original Issue Discount, Premium and Market
Discount."
SPECIAL EVENT DISTRIBUTION
____Upon the occurrence of a Special Event, U S WEST Financing shall be
dissolved, except in the limited circumstances described below, with the result
that the Subordinated Debt Securities, together with the Debt Guarantee, would
be distributed to the holders of the Trust Securities in connection with the
liquidation of U S WEST Financing. In the case of a Special Event that is a Tax
Event, in certain circumstances Capital Funding shall have the right to redeem
the Subordinated Debt Securities, in whole or in part, in which event U S WEST
Financing will redeem the Trust Securities on a pro rata basis to the same
extent as the Subordinated Debt Securities are redeemed. See "Description of the
Preferred Securities -- Special Event Redemption or Distribution."
____There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debt Securities that may be distributed in
exchange for Preferred Securities if a dissolution or liquidation of U S WEST
Financing were to occur. Accordingly, the Preferred Securities that an investor
may purchase, or the Subordinated Debt Securities that the investor may receive
on dissolution and liquidation of U S WEST Financing, may trade at a discount to
the price that the investor paid to purchase the Preferred Securities offered
hereby. Because holders of Preferred Securities may receive Subordinated Debt
Securities upon the occurrence of a Special Event, prospective purchasers of
Preferred Securities are also making an investment decision with regard to the
Subordinated Debt Securities and should carefully review all the information
regarding the Subordinated Debt Securities contained herein and in the
accompanying Prospectus. See "Description of the Preferred Securities -- Special
Event Redemption or Distribution" and "Description of the Subordinated Debt
Securities and the Debt Guarantee -- General."
LIMITED VOTING RIGHTS
____Holders of Preferred Securities will have limited voting rights and, except
for the rights of holders of Preferred Securities to appoint a Special Regular
Trustee upon the occurrence of certain events described herein, will not be
entitled to vote to appoint, remove or replace, or to increase or decrease the
number of, U S WEST Trustees, which voting rights are vested exclusively in the
holder of the Common Securities.
TRADING PRICE OF PREFERRED SECURITIES
____The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Debt Securities. A holder who disposes of his Preferred Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Subordinated Debt Securities through
the date of disposition in income as ordinary income (i.e., OID), and to add
such amount to his adjusted tax basis in his pro rata share of the underlying
Subordinated Debt Securities deemed disposed of. To the extent the selling price
is less than the holder's adjusted tax basis (which will include, in the form of
OID, all accrued but unpaid interest), a holder will recognize a capital loss.
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes. See
"Certain Federal Income Tax Consequences -- Original Issue Discount, Premium and
Market Discount" and "-- Sale of Certificates."
FUTURE ACQUISITIONS
____In connection with the MediaVision Group's growth strategy, U S WEST from
time to time engages in preliminary discussions regarding acquisitions, some of
which may be significant and the funding for which may be obtained from
internally generated funds, the incurrence of indebtedness, the issuance of
equity or a combination thereof. The incurrence of indebtedness to fund such
acquisitions and/or the assumption of indebtedness in connection with such
acquisitions could result in a downgrading of U S WEST's credit rating and, as a
result, have an adverse effect upon the market value of the Preferred
Securities.
S-9
CAPITALIZATION OF U S WEST
____The following table sets forth the unaudited consolidated capitalization of
U S WEST at December 31, 1994, and as adjusted to reflect the application of the
estimated net proceeds from the sale of the Preferred Securities. See "Use of
Proceeds." The table should be read in conjunction with U S WEST's consolidated
financial statements and notes thereto included in the documents incorporated by
reference herein. See "Incorporation of Certain Documents by Reference" in the
accompanying Prospectus.
AT DECEMBER 31, 1994
--------------------------
ACTUAL AS ADJUSTED(1)
------- -----------------
(DOLLARS IN MILLIONS)
Short-term borrowings........................................ $ 2,837 $
------- -------
------- -------
Long-term borrowings......................................... $ 5,101 $
------- -------
Guaranteed minority interest in trust holding subordinated
debentures of subsidiary.................................... $ -- $
------- -------
Preferred stock subject to mandatory redemption.............. $ 51 $
------- -------
Common shareholders' equity:
Common shares -- no par, 2,000,000,000 authorized;
469,343,048 outstanding................................. 8,056
Cumulative deficit....................................... (458)
LESOP guarantee.......................................... (187)
Foreign currency translation adjustment.................. (29)
------- -------
Total common shareholders' equity............................ 7,382 (2)
------- -------
Total capitalization......................................... $12,534 $ (2)
------- -------
------- -------
<FN>
- ------------------------
(1) Does not give effect to the shares of common stock, without par value, of U
S WEST ("Common Stock"), that may be issued upon exercise of options to
purchase 2,374,394 shares of Common Stock that are currently exercisable
under U S WEST's stock option plans or upon conversion of U S WEST's Liquid
Yield Option Notes due 2011 ("LYONS") into up to 9,894,278 shares of Common
Stock (based on the number of options and LYONS outstanding on December 31,
1994).
(2) The Recapitalization Plan, if implemented, will not affect the total common
shareholders' equity or the total capitalization of U S WEST.
S-10
ACCOUNTING TREATMENT
____The financial statements of U S WEST Financing will be consolidated with U S
WEST's financial statements, with the Preferred Securities shown as a guaranteed
minority interest in trust holding subordinated debentures of a subsidiary.
USE OF PROCEEDS
____The proceeds of the sale of the Preferred Securities will be invested by U S
WEST Financing in Subordinated Debt Securities of Capital Funding. Capital
Funding will loan the proceeds from the issuance of such Subordinated Debt
Securities to U S WEST and its affiliates to be used for the reduction of short-
term indebtedness incurred in connection with the acquisition of the Atlanta
Cable Properties, and for general corporate purposes.
DESCRIPTION OF THE PREFERRED SECURITIES
____The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee, the First National Bank of Chicago, will
act as the indenture trustee for purposes of compliance with the provisions of
the Trust Indenture Act. The terms of the Preferred Securities will include
those stated in the Declaration and those made part of the Declaration by the
Trust Indenture Act. The following summary of the principal terms and provisions
of the Preferred Securities does not purport to be complete and is subject to,
and qualified in its entirety by reference to, the Declaration, a copy of which
is filed as an exhibit to the Registration Statement, of which this Prospectus
Supplement is a part, the Trust Act and the Trust Indenture Act.
GENERAL
____The Declaration authorizes the Regular Trustees to issue on behalf of U S
WEST Financing the Preferred Securities, which represent preferred undivided
beneficial interests in the assets of U S WEST Financing. All of the Common
Securities will be owned, directly or indirectly, by U S WEST. The Common
Securities rank pari passu, and payments will be made thereon on a pro rata
basis, with the Preferred Securities, except that upon the occurrence of a
Declaration Event of Default, the rights of the holders of the Common Securities
to receive payment of periodic distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. The Declaration does not permit the issuance by U S
WEST Financing of any securities other than the Trust Securities or the
incurrence of any indebtedness by U S WEST Financing. Pursuant to the
Declaration, the Property Trustee will own the Subordinated Debt Securities and
the Debt Guarantee for the benefit of the holders of the Trust Securities. The
payment of distributions out of money held by U S WEST Financing, and payments
upon redemption of the Preferred Securities or liquidation of U S WEST
Financing, are guaranteed by U S WEST to the extent described under "Description
of the Preferred Securities Guarantees" in the accompanying Prospectus. The
Preferred Guarantee Trustee, will hold the Preferred Securities Guarantee for
the benefit of the holders of the Preferred Securities. The Preferred Securities
Guarantee does not cover payment of distributions when U S WEST Financing does
not have sufficient available funds to pay such distributions. In such event,
the remedy of a holder of Preferred Securities is to vote to appoint a Special
Regular Trustee and to direct the Property Trustee to enforce its rights under
the Subordinated Debt Securities and the Debt Guarantee. See "Description of the
Preferred Securities -- Voting Rights."
DISTRIBUTIONS
____Distributions on the Preferred Securities will be fixed at a rate per annum
of __% of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears for more than one quarter will bear interest thereon at
the rate per annum of __% thereof. The term "distributions" as used herein
includes any such interest payable unless otherwise stated. The amount of
distributions payable for any period will be computed on the basis of a 360-day
year of twelve 30-day months.
S-11
____Distributions on the Preferred Securities will be cumulative, will accrue
from _________________ and will be payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, commencing _________________
when, as and if available for payment by the Property Trustee, except as
otherwise described below.
____Capital Funding has the right under the Indenture to defer payments of
interest on the Subordinated Debt Securities by extending the interest payment
period from time to time on the Subordinated Debt Securities which, if
exercised, would defer quarterly distributions on the Preferred Securities
(though such distributions would continue to accrue with interest since interest
would continue to accrue on the Subordinated Debt Securities) during any such
extended interest payment period. Such right to extend the interest payment
period for the Subordinated Debt Securities is limited to a period not exceeding
20 consecutive quarters. In the event that Capital Funding exercises this right,
then (a) U S WEST and Capital Funding shall not (and, if it is a wholly-owned
subsidiary of U S WEST, U S WEST shall cause U S WEST Communications not to)
declear or pay any dividend on, make any distributions with respect to, or
redeem, purchase or make a liquidation payment with respect to, any of its
capital stock, including, in the case of U S WEST, the Communications Stock and
the Media Vision Stock, and (b) U S WEST and Capital Funding shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by U S WEST or Capital Funding which rank pari
passu with or junior to the Subordinated Debt Securities. Prior to the
termination of any such extension period, Capital Funding may further extend the
interest payment period, provided that such Extension Period together with all
such previous and further extensions thereof may not exceed 20 consecutive
quarters. Upon the termination of any Extension Period and the payment of all
amounts then due, Capital Funding may select a new Extension Period, subject to
the above requirements. See "Description of the Subordinated Debt Securities and
the Debt Guarantee -- Interest" and "-- Option to Extend Interest Payment
Period." If distributions are deferred, the deferred distributions and accrued
interest thereon shall be paid to holders of record of the Preferred Securities
as they appear on the books and records of U S WEST Financing on the record date
next following the termination of such deferral period.
____Distributions on the Preferred Securities must be paid on the dates payable
to the extent that U S WEST Financing has funds available for the payment of
such distributions in the Property Account. U S WEST Financing's funds available
for distribution to the holders of the Preferred Securities will be limited to
payments received under the Subordinated Debt Securities and the Debt Guarantee.
See "Description of the Subordinated Debt Securities and the Debt Guarantee."
The payment of distributions out of moneys held by U S WEST Financing is
guaranteed by U S WEST to the extent set forth under "Description of the
Preferred Securities Guarantees" in the accompanying Prospectus.
____Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of U S WEST Financing on the
relevant record dates, which, as long as the Preferred Securities remain in
book-entry only form, will be one Business Day (as defined herein) prior to the
relevant payment dates. Such distributions will be paid through the Property
Trustee, who will hold amounts received in respect of the Subordinated Debt
Securities and the Debt Guarantee in the Property Account for the benefit of the
holders of the Trust Securities. Subject to any applicable laws and regulations
and the provisions of the Declaration, each such payment will be made as
described under "-- Book-Entry Only Issuance -- The Depository Trust Company"
below. In the event the Preferred Securities shall not continue to remain in
book-entry only form, the Regular Trustees shall have the right to select
relevant record dates which shall be more than one Business Day prior to the
relevant payment dates. In the event that any date on which distributions are to
be made on the Preferred Securities is not a Business Day, then payment of the
distributions payable on such date will be made on the next succeeding day which
is a Business Day (and without any interest or other payment in respect of any
such delay) except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date. A "Business
Day" shall mean any day other than a day on which banking institutions in the
City of New York are authorized or required by law to close.
S-12
MANDATORY REDEMPTION
____The Subordinated Debt Securities will mature on ___________, 2025, unless
the maturity date is extended, and may be redeemed, in whole or in part, at any
time on or after ___________, 2000 or at any time in certain circumstances upon
the occurrence of a Tax Event. Upon the repayment of the Subordinated Debt
Securities, whether at maturity or upon redemption, the proceeds from such
repayment or payment shall simultaneously be applied to redeem Trust Securities
having an aggregate liquidation amount equal to the aggregate principal amount
of the Subordinated Debt Securities so repaid or redeemed at the Redemption
Price; provided that holders of Trust Securities shall be given not less than 30
nor more than 60 days notice of such redemption. See "Description of the
Subordinated Debt Securities and the Debt Guarantee." In the event that fewer
than all of the outstanding Preferred Securities are to be redeemed, the
Preferred Securities will be redeemed PRO RATA as described under "-- Book-Entry
Only Issuance -- The Depository Trust Company" below.
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
____"Tax Event" means that the Regular Trustees shall have received an opinion
of a nationally recognized independent tax counsel experienced in such matters
(a "Dissolution Tax Opinion") to the effect that, as a result of (a) any
amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein or (b) any amendment to, or
change in, an interpretation or application of such laws or regulations, there
is more than an insubstantial risk that (i) U S WEST Financing would be subject
to United States federal income tax with respect to income accrued or received
on the Subordinated Debt Securities, (ii) interest payable to U S WEST Financing
on the Subordinated Debt Securities would not be deductible by Capital Funding
for United States federal income tax purposes or (iii) U S WEST Financing would
be subject to more than a DE MINIMIS amount of other taxes, duties or other
governmental charges, which change or amendment becomes effective on or after
the date of this Prospectus Supplement.
____"Investment Company Event" means that the Regular Trustees shall have
received an opinion of a nationally recognized independent counsel to the effect
that, as a result of the occurrence of a change in law or regulation or a
written change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority (a "Change
in 1940 Act Law"), there is more than an insubstantial risk that U S WEST
Financing is or will be considered an "investment company" which is required to
be registered under the Investment Company Act of 1940, as amended (the "1940
Act"), which Change in 1940 Act Law becomes effective on or after the date of
this Prospectus Supplement.
____If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") shall occur and be continuing, U S WEST
Financing shall, except in the circumstances described below, be dissolved with
the result that Subordinated Debt Securities with an aggregate principal amount
equal to the aggregate stated liquidation amount of, with an interest rate
identical to the distribution rate of, and accrued and unpaid interest equal to
accrued and unpaid distributions on, the Trust Securities would be distributed
to the holders of the Trust Securities, together with the Debt Guarantee, in
liquidation of such holders' interests in U S WEST Financing on a pro rata
basis, within 90 days following the occurrence of such Special Event; provided,
however, that in the case of the occurrence of a Tax Event, as a condition of
such dissolution and distribution, the Regular Trustees shall have received an
opinion of nationally recognized independent tax counsel experienced in such
matters (a "No Recognition Opinion"), which opinion may rely on published
revenue rulings of the Internal Revenue Service, to the effect that the holders
of the Trust Securities will not recognize any gain or loss for United States
federal income tax purposes as a result of such dissolution and distribution of
Subordinated Debt Securities; and, provided, further, that, if at the time there
is available to U S WEST Financing the opportunity to eliminate, within such 90
day period, the Special Event by taking some ministerial action, such as filing
a form or making an election, or pursuing some other similar reasonable measure,
which has no adverse effect on U S WEST Financing, Capital Funding, U S WEST or
the holders of the Trust Securities, U S WEST Financing will pursue such measure
in lieu of dissolution. Furthermore, if in the case of the occurrence of a Tax
Event, (i) Capital Funding has received an opinion (a "Redemption Tax Opinion")
of nationally recognized independent tax counsel experienced in such matters
that, as a result of a Tax Event, there is more than an insubstantial risk that
Capital Funding
S-13
would be precluded from deducting the interest on the Subordinated Debt
Securities for United States federal income tax purposes even after the
Subordinated Debt Securities were distributed to the holders of Trust Securities
in liquidation of such holders' interests in U S WEST Financing as described
above or (ii) the Regular Trustees shall have been informed by such tax counsel
that a No Recognition Opinion cannot be delivered to U S WEST Financing, Capital
Funding shall have the right, upon not less than 30 nor more than 60 days
notice, to redeem the Subordinated Debt Securities in whole or in part for cash
within 90 days following the occurrence of such Tax Event, and, following such
redemption, Trust Securities with an aggregate liquidation amount equal to the
aggregate principal amount of the Subordinated Debt Securities so redeemed shall
be redeemed by U S WEST Financing at the Redemption Price on a pro rata basis;
provided, however, that, if at the time there is available to Capital Funding or
U S WEST Financing the opportunity to eliminate, within such 90 day period, the
Tax Event by taking some ministerial action, such as filing a form or making an
election, or pursuing some other similar reasonable measure which has no adverse
effect on U S WEST Financing, Capital Funding, U S WEST or the holders of the
Trust Securities, Capital Funding or U S WEST Financing will pursue such measure
in lieu of redemption.
____If Subordinated Debt Securities, together with the Debt Guarantee, are
distributed to the holders of the Preferred Securities, Capital Funding will use
its best efforts to have the Subordinated Debt Securities listed on the New York
Stock Exchange or on such other exchange as the Preferred Securities are then
listed.
____After the date for any distribution of Subordinated Debt Securities,
together with the Debt Guarantee, upon dissolution of U S WEST Financing, (i)
the Preferred Securities will no longer be deemed to be outstanding, (ii) the
depositary or its nominee, as the record holder of the Preferred Securities,
will receive a registered global certificate or certificates representing the
Subordinated Debt Securities and the Debt Guarantee to be delivered upon such
distribution and (iii) any certificates representing Preferred Securities not
held by the depositary or its nominee will be deemed to represent Subordinated
Debt Securities having an aggregate principal amount equal to the aggregate
stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distribution on, such Preferred Securities, until such certificates are
presented to Capital Funding or its agent for transfer or reissuance.
____There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debt Securities that may be distributed in
exchange for the Preferred Securities if a dissolution and liquidation of U S
WEST Financing were to occur. Accordingly, the Preferred Securities that an
investor may purchase, or the Subordinated Debt Securities that the investor may
receive on dissolution and liquidation of U S WEST Financing, may trade at a
discount to the price that the investor paid to purchase the Preferred
Securities offered hereby.
REDEMPTION PROCEDURES
____U S WEST Financing may not redeem fewer than all of the outstanding
Preferred Securities unless all accrued and unpaid distributions have been paid
on all Preferred Securities for all quarterly distribution periods terminating
on or prior to the date of redemption.
____If U S WEST Financing gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, provided that Capital Funding has paid to the
Property Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Subordinated Debt Securities, U S WEST Financing
will irrevocably deposit with the depositary funds sufficient to pay the
applicable Redemption Price and will give the Depositary irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Preferred Securities. See "-- Book-Entry Only Issuance -- The Depository Trust
Company." If notice of redemption shall have been given and funds deposited as
required, then immediately prior to the close of business on the date of such
deposit, distributions will cease to accrue and all rights of holders of such
Preferred Securities so called for redemption will cease, except the right of
the holders of such Preferred Securities to receive the Redemption Price, but
without interest on such Redemption Price. In the event that any date fixed for
redemption of Preferred Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other
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payment in respect of any such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that payment of the Redemption Price in
respect of Preferred Securities is improperly withheld or refused and not paid
either by U S WEST Financing or by U S WEST pursuant to the Preferred Securities
Guarantee, distributions on such Preferred Securities will continue to accrue,
from the original redemption date to the actual date of payment, in which case
the actual payment date will be considered the date fixed for redemption for
purposes of calculating the Redemption Price.
____In the event that fewer than all of the outstanding Preferred Securities are
to be redeemed, the Preferred Securities will be redeemed pro rata as described
under "-- Book-Entry Only Issuance -- The Depository Trust Company" below.
____Subject to the foregoing and to applicable law (including, without
limitation, United States federal securities laws), U S WEST or its affiliates
may, at any time and from time to time, purchase outstanding Preferred
Securities by tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
____In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of U S WEST Financing, the holders of the Preferred
Securities at that time will be entitled to receive out of the assets of U S
WEST Financing, after satisfaction of liabilities to creditors, distributions in
an amount equal to the aggregate of the stated liquidation amount of $25 per
Preferred Security plus accrued and unpaid distributions thereon to the date of
payment (the "Liquidation Distribution"), unless, in connection with such
liquidation, dissolution, winding-up or termination, Subordinated Debt
Securities in an aggregate principal amount equal to the aggregate stated
liquidation amount of, with an interest rate identical to the distribution rate
of, and accrued and unpaid interest equal to accrued and unpaid distributions
on, the Preferred Securities have been distributed on a pro rata basis to the
holders of Preferred Securities.
____If, upon any such dissolution, the Liquidation Distribution can be paid only
in part because U S WEST Financing has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by U S WEST Financing on the Preferred Securities shall be paid on a pro rata
basis. The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution pro rata with the holders of the
Preferred Securities, except that if a Declaration Event of Default has occurred
and is continuing, the Preferred Securities shall have a preference over the
Common Securities.
____Pursuant to the Declaration, U S WEST Financing shall terminate (i) on
___________, 2050, the expiration of the term of U S WEST Financing, (ii) upon
the bankruptcy of U S WEST, Capital Funding or the holder of the Common
Securities, (iii) upon the filing of a certificate of dissolution or its
equivalent with respect to the holder of the Common Securities, U S WEST or
Capital Funding, the filing of a certificate of cancellation with respect to U S
WEST Financing, or the revocation of the charter of the holder of the Common
Securities, U S WEST or Capital Funding and the expiration of 90 days after the
date of revocation without a reinstatement thereof, (iv) upon the distribution
of the Subordinated Debt Securities, together with the Debt Guarantee, following
the occurrence of a Special Event, (v) upon the redemption of all of the Trust
Securities or (vi) upon the entry of a decree of a judicial dissolution of the
holder of the Common Securities, U S WEST, Capital Funding or U S WEST
Financing.
DECLARATION EVENTS OF DEFAULT
____An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"), provided that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until such Declaration Events of Default
with respect to the Preferred Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Preferred Securities and only the holders of the Preferred
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration, and therefore the Indenture.
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____Upon the occurrence of a Declaration Event of Default, the Property Trustee,
as the sole holder of the Subordinated Debt Securities, will have the right
under the Indenture to declare the principal of and interest on the Subordinated
Debt Securities to be immediately due and payable.
VOTING RIGHTS
____Except as provided below, under the Trust Act, the Trust Indenture Act and
under "Description of the Preferred Securities Guarantees -- Amendments and
Assignment" in the accompanying Prospectus and as otherwise required by law and
the Declaration, the holders of the Preferred Securities will have no voting
rights.
____If (i) U S WEST Financing fails to pay distributions in full on the
Preferred Securities for 6 consecutive quarterly distribution periods or (ii) a
Declaration Event of Default occurs and is continuing (each, an "Appointment
Event"), then the holders of the Preferred Securities, acting as a single class,
will be entitled by the majority vote of such holders to appoint a Special
Regular Trustee. For purposes of determining whether U S WEST Financing has
failed to pay distributions in full for 6 consecutive quarterly distribution
periods, distributions shall be deemed to remain in arrears, notwithstanding any
payments in respect thereof, until full cumulative distributions have been or
contemporaneously are paid with respect to all quarterly distribution periods
terminating on or prior to the date of payment of such cumulative distributions.
Any holder of Preferred Securities (other than U S WEST or any of its
affiliates) shall be entitled to nominate any person to be appointed as Special
Regular Trustee. Not later than 30 days after such right to appoint a Special
Regular Trustee arises, the Regular Trustees shall convene a meeting of the
holders of Preferred Securities for the purpose of appointing a Special Regular
Trustee. If the Regular Trustees fail to convene such meeting within such 30-day
period, the holders of not less than 10% of the aggregate stated liquidation
amount of the outstanding Preferred Securities will be entitled to convene such
meeting. The provisions of the Declaration relating to the convening and conduct
of the meetings of the holders will apply with respect to any such meeting. Any
Special Regular Trustee so appointed shall cease to be a Special Regular Trustee
if the Appointment Event pursuant to which the Special Regular Trustee was
appointed and all other Appointment Events cease to be continuing.
Notwithstanding the appointment of any Special Regular Trustee, Capital Funding
shall retain all rights under the Indenture, including the right to defer
payments of interest by extending the interest payment period as provided under
"Description of the Subordinated Debt Securities and the Debt Guarantee --
Option to Extend Interest Payment Period." If such an extension occurs, there
will be no Indenture Event of Default, and therefore no Declaration Event of
Default, for failure to make any scheduled interest payment during the Extension
Period on the date originally scheduled.
____The holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or to direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as the holder
of the Subordinated Debt Securities and Debt Guarantees, to (i) exercise the
remedies available under the Indenture with respect to the Subordinated Debt
Securities and Debt Guarantee, (ii) waive any past Indenture Event of Default
which is waivable under Section 6.06 of the Base Indenture (as defined herein),
or (iii) exercise any right to rescind or annul a declaration that the principal
of all the Subordinated Debt Securities shall be due and payable, provided that
where a consent under the Indenture would require the consent of more than a
majority of the holders (a "Super-Majority") affected thereby, only the holders
of at least such Super-Majority of the Preferred Securities may direct the
Property Trustee to give such consent. If the Property Trustee fails to enforce
its rights under the Subordinated Debt Securities or the Debt Guarantee, a
holder of Preferred Securities may, after a period of 30 days has elapsed from
such holder's written request to the Property Trustee to enforce such rights,
institute a legal proceeding directly against Capital Funding or U S WEST to
enforce the Property Trustee's rights under the Subordinated Debt Securities or
the Debt Guarantee, as the case may be, without first instituting any legal
proceeding against the Property Trustee or any other person or entity,
including, in the case of the Debt Guarantee, against Capital Funding. The
Property Trustee shall notify all holders of the Preferred Securities of any
notice of default received from the Debt Trustee with respect to the
Subordinated Debt Securities. Such notice shall state that such Indenture Event
of Default also constitutes a Declaration Event of Default. Except in the case
of directing the time, method and place of
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conducting a proceeding for a remedy, the Property Trustee shall not take any
action described in clauses (i), (ii) or (iii) above unless the Property Trustee
has obtained an opinion of tax counsel to the effect that, as a result of such
action, U S WEST Financing will not be classified as a corporation or a
partnership for United States federal income tax purposes and that, following
such action, each holder of Trust Securities will be treated as owning an
undivided beneficial interest in the Subordinated Debt Securities.
In the event the consent of the Property Trustee, as the holder of the
Subordinated Debt Securities and the Debt Guarantee, is required under the
Indenture with respect to any amendment, modification or termination of the
Indenture, the Property Trustee shall request the direction of the holders of
the Trust Securities with respect to such amendment, modification or termination
and shall vote with respect to such amendment, modification or termination as
directed by a majority in liquidation amount of the Trust Securities, voting
together as a single class, provided that where a consent under the Indenture
would require the consent of a Super-Majority, the Property Trustee may only
give such consent at the direction of the holders of at least the proportion in
liquidation amount of the Trust Securities which the relevant Super-Majority
represents of the aggregate principal amount of the Subordinated Debt Securities
outstanding. The Property Trustee shall not take any such action in accordance
with the directions of the holders of the Trust Securities unless the Property
Trustee has obtained an opinion of tax counsel to the effect that, as a result
of such action, U S WEST Financing will not be classified as a corporation or a
partnership for United States federal income tax purposes and that, following
such action, each holder of Trust Securities will be treated as owning an
undivided beneficial interest in the Subordinated Debt Securities.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may be
given at a separate meeting of holders of Preferred Securities convened for such
purpose, at a meeting of all of the holders of Trust Securities or pursuant to
written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth (i) the date of such meeting or the date by
which such action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such holders are entitled to vote or of
such matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the holders of Preferred
Securities will be required for U S WEST Financing to redeem and cancel
Preferred Securities or distribute Subordinated Debt Securities in accordance
with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote or
consent under any of the circumstances described above, any of the Preferred
Securities at such time that are owned by U S WEST or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, U S WEST shall not be entitled to vote or consent and shall, for
purposes of such vote or consent, be treated as if they were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company."
Except in the limited circumstances described above in connection with the
appointment of a Special Regular Trustee, holders of the Preferred Securities
will have no rights to appoint or remove the U S WEST Trustees, who may be
appointed, removed or replaced solely by U S WEST, as the direct or indirect
holder of all the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be amended or modified if approved and executed by a
majority of the Regular Trustees, provided that if any proposed amendment
provides for, or the Regular Trustees otherwise propose to effect, (i) any
action that would adversely affect the powers, preferences or special rights of
the Preferred Securities, whether by way of amendment to the Declaration or
otherwise or (ii) the dissolution, winding-up or termination of U S WEST
Financing other than pursuant to the terms of the Declaration, then the holders
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of the Trust Securities as a single class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of at least 66 2/3% in liquidation amount of the Trust
Securities affected thereby, provided that the right of holders of Preferred
Securities to appoint a Special Regular Trustee shall not be modified without
the consent of each holder of Preferred Securities, and provided, further, that
if any amendment or proposal referred to in clause (i) above would adversely
affect only the Preferred Securities or the Common Securities, then only the
affected class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of 66 2/3%
in liquidation amount of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause U S WEST
Financing to be characterized for purposes of United States federal income
taxation as an association taxable as a corporation or partnership or cause each
holder of Trust Securities not to be treated as owning an undivided beneficial
interest in the Subordinated Debt Securities, (ii) reduce or otherwise adversely
affect the powers of the Property Trustee or (iii) cause U S WEST Financing to
be deemed to be an "investment company" which is required to be registered under
the 1940 Act.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
U S WEST Financing may not consolidate, amalgamate, merge with or into, or
be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other body, except as
described below. U S WEST Financing may, with the consent of a majority of the
Regular Trustees and without the consent of the holders of the Trust Securities,
consolidate, amalgamate, merge with or into, or be replaced by a trust organized
as such under the laws of any State; provided, that (i) such successor entity
either (x) expressly assumes all of the obligations of U S WEST Financing under
the Trust Securities or (y) substitutes for the Preferred Securities other
securities having substantially the same terms as the Trust Securities (the
"Successor Securities") so long as the Successor Securities rank the same as the
Trust Securities rank with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) Capital Funding expressly
acknowledges a trustee of such successor entity possessing the same powers and
duties as the Property Trustee as the holder of the Subordinated Debt Securities
and U S WEST expressly acknowledges such trustee of such successor entity as the
holder of the Debt Guarantee, (iii) the Preferred Securities or any Successor
Securities are listed, or any Successor Securities will be listed upon
notification of issuance, on any national securities exchange or other
organization on which the Preferred Securities are then listed, (iv) such
merger, consolidation, amalgamation or replacement does not cause the Preferred
Securities (including any Successor Securities) to be downgraded by any
nationally recognized statistical rating organization, (v) such merger,
consolidation, amalgamation or replacement does not adversely affect the rights,
preferences and privileges of the holders of the Trust Securities (including any
Successor Securities) in any material respect (other than with respect to any
dilution of the holders' interest in the new entity), (vi) such successor entity
has a purpose identical to that of U S WEST Financing, (vii) prior to such
merger, consolidation, amalgamation or replacement, U S WEST has received an
opinion of a nationally recognized independent counsel to U S WEST Financing
experienced in such matters to the effect that (A) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution of
the holders' interest in the new entity), and (B) following such merger,
consolidation, amalgamation or replacement, neither U S WEST Financing nor such
successor entity will be required to register as an investment company under the
1940 Act and (viii) U S WEST guarantees the obligations of such successor entity
under the Successor Securities at least to the extent provided by the Preferred
Securities Guarantee and the guarantee of the Common Securities. Notwithstanding
the foregoing, U S WEST Financing shall not, except with the consent of holders
of 100% in liquidation amount of the Trust Securities, consolidate, amalgamate,
merge with or into, or be replaced by any other entity or permit any other
entity to consolidate, amalgamate, merge with or into, or replace it if such
consolidation, amalgamation, merger or replacement would cause U S WEST
Financing or the
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successor entity to be classified as a corporation or a partnership for United
States federal income tax purposes or, if as a result of such action, each
holder of Trust Securities would not be treated as owning an undivided
beneficial interest in the Subordinated Debt Securities.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary for
the Preferred Securities. The Preferred Securities will be issued only as fully
registered securities registered in the name of Cede & Co. (DTC's nominee). One
or more fully registered global Preferred Securities certificates will be
issued, representing in the aggregate the total number of Preferred Securities,
and will be deposited with DTC.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in a global Preferred Security.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the 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 pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, the American Stock Exchange,
Inc., and the National Association of Securities Dealers, Inc. Access to the DTC
system is also available to others such as securities brokers and dealers, banks
and trust companies that clear through or maintain a custodial relationship with
a Direct Participant, either directly or indirectly ("Indirect Participants").
The rules applicable to DTC and its Participants are on file with the Securities
and Exchange Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
each Preferred Securities ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in Preferred Securities, except in the event that use
of the book-entry system for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
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Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce pro rata the amount of
the interest of each Direct Participant in the Preferred Securities to be
redeemed; provided that if, as a result of such pro rata redemption, Direct
Participants would hold fractional interests in the Preferred Securities, DTC
will adjust the amount of the interest of each Direct Participant to be redeemed
to avoid such fractional interests.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to U S WEST Financing as soon as
possible after the record date. The Omnibus Proxy assigns Cede & Co.'s
consenting or voting rights to those Direct Participants to whose accounts the
Preferred Securities are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Distribution payments on the Preferred Securities will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the relevant payment date
in accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment date.
Payments by participants to Beneficial Owners will be governed by standing
instructions and customary practices, as in the case with securities held for
the account of customers in bearer form or registered in "street name," and will
be the responsibility of such Participant and not of DTC, U S WEST Financing,
Capital Funding or U S WEST, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of distributions to DTC is the
responsibility of U S WEST Financing, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred Security
will not be entitled to receive physical delivery of Preferred Securities.
Accordingly, each Beneficial Owner must rely on the procedures of DTC to
exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to U
S WEST Financing. Under such circumstances, in the event that a successor
securities depository is not obtained, Preferred Securities certificates are
required to be printed and delivered. Additionally, the Regular Trustees (with
the consent of U S WEST) may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor depositary) with respect to the
Preferred Securities. In that event, certificates for the Preferred Securities
will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that U S WEST and U S WEST Financing believe to
be reliable, but U S WEST and U S WEST Financing take no responsibility for the
accuracy thereof.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities, undertakes to perform only such duties as are specifically
set forth in the Declaration and, after default, shall exercise the same degree
of care as a prudent individual would exercise in the conduct of his or her own
affairs. Subject to such provisions, the Property Trustee is under no obligation
to exercise any of the powers vested in it by the Declaration at the request of
any holder of Preferred Securities, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The holders of Preferred Securities will not be required to offer such
indemnity in the event such holders, by exercising their voting rights, direct
the Property Trustee to take any action following a Declaration Event of
Default.
U S WEST and certain of its affiliates maintain a deposit account and
banking relationship with the Property Trustee. The Property Trustee serves as
trustee under the Preferred Securities Guarantee. The Property Trustee also
serves as trustee under other indentures pursuant to which unsecured debt
securities of affiliates of U S WEST are outstanding.
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REGISTRAR AND TRANSFER AGENT
In the event that the Preferred Securities do not remain in book-entry only
form, the following provisions would apply:
The Property Trustee will act as paying agent and may designate an
additional or substitute paying agent at any time.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of U S WEST Financing, but upon payment (with the giving
of such indemnity as U S WEST Financing or U S WEST may require) in respect of
any tax or other government charges which may be imposed in relation to it.
U S WEST Financing will not be required to register or cause to be
registered the transfer of Preferred Securities after such Preferred Securities
have been called for redemption.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate U S WEST
Financing in such a way so that (i) U S WEST Financing will not be deemed to be
an "investment company" required to be registered under the 1940 Act or
characterized for United States federal income tax purposes as an association
taxable as a corporation or as a partnership and (ii) each holder of Trust
Securities will be treated as owning an undivided beneficial interest in the
Subordinated Debt Securities. Capital Funding is authorized and directed to
conduct its affairs so that the Subordinated Debt Securities will be treated as
indebtedness of Capital Funding for United States federal income tax purposes.
In this connection, the Regular Trustees and Capital Funding are authorized to
take any action, not inconsistent with applicable law, the certificate of trust
of U S WEST Financing, the Declaration or the certificate of incorporation of
Capital Funding, that each of the Regular Trustees and Capital Funding
determines in their discretion to be necessary or desirable for such purposes,
as long as such action does not adversely affect the interests of the holders of
the Preferred Securities.
DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES AND THE DEBT GUARANTEE
Set forth below is a description of the specific terms of the Subordinated
Debt Securities in which U S WEST Financing will invest with the proceeds of the
issuance and sale of the Trust Securities. This description supplements the
description of the general terms and provisions of the Subordinated Debt
Securities set forth in the accompanying Prospectus under the caption
"Description of the Subordinated Debt Securities and the Debt Guarantees." The
following description does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the description in the accompanying
Prospectus and the Indenture (the "Base Indenture"), dated as of ,
1995, among Capital Funding, U S WEST and Norwest Bank Minnesota, National
Association, as Trustee (the "Debt Trustee"), as supplemented by a First
Supplemental Indenture, dated as of , 1995 (the Base Indenture, as so
supplemented, is hereinafter referred to as the "Indenture"), the forms of which
are filed as an exhibit to the Registration Statement of which this Prospectus
Supplement and the accompanying Prospectus form a part. Certain capitalized
terms used herein are defined in the Indenture.
Under certain circumstances involving the dissolution of U S WEST Financing
following the occurrence of a Special Event, Subordinated Debt Securities may be
distributed to the holders of Trust Securities in liquidation of U S WEST
Financing. See "Description of the Preferred Securities -- Special Event
Redemption or Distribution."
If the Subordinated Debt Securities are distributed to the holders of the
Trust Securities, Capital Funding will use its best efforts to have the
Subordinated Debt Securities listed on the New York Stock Exchange or on such
other exchange as the Preferred Securities are then listed.
S-21
GENERAL
The Subordinated Debt Securities will be issued as unsecured debt under the
Indenture. The Subordinated Debt Securities will be limited in aggregate
principal amount to approximately $ million, such amount being the sum of
the aggregate stated liquidation amount of the Preferred Securities and the
capital contributed by Capital Funding in exchange for the Common Securities
(the "U S WEST Payment").
The Subordinated Debt Securities are not subject to a sinking fund
provision. The entire principal amount of the Subordinated Debt Securities will
mature and become due and payable, together with any accrued and unpaid interest
thereon, including Additional Interest (as defined herein), if any, on
, 2025, subject to the election of Capital Funding to extend the
scheduled maturity date of the Subordinated Debt Securities to a date not later
than , 2044, provided that Capital Funding satisfies certain
financial covenants. See "-- Option to Extend Maturity Date." The Subordinated
Debt Securities will be fully and unconditionally guaranteed on a subordinated
basis as to principal, premium, if any, and interest by U S WEST. See
"Description of the Subordinated Debt Securities and the Debt Guarantees -- Debt
Guarantees" in the accompanying Prospectus.
If Subordinated Debt Securities are distributed to holders of the Preferred
Securities in liquidation of such holders' interests in U S WEST Financing, such
Subordinated Debt Securities will initially be issued as a Global Security (as
defined below). As described herein, under certain limited circumstances,
Subordinated Debt Securities may be issued in certificated form in exchange for
a Global Security. See "-- Book-Entry and Settlement." In the event Subordinated
Debt Securities are issued in certificated form, such Subordinated Debt
Securities will be in denominations of $25 and integral multiples thereof and
may be transferred or exchanged at the offices described below. Payments on
Subordinated Debt Securities issued as a Global Security will be made to the
depositary for the Subordinated Debt Securities. In the event Subordinated Debt
Securities are issued in certificated form, principal and interest will be
payable, the transfer of the Subordinated Debt Securities will be registrable
and Subordinated Debt Securities will be exchangeable for Subordinated Debt
Securities of other denominations of a like aggregate principal amount at the
corporate trust office of the Debt Trustee in New York, New York; provided, that
payment of interest may be made at the option of Capital Funding by check mailed
to the address of the persons entitled thereto.
SUBORDINATION
The Indenture provides that the Subordinated Debt Securities are
subordinated and junior in right of payment to all Senior Indebtedness of
Capital Funding and that the Debt Guarantee is subordinated and junior in right
of payment to all Senior Indebtedness of U S WEST. No payment of principal of
(including redemption and sinking fund payments), premium, if any, or interest
on, the Subordinated Debt Securities and no payment under the Debt Guarantee may
be made if any Senior Indebtedness of Capital Funding or U S WEST, as the case
may be, is not paid when due, any applicable grace period with respect to such
default has ended and such default has not been cured or waived or ceased to
exist, or if the maturity of any Senior Indebtedness of Capital Funding or U S
WEST, as the case may be, has been accelerated because of a default. Upon any
distribution of assets of Capital Funding or U S WEST to creditors upon any
dissolution, winding-up, liquidation or reorganization, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
principal of, premium, if any, and interest due or to become due on, all Senior
Indebtedness of Capital Funding or U S WEST, as the case may be, must be paid in
full before the holders of Subordinated Debt Securities or the Debt Guarantee
are entitled to receive or retain any payment. The rights of the holders of the
Subordinated Debt Securities and the Debt Guarantee will be subrogated to the
rights of the holders of Senior Indebtedness of Capital Funding or U S WEST, as
the case may be, to receive payments or distributions applicable to Senior
Indebtedness until all amounts owing on the Subordinated Debt Securities or the
Debt Guarantee, as the case may be, are paid in full. In addition, the
Subordinated Debt Securities and the Debt Guarantee will rank at least pari
passu with all other subordinated debt securities and debt guarantees issued
under the Base Indenture to other U S WEST Trusts or to other trusts,
partnerships or other entities affiliated with U S WEST in connection with an
issuance of securities similar to the Preferred Securities.
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The term "Senior Indebtedness" means, with respect to Capital Funding or U S
WEST, (i) the principal, premium, if any, and interest in respect of (a)
indebtedness of such obligor for money borrowed and (b) indebtedness evidenced
by securities, debentures, bonds or other similar instruments issued by such
obligor including, without limitation, in the case of U S WEST, all obligations
under its Liquid Yield Option Notes due 2011; (ii) all capital lease obligations
of such obligor; (iii) all obligations of such obligor issued or assumed as the
deferred purchase price of property, all conditional sale obligations of such
obligor and all obligations of such obligor under any title retention agreement
(but excluding trade accounts payable arising in the ordinary course of
business); (iv) all obligations of such obligor for the reimbursement on any
letter of credit, banker's acceptance, security purchase facility or similar
credit transaction; (v) all obligations of the type referred to in clauses (i)
through (iv) above of other persons for the payment of which such obligor is
responsible or liable as obligor, guarantor or otherwise; and (vi) all
obligations of the type referred to in clauses (i) through (v) above of other
persons secured by any lien on any property or asset of such obligor (whether or
not such obligation is assumed by such obligor), except for (1) any such
indebtedness that is by its terms subordinated to or PARI PASSU with the
Subordinated Debt Securities or the Debt Guarantee, as the case may be, and (2)
any indebtedness between or among such obligor or its affiliates. Such Senior
Indebtedness shall continue to be Senior Indebtedness and be entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
which may be issued by Capital Funding or U S WEST. As of December 31, 1994,
Senior Indebtedness of U S WEST and Capital Funding aggregated approximately
$3.5 billion and $1.4 billion, respectively.
OPTIONAL REDEMPTION
Capital Funding shall have the right to redeem the Subordinated Debt
Securities, in whole or in part, from time to time, on or after ,
2000, or at any time in certain circumstances upon the occurrence of a Tax Event
as described under "Description of the Preferred Securities -- Special Event
Redemption or Distribution," upon not less than 30 nor more than 60 days'
notice, at a redemption price equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest, including Additional Interest, if
any, to the redemption date. If a partial redemption of the Preferred Securities
resulting from a partial redemption of the Subordinated Debt Securities would
result in the delisting of the Preferred Securities, Capital Funding may only
redeem the Subordinated Debt Securities in whole.
INTEREST
Each Subordinated Debt Security shall bear interest at the rate of % per
annum from the original date of issuance, payable quarterly in arrears on March
31, June 30, September 30 and December 31 of each year (each, an "Interest
Payment Date"), commencing June 30, 1995, to the person in whose name such
Subordinated Debt Security is registered, subject to certain exceptions, at the
close of business on the Business Day next preceding such Interest Payment Date.
In the event the Subordinated Debt Securities shall not continue to remain in
book-entry only form, Capital Funding shall have the right to select record
dates which shall be more than one Business Day prior to the Interest Payment
Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period will be computed on the basis of
the actual number of days elapsed per 30-day month. In the event that any date
on which interest is payable on the Subordinated Debt Securities is not a
Business Day, then payment of the interest payable on such date will be made on
the next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
OPTION TO EXTEND MATURITY DATE
The maturity date of the Subordinated Debt Securities is , 2025
(the "Scheduled Maturity Date"). Capital Funding, however, may, before the
Scheduled Maturity Date, extend such maturity date no more than one time, for up
to an additional 19 years from the Scheduled Maturity Date, provided that (a)
Capital Funding is not in bankruptcy or otherwise insolvent, (b) Capital Funding
is not in default on any
S-23
subordinated debt securities issued to a U S WEST Trust or to any trustee of
such trust in connection with an issuance of Trust Securities by such U S WEST
Trust, (c) Capital Funding has made timely payments on the Subordinated Debt
Securities for the immediately preceding 6 quarters without deferrals, (d) U S
WEST Financing is not in arrears on payments of distributions on the Preferred
Securities, (e) the Subordinated Debt Securities are rated Investment Grade by
Standard & Poor's Corporation, Moody's Investors Service, Inc., Fitch Investor
Services, Duff & Phelps Credit Rating Company or any other nationally recognized
statistical rating organization, and (g) the final maturity of the Subordinated
Debt Securities is not later than the 49th anniversary of the issuance of the
Preferred Securities. Pursuant to the Declaration, the Regular Trustees are
required to give notice of Capital Funding's election to extend the Scheduled
Maturity Date to the holders of the Preferred Securities.
OPTIONS TO EXTEND INTEREST PAYMENT PERIOD
Capital Funding shall have the right at any time, and from time to time,
during the term of the Subordinated Debt Securities to defer payments of
interest by extending the interest payment period for a period not exceeding 20
consecutive Extension Periods, at the end of which Extension Period, Capital
Funding shall pay all interest then accrued and unpaid (including any Additional
Interest (as defined herein)) (together with interest thereon at the rate
specified for the Subordinated Debt Securities to the extent permitted by
applicable law); provided, that, during any such Extension Period, (a) U S WEST
and Capital Funding shall not (and, if it is a wholly-owned subsidiary of U S
WEST, U S WEST shall cause U S WEST Communications not to) declare or pay any
dividend or, make any distributions with respect to, or redeem, purchase or make
a liquidation payment with respect to, any of its capital stock, including, in
the case of U S WEST, the Communications Stock and the Media Vision Stock, and
(b) U S WEST and Capital Funding shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities issued by U S WEST or Capital Funding which rank pari passu with or
junior to the Subordinated Debt Securities. Prior to the termination of any such
Extension Period, Capital Funding may further defer payments of interest by
extending the interest payment period, provided that such Extension Period
together with all such previous and further extensions thereof may not exceed 20
consecutive quarters. Upon the termination of any Extension Period and the
payment of all amounts then due, Capital Funding may select a new Extension
Period, subject to the above requirements. No interest during an Extension
Period, except at the end thereof, shall be due and payable. Capital Funding has
no present intention of exercising its rights to defer payments of interest by
extending the interest payment period on the Subordinated Debt Securities. If
the Property Trustee shall be the sole holder of the Subordinated Debt
Securities, Capital Funding shall give the Regular Trustees and the Property
Trustee notice of its selection of such Extension Period one Business Day prior
to the earlier of (i) the date distributions on the Preferred Securities are
payable or (ii) the date the Regular Trustees are required to give notice to the
New York Stock Exchange or other applicable self-regulatory organization or to
holders of the Preferred Securities of the record date or the date such
distribution is payable, but in any event not less than one Business Day prior
to such record date. The Regular Trustees shall give notice of Capital Funding's
selection of such Extension Period to the holders of the Preferred Securities.
If the Property Trustee shall not be the sole holder of the Subordinated Debt
Securities, Capital Funding shall give the holders of the Subordinated Debt
Securities notice of its selection of such Extension Period ten Business Days
prior to the earlier of (i) the Interest Payment Date or (ii) the date Capital
Funding is required to give notice to the New York Stock Exchange or other
applicable self-regulatory organization or to holders of the Subordinated Debt
Securities of the record or payment date of such related interest payment.
ADDITIONAL INTEREST
If at any time U S WEST Financing shall be required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any such case, Capital Funding will pay as additional interest
("Additional Interest") such additional amounts as shall be required so that the
net amounts received and retained by U S WEST Financing after paying any such
taxes, duties, assessments or other governmental charges will be not less than
the amounts U S WEST Financing would have received had no such taxes, duties,
assessments or other governmental charges been imposed.
S-24
INDENTURE EVENTS OF DEFAULT
In case any Indenture Event of Default shall occur and be continuing, the
Property Trustee, as the holder of the Subordinated Debt Securities, will have
the right to declare the principal of and the interest on the Subordinated Debt
Securities (including any Additional Interest, if any) and any other amounts
payable under the Indenture to be forthwith due and payable and to enforce its
other rights as a creditor with respect to the Subordinated Debt Securities. See
"Description of the Subordinated Debt Securities and the Debt Guarantees --
Events of Default" in the accompanying Prospectus for a description of the
Events of Default. An Indenture Event of Default also constitutes a Declaration
Event of Default. The holders of Preferred Securities in certain circumstances
have the right to direct the Property Trustee to exercise its rights as the
holder of the Subordinated Debt Securities and the Debt Guarantee. See
"Description of the Preferred Securities -- Declaration Events of Default" and
"-- Voting Rights."
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
voluntary or involuntary dissolution, winding-up or liquidation of U S WEST
Financing as a result of the occurrence of a Special Event, the Subordinated
Debt Securities will be issued in the form of one or more global certificates
(each, a "Global Security") registered in the name of the depositary or its
nominee. Except under the limited circumstances described below, Subordinated
Debt Securities represented by the Global Security will not be exchangeable for,
and will not otherwise be issuable as, Subordinated Debt Securities in
definitive form. The Global Securities described above may not be transferred
except by the depositary to a nominee of the depositary or by a nominee of the
depositary to the depositary or another nominee of the depositary or to a
successor depositary or its nominee.
The laws of some jurisdictions require that certain purchasers of securities
take physical delivery of such securities in definitive form. Such laws may
impair the ability to transfer beneficial interests in such a Global Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Subordinated Debt
Securities in definitive form and will not be considered the holders (as defined
in the Indenture) thereof for any purpose under the Indenture, and no Global
Security representing Subordinated Debt Securities shall be exchangeable, except
for another Global Security of like denomination and tenor to be registered in
the name of the depositary or its nominee or to a successor depositary or its
nominee. Accordingly, each beneficial owner must rely on the procedures of the
depositary 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 DEPOSITARY. If Subordinated Debt Securities are distributed to holders
of Preferred Securities in liquidation of such holders' interests in U S WEST
Financing, DTC will act as securities depositary for the Subordinated Debt
Securities. For a description of DTC and the specific terms of the depository
arrangements, see "Description of the Preferred Securities -- Book-Entry Only
Issuance -- The Depository Trust Company." As of the date of this Prospectus
Supplement, the description therein of DTC's book-entry system and DTC's
practices as they relate to purchases, transfers, notices and payments with
respect to the Preferred Securities apply in all material respects to any debt
obligations represented by one or more Global Securities held by DTC. Capital
Funding may appoint a successor to DTC or any successor depositary in the event
DTC or such successor depositary is unable or unwilling to continue as
depositary.
None of U S WEST, Capital Funding, U S WEST Financing, the Debt Trustee, any
paying agent and any other agent of U S WEST, Capital Funding or the Debt
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in a
Global Security for such Subordinated Debt Securities or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES. A Global Security shall be
exchangeable for Subordinated Debt Securities registered in the names of persons
other than the depositary or its nominee only if (i) the depositary notifies
Capital Funding that it is unwilling or unable to continue as a depositary for
such Global
S-25
Security and no successor depositary shall have been appointed, or if at any
time the depositary ceases to be a clearing agency registered under the
Securities Exchange Act of 1934, as amended, at a time when the depositary is
required to be so registered to act as such depositary and no successor
depositary shall have been appointed, (ii) Capital Funding in its sole
discretion determines that such Global Security shall be so exchangeable or
(iii) there shall have occurred an Event of Default with respect to such
Subordinated Debt Securities. Any Global Security that is exchangeable pursuant
to the preceding sentence shall be exchangeable for Subordinated Debt Securities
registered in such names as the depositary shall direct. It is expected that
such instructions will be based upon directions received by the depositary from
its Participants with respect to ownership of beneficial interests in such
Global Security.
MISCELLANEOUS
The Indenture will provide that Capital Funding will pay all fees and
expenses related to (i) the offering of the Trust Securities and the
Subordinated Debt Securities, (ii) the organization, maintenance and dissolution
of U S WEST Financing, (iii) the retention of the U S WEST Trustees and (iv) the
enforcement by the Property Trustee of the rights of holders of Preferred
Securities. The payment of such fees and expenses will be fully and
unconditionally guaranteed by U S WEST.
EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED DEBT SECURITIES,
THE DEBT GUARANTEE AND THE PREFERRED SECURITIES GUARANTEE
As set forth in the Declaration, the sole purpose of U S WEST Financing is
to issue Trust Securities and invest the proceeds thereof in the Subordinated
Debt Securities.
As long as payments of interest and other payments are made when due on the
Subordinated Debt Securities, such payments will be sufficient to cover
distributions and payments due on the Trust Securities primarily because (i) the
aggregate principal amount of Subordinated Debt Securities will be equal to the
sum of the aggregate stated liquidation amount of the Trust Securities; (ii) the
interest rate and interest and other payment dates on the Subordinated Debt
Securities will match the distribution rate and distribution and other payment
dates for the Preferred Securities; (iii) Capital Funding shall pay for all
costs and expenses of U S WEST Financing; and (iv) the Declaration provides that
the U S WEST Trustees shall not cause or permit U S WEST Financing to, among
other things, engage in any activity that is not consistent with the purposes of
U S WEST Financing.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by U S WEST as and to the extent set forth under
"Description of the Preferred Securities Guarantees" in the accompanying
Prospectus. If Capital Funding does not make interest payments on the
Subordinated Debt Securities purchased by U S WEST Financing and U S WEST does
not make payments under the Debt Guarantee, it is expected that U S WEST
Financing will not have sufficient funds to pay distributions on the Preferred
Securities. The Preferred Securities Guarantee is a full and unconditional
guarantee from the time of its issuance, but does not apply to any payment of
distributions unless and until U S WEST Financing has sufficient funds for the
payment of such distributions.
If Capital Funding fails to make interest or other payments on the
Subordinated Debt Securities when due (taking account of any Extension Period)
and U S WEST fails to make payments under the Debt Guarantee with respect to
such payments due on the Subordinated Debt Securities, the Declaration provides
a mechanism whereby the holders of the Preferred Securities, using the
procedures described in "Description of the Preferred Securities -- Voting
Rights," may (i) appoint a Special Regular Trustee and (ii) direct the Property
Trustee to enforce its rights under the Subordinated Debt Securities and Debt
Guarantee, including proceeding directly against U S WEST to enforce the Debt
Guarantee without first proceeding against Capital Funding under the
Subordinated Debt Securities. If the Property Trustee fails to enforce its
rights under the Subordinated Debt Securities or the Debt Guarantee, a holder of
Preferred Securities may, after a period of 30 days has elapsed from such
holder's written request to the Property Trustee to enforce such rights,
institute a legal proceeding directly against Capital Funding or U S WEST to
enforce the
S-26
Property Trustee's rights under the Subordinated Debt Securities or the Debt
Guarantee, as the case may be, without first instituting any legal proceeding
against the Property Trustee or any other person or entity, including, in the
case of the Debt Guarantee, against Capital Funding.
If U S WEST fails to make payments under the Preferred Securities Guarantee,
the Preferred Securities Guarantee provides a mechanism whereby the holders of
the Preferred Securities may direct the Preferred Trustee to enforce its rights
thereunder. If the Preferred Trustee fails to enforce the Preferred Securities
Guarantee, any holder of Preferred Securities may, after a period of 30 days has
elapsed from such holders written request to the Preferred Trustee to enforce
the Preferred Securities Guarantee, institute a legal proceeding directly
against U S WEST to enforce the Preferred Trustee's rights under the Preferred
Securities Guarantee, without first instituting a legal proceeding against U S
WEST Financing, the Preferred Trustee or any other person or entity.
U S WEST and U S WEST Financing believe that the above mechanisms and
obligations, taken together, are equivalent to a full and unconditional
guarantee by U S WEST of payments due on the Preferred Securities. See
"Description of the Preferred Securities Guarantees -- General" in the
accompanying Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the principal United States federal
income tax consequences of the purchase, ownership and disposition of the
Preferred Securities to a holder that is a citizen or resident of the United
States, a corporation, partnership or other entity created or organized under
the laws of the United States or any state thereof or the District of Columbia
or an estate or trust the income of which is subject to United States federal
income taxation regardless of source (a "U.S. Holder"). This summary does not
address the United States federal income tax consequences to persons other than
U.S. Holders.
This summary is based on the United States federal income tax laws,
regulations and rulings and decisions now in effect, all of which are subject to
change, possibly on a retroactive basis. This summary does not address the tax
consequences applicable to investors that may be subject to special tax rules
such as banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors or persons that will hold the Preferred Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a holder of Preferred
Securities. Further, it does not include any description of any alternative
minimum tax consequences or the tax laws of any state or local government or of
any foreign government that may be applicable to the Preferred Securities.
CLASSIFICATION OF U S WEST FINANCING
Upon the issuance of the Preferred Securities, Weil, Gotshal & Manges,
counsel to U S WEST, Capital Funding and U S WEST Financing, will issue its
opinion (the "Tax Opinion") to the effect that, under then current law and
assuming full compliance with the terms of the Indenture and the Declaration
(and certain other documents), and based on certain facts and assumptions
contained in such opinion, U S WEST Financing will not be classified, for United
States federal income tax purposes, as an association taxable as a corporation
or a partnership, but rather, each holder of Preferred Securities will be
treated as owning an undivided beneficial interest in the Subordinated Debt
Securities. Accordingly, each holder will be required to include in its gross
income the original issue discount ("OID") accrued with respect to its allocable
share of those Subordinated Debt Securities. Investors should be aware that the
Tax Opinion does not address any other issue and is not binding on the Internal
Revenue Service (the "Service") or the courts.
ORIGINAL ISSUE DISCOUNT, PREMIUM AND MARKET DISCOUNT
Because of the option that Capital Funding has, under the terms of the
Subordinated Debt Securities, to defer payments of interest by extending
interest payment periods for up to 20 quarters, all of the stated interest
payments on those Subordinated Debt Securities will be treated as "original
issue discount."
S-27
Holders of debt instruments issued with OID must include that discount in income
on an economic accrual basis before the receipt of cash attributable to the
interest, regardless of their method of tax accounting. The amount of OID that
accrues in any month will approximately equal the amount of the interest that
accrues in that month at the stated interest rate. In the event that the
interest payment period is extended, holders will continue to accrue OID
approximately equal to the amount of the interest payment due at the end of the
extended interest payment period on an economic accrual basis over the length of
the extended interest period. Because income on the Preferred Securities will
constitute OID, corporate holders of Preferred Securities will not be entitled
to a dividends-received deduction with respect to any income earned on the
Preferred Securities.
To the extent a holder acquires its Preferred Securities at a price that is
greater or less than the adjusted issue price of such holder's share of the
Subordinated Debt Securities (which generally should approximate par plus
accrued but unpaid interest), the holder may be deemed to have acquired its
interest in the Subordinated Debt Securities with acquisition premium or with
market discount, as the case may be. A holder who purchases Preferred Securities
at a premium will be permitted to reduce the amount of OID required to be
included in income to reflect the acquisition premium. A holder who purchases
Preferred Securities at a market discount will also include the amount of such
discount in income in accordance with the market discount rules described below.
A holder that acquires its undivided beneficial interest in the Subordinated
Debt Securities at a market discount generally will be required to recognize
ordinary income to the extent of accrued market discount on the Debt Securities
upon the retirement of the underlying Debt Securities or, to the extent of any
gain, upon the disposition of the Preferred Securities. Such market discount
would accrue ratably, or, at the election of the holder, under a constant yield
method over the remaining term of the Subordinated Debt Securities. A holder
will also be required to defer the deduction of a portion of the interest paid
or accrued on indebtedness incurred to purchase or carry Preferred Securities
that represent Subordinated Debt Securities acquired with market discount. In
lieu of the foregoing, a holder may elect to include market discount in income
currently as it accrues on all market discount instruments acquired by such
holder in the taxable year of the election or thereafter, in which case the
interest deferral rule will not apply.
A holder may elect, in lieu of applying the market discount or premium rules
described above, to account for all income under the Subordinated Debt
Securities as if it were OID. A holder that makes this election and that is
considered to have acquired its undivided beneficial interest in the
Subordinated Debt Securities with market discount will be considered to have
made the election described in the immediately preceding paragraph.
RECEIPT OF SUBORDINATED DEBT SECURITIES OR CASH UPON LIQUIDATION OF U S WEST
FINANCING
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Special Event Redemption or Distribution,"
Subordinated Debt Securities may be distributed to holders in exchange for the
Preferred Securities and in liquidation of U S WEST Financing. Under a revenue
ruling issued by the Service, such a distribution would be treated as a
non-taxable event to each holder and each holder would receive an aggregate tax
basis in the Subordinated Debt Securities equal to such holder's aggregate tax
basis in its Preferred Securities. A holder's holding period in the Subordinated
Debt Securities so received in liquidation of U S WEST Financing would include
the period for which the Preferred Securities were held by such holder.
SALES OF CERTIFICATES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between its adjusted tax basis in the securities and the
amount realized on the sale. A holder's adjusted tax basis in the Preferred
Securities generally will be its initial purchase price increased by original
issue discount previously includible in such holder's gross income to the date
of disposition (and the accrual of market discount, if any) and decreased by
payments received on the Preferred Securities. Subject to the market discount
rules described above, any such gain or loss generally will be capital gain or
loss.
S-28
The Preferred Securities may trade at a price that does not accurately
reflect the value of accrued but unpaid interest with respect to the underlying
Subordinated Debt Securities. A holder who disposes of his Preferred Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Subordinated Debt Securities through
the date of disposition in income as ordinary income (i.e., OID), and to add
such amount to his adjusted tax basis in his pro rata share of the underlying
Subordinated Debt Securities deemed disposed of. To the extent the selling price
is less than the holder's adjusted tax basis (which will include, in the form of
OID, all accrued but unpaid interest), a holder will recognize a capital loss.
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes.
INFORMATION REPORTING TO HOLDERS
Subject to the qualifications discussed below, income on the Preferred
Securities will be reported to holders on Forms 1099, which forms should be
mailed to holders of Preferred Securities by January 31 following each calendar
year.
U S WEST Financing will be obligated to report annually to Cede & Co., as
holder of record of the Preferred Securities, the OID related to the
Subordinated Debt Securities that accrued during that year. U S WEST Financing
currently intends to report such information on Form 1099 prior to January 31
following each calendar year even though U S WEST Financing is not legally
required to report to record holders until April 15 following each calendar
year. The Underwriters have indicated to U S WEST Financing that, to the extent
that they hold Preferred Securities as nominees for beneficial holders, they
currently expect to report to such beneficial holders on Forms 1099 by January
31 following each calendar year. Under current law, holders of Preferred
Securities who hold as nominees for beneficial holders will not have any
obligation to report information regarding the beneficial holders to U S WEST
Financing. U S WEST Financing, moreover, will not have any obligation to report
to beneficial holders who are not also record holders. Thus, beneficial holders
of Preferred Securities who hold their Preferred Securities through the
Underwriters will receive Forms 1099 reflecting the income on their Preferred
Securities from such nominee holders rather than U S WEST Financing.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's federal income tax, provided the required
information is provided to the Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
S-29
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), U S WEST Financing has agreed to sell to each of
the Underwriters named below, and each of the Underwriters, for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated is acting as representatives (the
"Representatives"), has severally agreed to purchase the number of Preferred
Securities set forth opposite its name below. In the Underwriting Agreement, the
several Underwriters have agreed, subject to the terms and conditions set forth
therein, to purchase all the Preferred Securities offered hereby if any of the
Preferred Securities are purchased. In the event of default by an Underwriter,
the Underwriting Agreement provides that, in certain circumstances, the purchase
commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
NUMBER OF
PREFERRED
UNDERWRITER SECURITIES
- --------------------------------------------------------------------------------- ----------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................................
----------
Total..................................................................
----------
----------
The Underwriters propose to offer the Preferred Securities in part directly
to the public at the initial public offering price, as set forth on the cover
page of this Prospectus Supplement, and in part to certain securities dealers at
such price less a concession of $. per Preferred Security. The Underwriters
may allow, and such dealers may reallow, a concession not in excess of $. per
Preferred Security to certain brokers and dealers. After the Preferred
Securities are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Representatives.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Debt Securities of Capital
Funding, the Underwriting Agreement provides that Capital Funding will agree to
pay as compensation ("Underwriters' Compensation") for the Underwriters'
arranging the investment therein of such proceeds, an amount in New York
Clearing House (next day) funds of $. per Preferred Security (or $ in the
aggregate) for the accounts of the several Underwriters, provided that such
compensation for sales of 10,000 or more Preferred Securities to any single
purchaser will be $. per Preferred Security. Therefore, to the extent of such
sales, the actual amount of Underwriter's Compensation will be less than the
aggregate amount specified in the preceding sentence.
During a period of 30 days from the date of the Prospectus Supplement,
neither U S WEST Financing, U S WEST nor Capital Funding will, without the prior
written consent of the Underwriters, directly or indirectly, sell, offer to
sell, grant any option for the sale of, or otherwise dispose of, any Preferred
Securities, any security convertible into or exchangeable into or exercisable
for Preferred Securities or any equity securities substantially similar to the
Preferred Securities (except for any series of subordinated debt securities and
the Preferred Securities offered hereby).
S-30
The Preferred Securities have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance. Trading of the Preferred
Securities on the New York Stock Exchange is expected to commence within a 30
day period after the initial delivery of the Preferred Securities. The
Representatives have advised U S WEST Financing that they intend to make a
market in the Preferred Securities prior to the commencement of trading on the
New York Stock Exchange. The Representatives will have no obligation to make a
market in the Preferred Securities, however, and may cease market making
activities, if commenced, at any time.
Prior to this offering, there has been no public market for the Preferred
Securities. In order to meet one of the requirements for listing the Preferred
Securities on the New York Stock Exchange, the Underwriters will undertake to
sell lots of 100 or more Preferred Securities to a minimum of 400 beneficial
holders.
U S WEST, Capital Funding and U S WEST Financing have agreed to indemnify
the Underwriters against, or contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, U S WEST and its subsidiaries in the ordinary
course of business.
LEGAL MATTERS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon on behalf of U S WEST Financing by Richards,
Layton & Finger, Wilmington, Delaware, special Delaware counsel to U S WEST
Financing. The validity of the Subordinated Debt Securities, the Preferred
Securities Guarantee, the Debt Guarantee and certain matters relating thereto
will be passed upon on behalf of U S WEST and Capital Funding by Weil, Gotshal &
Manges, New York, New York and on behalf of the Underwriters by Skadden, Arps,
Slate, Meagher & Flom, New York, New York. Weil, Gotshal & Manges and Skadden,
Arps, Slate, Meagher & Flom will rely on the opinion of Stephen E. Brilz, Senior
Attorney and Assistant Secretary of U S WEST, as to all matters of Colorado law.
Certain United States federal income taxation matters will be passed upon for U
S WEST, Capital Funding and U S WEST Financing by Weil, Gotshal & Manges.
S-31
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 1, 1995
PROSPECTUS [LOGO]
$1,000,000,000
U S WEST CAPITAL FUNDING, INC.
SUBORDINATED DEBT SECURITIES
UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF
PRINCIPAL, PREMIUM, IF ANY, AND INTEREST BY
U S WEST, INC.
------------
U S WEST FINANCING I
U S WEST FINANCING II
U S WEST FINANCING III
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
U S WEST, INC.
------------
U S WEST Capital Funding, Inc., a Colorado corporation ("Capital Funding")
and a wholly-owned subsidiary of
U S WEST, Inc., a Colorado corporation ("U S WEST"), may from time to time offer
its subordinated debt securities (the "Subordinated Debt Securities") in one or
more series and in amounts, at prices and on terms to be determined at the time
of the offering. The Subordinated Debt Securities when issued will be unsecured
obligations of Capital Funding and will be fully and unconditionally guaranteed
as to payment of principal, premium, if any, and interest by U S WEST (the "Debt
Guarantees"). Capital Funding's obligations under the Subordinated Debt
Securities and U S WEST's obligations under the Debt Guarantees will be
subordinate and junior in right of payment to certain other indebtedness of
Capital Funding and U S WEST, respectively, as may be described in an
accompanying Prospectus Supplement (the "Prospectus Supplement").
U S WEST Financing I, U S WEST Financing II and U S WEST Financing III
(each, a "U S WEST Trust"), each a statutory business trust formed under the
laws of Delaware, may from time to time offer preferred securities evidencing
undivided beneficial interests in the assets of the respective U S WEST Trust
("Preferred Securities"). The payment of periodic cash distributions
("distributions") with respect to Preferred Securities of each of the U S WEST
Trusts, out of moneys held by each of the U S WEST Trusts, and payments on
liquidation, redemption or otherwise with respect to such Preferred Securities
will be guaranteed by U S WEST to the extent described herein (each, a
"Preferred Securities Guarantee"). U S WEST's obligations under the Preferred
Securities Guarantees will be subordinate and junior in right of payment to all
other liabilities of U S WEST and PARI PASSU with the most senior preferred
stock issued by U S WEST. Subordinated Debt Securities may be issued and sold
from time to time in one or more series by Capital Funding to a U S WEST Trust
in connection with the investment of the proceeds from the offering of Preferred
Securities and Common Securities (as defined herein) of such U S WEST Trust. The
Subordinated Debt Securities subsequently may be distributed pro rata to holders
of Preferred Securities and Common Securities in connection with the dissolution
of such U S WEST Trust upon the occurrence of certain events as may be described
in the Prospectus Supplement.
Specific terms of the particular Subordinated Debt Securities of any series
or the Preferred Securities of any U S WEST Trust in respect of which this
Prospectus is being delivered (the "Offered Securities") will be set forth in
the accompanying Prospectus Supplement with respect to such series of
Subordinated Debt Securities or such Preferred Securities, which will describe,
without limitation and where applicable the following: (i) in the case of
Subordinated Debt Securities, the specific designation, aggregate principal
amount, denomination, maturity, premium, if any, interest rate (or the method of
determining such rate), if any, dates on which premium, if any, and interest, if
any, will be payable, any redemption provisions, any sinking fund provisions,
the initial public offering price, the subordination terms, any listing on a
securities exchange and any other terms and (ii) in the case of Preferred
Securities, the specific designation, number of Preferred Securities,
distribution rate (or the method of determining such rate), dates on which
distributions will be payable, liquidation amount, voting rights (if any), any
redemption provisions, terms for any conversion or exchange into other
securities (if any), the initial public offering price, any listing on a
securities exchange, and any other rights, preferences, privileges, limitations
and restrictions.
The Offered Securities may be offered in amounts, at prices and on terms to
be determined at the time of offering; provided, however, that the aggregate
initial public offering price of all Offered Securities shall not exceed
$1,000,000,000. The Prospectus Supplement relating to any series of Offered
Securities will contain information concerning certain United States federal
income tax considerations, if applicable to the Offered Securities.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF
SECURITIES UNLESS ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
The date of this Prospectus is May , 1995.
The Offered Securities will be sold directly, through agents, underwriters
or dealers as designated from time to time, or through a combination of such
methods. If agents or any dealers or underwriters are involved in the sale of
the Offered Securities in respect of which this Prospectus is being delivered,
the names of such agents, dealers or underwriters and any applicable commissions
or discounts will be set forth in or may be calculated from the Prospectus
Supplement with respect to such Offered Securities.
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED BY U S
WEST, CAPITAL FUNDING OR ANY OF THE U S WEST TRUSTS TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CAPITAL FUNDING, ANY OF THE U S
WEST TRUSTS OR U S WEST SINCE THE DATE HEREOF.
------------------------
AVAILABLE INFORMATION
U S WEST is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements, and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements, and other information concerning U S WEST can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices at Seven World Trade Center, 13th Floor, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements and
other information concerning U S WEST may also be inspected at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005 and
the Pacific Stock Exchange, 301 Pine Street, San Francisco, California 94104,
the securities exchanges on which shares of U S WEST's common stock are listed.
Capital Funding, the U S WEST Trusts and U S WEST have filed with the
Commission a registration statement on Form S-3 (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") relating
to the Offered Securities under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information, reference is hereby made to the Registration Statement.
No separate financial statements of Capital Funding or any of the U S WEST
Trusts have been included herein. U S WEST does not consider that such financial
statements would be material to holders of the Offered Securities because: (i)
Capital Funding and each U S WEST Trust is a direct or indirect wholly-owned
subsidiary of U S WEST, a reporting company under the Exchange Act, (ii) neither
Capital Funding nor any U S WEST Trust has any independent operations but exists
for the sole purpose of issuing, in the case of Capital Funding, debt securities
guaranteed by U S WEST, and, in the case of the U S WEST Trusts, securities
representing undivided beneficial interests in the assets of the U S WEST Trusts
and investing the proceeds thereof in Subordinated Debt Securities guaranteed by
U S WEST, and (iii) the obligations of Capital Funding under the Subordinated
Debt Securities are fully and unconditionally guaranteed by U S WEST, and the
obligations of each U S WEST Trust under the Trust Securities, to the extent
funds are available therefor, are fully and unconditionally guaranteed by U S
WEST. See "Description of the Preferred Securities Guarantees" and "Description
of the Subordinated Debt Securities and the Debt Guarantees."
2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by U S WEST with the
Commission (File No. 1-8611) are incorporated herein by reference: (i) Annual
Report on Form 10-K for the year ended December 31, 1994, and (ii) Current
Reports on Form 8-K dated January 19, 1995, April 10, 1995 and April 18, 1995.
All documents filed by U S WEST pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
date any such document is filed.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein or in any Prospectus Supplement shall be deemed
to be modified or superseded for purposes of this Prospectus or in any
Prospectus Supplement to the extent that a statement contained herein or therein
(or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein or therein) modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus or
any Prospectus Supplement.
U S WEST WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST OF SUCH PERSON, A COPY OF ANY OR ALL OF
THE DOCUMENTS WHICH ARE INCORPORATED BY REFERENCE HEREIN, OTHER THAN EXHIBITS TO
SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
INTO SUCH DOCUMENTS). REQUESTS SHOULD BE DIRECTED TO THE TREASURER, U S WEST,
INC., 7800 EAST ORCHARD ROAD, ENGLEWOOD, COLORADO 80111 (TELEPHONE NUMBER (303)
793-6500).
------------------------
3
U S WEST CAPITAL FUNDING, INC.
Capital Funding is a wholly-owned subsidiary of U S WEST and was
incorporated under the laws of the State of Colorado in June 1986. Capital
Funding was incorporated for the sole purpose of providing financing to U S WEST
and its affiliates through the issuance of indebtedness guaranteed by U S WEST.
The principal executive offices of Capital Funding are located at 7800 East
Orchard Road, Englewood, Colorado, 80111 (telephone number (303) 793-6500).
THE U S WEST FINANCING TRUSTS
Each of U S WEST Financing I, U S WEST Financing II and U S WEST Financing
III is a statutory business trust formed under Delaware law pursuant to (i) a
separate declaration of trust (each, a "Declaration") executed by U S WEST, as
sponsor for such trust (the "Sponsor") and the U S WEST Trustees (as defined
herein) of such trust and (ii) the filing of a certificate of trust with the
Delaware Secretary of State on March 1, 1995. Each U S WEST Trust exists for the
exclusive purposes of (i) issuing the Preferred Securities and common securities
representing undivided beneficial interests in the assets of such Trust (the
"Common Securities" and, together with the Preferred Securities, the "Trust
Securities"), (ii) investing the gross proceeds of the Trust Securities in the
Subordinated Debt Securities and (iii) engaging in only those other activities
necessary or incidental thereto. All of the Common Securities will be directly
or indirectly owned by U S WEST. The Common Securities will rank pari passu, and
payments will be made thereon pro rata, with the Preferred Securities except
that upon an event of default under the Declaration, the rights of the holders
of the Common Securities to payment in respect of distributions and payments
upon liquidation, redemption and otherwise will be subordinated to the rights of
the holders of the Preferred Securities. U S WEST will, directly or indirectly,
acquire Common Securities in an aggregate liquidation amount equal to 3% of the
total capital of each U S WEST Trust. Each U S WEST Trust has a term of
approximately 55 years, but may earlier terminate as provided in the
Declaration. Each U S WEST Trust's business and affairs will be conducted by the
trustees (the "U S WEST Trustees") appointed by U S WEST, as the direct or
indirect holder of all the Common Securities. The holder of the Common
Securities will be entitled to appoint, remove or replace any of, or increase or
reduce the number of, the U S WEST Trustees of a U S WEST Trust. The duties and
obligations of such U S WEST Trustees shall be governed by the Declaration of
such U S WEST Trust. A majority of the U S WEST Trustees (the "Regular
Trustees") of each U S WEST Trust will be persons who are employees or officers
of or affiliated with U S WEST. In certain limited circumstances set forth in a
Prospectus Supplement, the holders of a majority of the Preferred Securities
will be entitled to appoint one additional Regular Trustee, who need not be an
employee or officer of or otherwise affiliated with U S WEST. One U S WEST
Trustee of each U S WEST Trust will be a financial institution which will be
unaffiliated with U S WEST and which shall act as property trustee and as
indenture trustee for purposes of the Trust Indenture Act of 1939 (the "Trust
Indenture Act"), pursuant to the terms set forth in a Prospectus Supplement (the
"Property Trustee"). In addition, unless the Property Trustee maintains a
principal place of business in the State of Delaware, and otherwise meets the
requirements of applicable law, one U S WEST Trustee of each U S WEST Trust will
have its principal place of business or reside in the State of Delaware. Capital
Funding will pay all fees and expenses related to the U S WEST Trusts and the
offering of Trust Securities, the payment of which will be guaranteed by U S
WEST. The office of the Delaware Trustee for each U S WEST Trust in the State of
Delaware is 300 King Street, Wilmington, Delaware 19801. The principal place of
business of each U S WEST Trust shall be c/o U S WEST, Inc., 7800 East Orchard
Road, Englewood, Colorado 80111 (telephone number (303) 793-6500).
U S WEST, INC.
U S WEST is a diversified global communications company engaged in the
telecommunications, directory publishing, wireless communications and multimedia
businesses. Telecommunications services are provided by U S WEST's principal
subsidiary to more than 25 million residential and business customers in the
states of Arizona, Colorado, Idaho, Iowa, Minnesota, Montana, Nebraska, New
Mexico, North Dakota, Oregon, South Dakota, Utah, Washington and Wyoming
(collectively, the "U S WEST Region"). Directory publishing, wireless
communications and multimedia services are provided by other U S WEST
subsidiaries
4
to customers both inside and outside the U S WEST Region. U S WEST was
incorporated in 1983 under the laws of the State of Colorado and has its
principal executive offices at 7800 Orchard Road, Englewood, Colorado 80111
(telephone number (303) 793-6500).
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges from
continuing operations of U S WEST for the periods indicated. For the purpose of
calculating this ratio, earnings consist of income before income taxes and fixed
charges. Fixed charges include interest on indebtedness (excluding discontinued
operations) and the portion of rentals representative of the interest factor.
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1990 1991 1992 1993 1994
---- ---- ---- ---- ----
4.07 3.11 3.85 2.38 4.85
USE OF PROCEEDS
Each U S WEST Trust will invest all proceeds received from the sale of its
Trust Securities in Subordinated Debt Securities.
Unless otherwise specified in the Prospectus Supplement, Capital Funding
will apply the net proceeds from the sale of the Subordinated Debt Securities to
its general funds to be used for loans to U S WEST and affiliates of U S WEST,
which will in turn use the funds for general corporate purposes, including the
reduction of short-term and long-term borrowings and other business
opportunities.
DESCRIPTION OF THE PREFERRED SECURITIES
Each U S WEST Trust may issue, from time to time, only one series of
Preferred Securities having terms described in the Prospectus Supplement
relating thereto. The Declaration of each U S WEST Trust authorizes the Regular
Trustees of such U S WEST Trust to issue on behalf of such U S WEST Trust one
series of Preferred Securities. The Declaration will be qualified as an
indenture under the Trust Indenture Act. The Preferred Securities will have such
terms, including distributions, redemption, voting, liquidation rights and such
other preferred, deferred or other special rights or such restrictions as shall
be set forth in the Declaration or made part of the Declaration by the Trust
Indenture Act. Reference is made to the Prospectus Supplement relating to the
Preferred Securities of a U S WEST Trust for specific terms, including (i) the
distinctive designation of such Preferred Securities; (ii) the number of
Preferred Securities issued by such U S WEST Trust; (iii) the annual
distribution rate (or method of determining such rate) for Preferred Securities
issued by such U S WEST Trust and the date or dates upon which such
distributions shall be payable; provided, however, that distributions on such
Preferred Securities shall be payable on a quarterly basis to holders of such
Preferred Securities as of a record date in each quarter during which such
Preferred Securities are outstanding; (iv) whether distributions on Preferred
Securities issued by such U S WEST Trust shall be cumulative, and, in the case
of Preferred Securities having such cumulative distribution rights, the date or
dates or method of determining the date or dates from which distributions on
Preferred Securities issued by such U S WEST Trust shall be cumulative; (v) the
amount or amounts which shall be paid out of the assets of such U S WEST Trust
to the holders of Preferred Securities of such U S WEST Trust upon voluntary or
involuntary dissolution, winding-up or termination of such U S WEST Trust; (vi)
the obligation, if any, of such U S WEST Trust to purchase or redeem Preferred
Securities issued by such U S WEST Trust and the price or prices at which, the
period or periods within which, and the terms and conditions upon which,
Preferred Securities issued by such U S WEST Trust shall be purchased or
redeemed, in whole or in part, pursuant to such obligation; (vii) the voting
rights, if any, of Preferred Securities issued by such U S WEST Trust in
addition to those required by law, including the number of votes per Preferred
Security and any requirement for the approval by the holders of Preferred
Securities, or of Preferred Securities issued by one or more U S WEST Trusts, or
of both, as a condition to specified action or amendments to the Declaration of
such U S WEST Trust; and (viii) any other relevant rights, preferences,
privileges, limitations or restrictions of Preferred Securities issued by such U
S WEST Trust not inconsistent with the Declaration
5
of such U S WEST Trust or with applicable law. All Preferred Securities offered
hereby will be guaranteed by U S WEST to the extent set forth below under
"Description of the Preferred Securities Guarantees." Any applicable United
States federal income tax considerations applicable to any offering of Preferred
Securities will be described in the Prospectus Supplement relating thereto.
In connection with the issuance of Preferred Securities, each U S WEST Trust
will issue one series of Common Securities. The Declaration of each U S WEST
Trust authorizes the Regular Trustees of such trust to issue on behalf of such U
S WEST Trust one series of Common Securities having such terms including
distributions, redemption, voting, liquidation rights or such restrictions as
shall be set forth therein. The terms of the Common Securities issued by a U S
WEST Trust will be substantially identical to the terms of the Preferred
Securities issued by such trust and the Common Securities will rank pari passu,
and payments will be made thereon pro rata, with the Preferred Securities except
that, upon an event of default under the Declaration, the rights of the holders
of the Common Securities to payment in respect of distributions and payments
upon liquidation, redemption and otherwise will be subordinated to the rights of
the holders of the Preferred Securities. Except in certain limited
circumstances, the Common Securities will also carry the right to vote to
appoint, remove or replace any of the U S WEST Trustees of a U S WEST Trust. All
of the Common Securities of a U S WEST Trust will be directly or indirectly
owned by U S WEST.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEES
Set forth below is a summary of information concerning the Preferred
Securities Guarantees which will be executed and delivered by U S WEST for the
benefit of the holders from time to time of Preferred Securities. Each Preferred
Securities Guarantee will be qualified as an indenture under the Trust Indenture
Act. The First National Bank of Chicago will act as indenture trustee under each
Preferred Securities Guarantee (the "Preferred Guarantee Trustee"). The terms of
each Preferred Securities Guarantee will be those set forth in such Preferred
Securities Guarantee and those made part of such Preferred Securities Guarantee
by the Trust Indenture Act. The summary does not purport to be complete and is
subject in all respects to the provisions of, and is qualified in its entirety
by reference to, the form of Preferred Securities Guarantee, which is filed as
an exhibit to the Registration Statement of which this Prospectus forms a part,
and the Trust Indenture Act. Each Guarantee will be held by the Preferred
Guarantee Trustee for the benefit of the holders of the Preferred Securities of
the applicable U S WEST Trust.
GENERAL
Pursuant to each Preferred Securities Guarantee, U S WEST will irrevocably
and unconditionally agree, to the extent set forth therein, to pay in full, to
the holders of the Preferred Securities issued by a U S WEST Trust, the
Guarantee Payments (as defined herein) (except to the extent paid by such U S
WEST Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which such U S WEST Trust may have or assert. The following
payments with respect to Preferred Securities issued by a U S WEST Trust, to the
extent not paid by such U S WEST Trust (the "Guarantee Payments"), will be
subject to the Preferred Securities Guarantee thereon (without duplication): (i)
any accrued and unpaid distributions which are required to be paid on such
Preferred Securities, to the extent such U S WEST Trust shall have funds
available therefor, (ii) the redemption price, including all accrued and unpaid
distributions (the "Redemption Price"), to the extent such U S WEST Trust has
funds available therefor with respect to any Preferred Securities called for
redemption by such U S WEST Trust and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of such U S WEST Trust (other than in
connection with the distribution of Subordinated Debt Securities to the holders
of Preferred Securities or the redemption of all of the Preferred Securities),
the lesser of (a) the aggregate of the liquidation amount and all accrued and
unpaid distributions on such Preferred Securities to the date of payment, to the
extent such U S WEST Trust has funds available therefor and (b) the amount of
assets of such U S WEST Trust remaining available for distribution to holders of
such Preferred Securities in liquidation of such U S WEST Trust. U S WEST's
obligation to make a Guarantee Payment may be satisfied by direct payment of the
required amounts by U S WEST to the holders of Preferred Securities or by
causing the applicable U S WEST Trust to pay such amounts to such holders.
6
Each Preferred Securities Guarantee will be a full and unconditional
guarantee with respect to the Preferred Securities issued by the applicable U S
WEST Trust from the time of issuance of such Preferred Securities, but will not
apply to any payment of distributions except to the extent such U S WEST Trust
shall have funds available therefor. If Capital Funding does not make interest
payments on the Subordinated Debt Securities purchased by a U S WEST Trust and U
S WEST does not fulfill its obligations under the Debt Guarantee relating to
such Subordinated Debt Securities, such U S WEST Trust will not pay
distributions on the Preferred Securities issued by such U S WEST Trust and will
not have funds available therefor. See "Description of the Subordinated Debt
Securities and the Debt Guarantees -- Certain Covenants."
U S WEST has also agreed separately to irrevocably and unconditionally
guarantee the obligations of the U S WEST Trusts with respect to the Common
Securities (the "Common Securities Guarantees") to the same extent as the
Preferred Securities Guarantee, except that upon an event of default under the
Indenture, holders of Preferred Securities shall have priority over holders of
Common Securities with respect to distributions and payments on liquidation,
redemption or otherwise.
CERTAIN COVENANTS OF U S WEST
In each Preferred Securities Guarantee, U S WEST will covenant that, so long
as any Preferred Securities issued by the applicable U S WEST Trust remain
outstanding, if there shall have occurred any event that would constitute an
event of default under such Preferred Securities Guarantee or the Declaration of
such U S WEST Trust, then (a) U S WEST shall not (and shall cause Capital
Funding and, if it is a wholly-owned subsidiary of U S WEST, U S WEST
Communications, Inc. not to) declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase or make a liquidation payment
with respect to, any of its capital stock, and (b) U S WEST shall not (and shall
cause Capital Funding not to) make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities issued by
U S WEST or Capital Funding which rank pari passu with or junior to such
Subordinated Debt Securities.
MODIFICATION OF THE PREFERRED SECURITIES GUARANTEES; ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities (in which case no vote will be required),
each Preferred Securities Guarantee may be amended only with the prior approval
of the holders of not less than 66 2/3% in liquidation amount of the outstanding
Preferred Securities issued by the applicable U S WEST Trust. The manner of
obtaining any such approval of holders of such Preferred Securities will be as
set forth in an accompanying Prospectus Supplement. All guarantees and
agreements contained in a Preferred Securities Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of U S WEST and
shall inure to the benefit of the holders of the Preferred Securities of the
applicable U S WEST Trust then outstanding.
TERMINATION
Each Preferred Securities Guarantee will terminate as to the Preferred
Securities issued by the applicable U S WEST Trust upon full payment of the
Redemption Price of all Preferred Securities of such U S WEST Trust, upon
distribution of the Subordinated Debt Securities held by such U S WEST Trust to
the holders of the Preferred Securities of such U S WEST Trust or upon full
payment of the amounts payable in accordance with the Declaration of such U S
WEST Trust upon liquidation of such U S WEST Trust. Each Preferred Securities
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of Preferred Securities issued by the applicable U
S WEST Trust must restore payment of any sums paid under such Preferred
Securities or such Preferred Securities Guarantee.
EVENTS OF DEFAULT
An event of default under a Preferred Securities Guarantee will occur upon
the failure of U S WEST to perform any of its payment or other obligations
thereunder.
The holders of a majority in liquidation amount of the Preferred Securities
relating to such Preferred Securities Guarantee have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Preferred Guarantee Trustee in respect of the such Preferred Securities
Guarantee or to direct the exercise of any trust or power conferred upon the
Preferred Guarantee Trustee
7
under such Preferred Securities Guarantee. If the Preferred Guarantee Trustee
fails to enforce such Preferred Securities Guarantee, any holder of Preferred
Securities relating to such Preferred Securities Guarantee may, after a period
of 30 days has elapsed from such holders written request to the Preferred
Guarantee Trustee to enforce such Preferred Securities Guarantee, institute a
legal proceeding directly against U S WEST to enforce the Preferred Guarantee
Trustee's rights under such Preferred Securities Guarantee, without first
instituting a legal proceeding against the relevant U S WEST, the Preferred
Guarantee Trustee or any other person or entity.
STATUS OF THE PREFERRED SECURITIES GUARANTEES
The Preferred Securities Guarantees will constitute unsecured obligations of
U S WEST and will rank (i) subordinate and junior in right of payment to all
other liabilities of U S WEST, including the Debt Guarantees, (ii) PARI PASSU
with the most senior preferred or preference stock now or hereafter issued by U
S WEST and with any guarantee now or hereafter entered into by U S WEST in
respect of any preferred or preference stock of any affiliate of U S WEST and
(iii) senior to U S WEST's common stock. The terms of the Preferred Securities
provide that each holder of Preferred Securities issued by such U S WEST Trust
by acceptance thereof agrees to the subordination provisions and other terms of
the Preferred Securities Guarantee relating thereto.
The Preferred Securities Guarantees will constitute a guarantee of payment
and not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
guarantee without instituting a legal proceeding against any other person or
entity).
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to a Preferred Securities Guarantee, undertakes to perform only such
duties as are specifically set forth in such Preferred Securities Guarantee and,
after default, shall exercise the same degree of care as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provisions, the Preferred Guarantee Trustee is under no obligation to exercise
any of the powers vested in it by a Preferred Securities Guarantee at the
request of any holder of Preferred Securities, unless offered reasonable
indemnity against the costs, expenses and liabilities which might be incurred
thereby.
U S WEST and certain of its affiliates maintain a deposit account and
banking relationship with the Preferred Guarantee Trustee. The Preferred
Guarantee Trustee serves as trustee under other indentures pursuant to which
unsecured debt securities of affiliates of U S WEST are outstanding.
GOVERNING LAW
The Preferred Securities Guarantees will be governed by and construed in
accordance with the internal laws of the State of New York.
DESCRIPTION OF THE SUBORDINATED DEBT SECURITIES AND THE DEBT GUARANTEES
Subordinated Debt Securities may be issued from time to time in one or more
series under an Indenture, dated as of , 1995 (the "Indenture"), among
U S WEST, Capital Funding and Norwest Bank Minnesota, National Association, as
Trustee (the "Debt Trustee"). The terms of the Subordinated Debt Securities will
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The following summary does not purport to
be complete and is subject in all respects to the provisions of, and is
qualified in its entirety by reference to, the Indenture, which is filed as an
exhibit to the Registration Statement of which this Prospectus forms a part, and
the Trust Indenture Act. Whenever particular provisions or defined terms in the
Indenture are referred to herein, such provisions or defined terms are
incorporated by reference herein. Section and Article references used herein are
references to provisions of the Indenture unless otherwise noted.
GENERAL
The Subordinated Debt Securities will be unsecured, subordinated obligations
of Capital Funding. The Indenture does not limit the aggregate principal amount
of Subordinated Debt Securities which may be
8
issued thereunder and provides that the Subordinated Debt Securities may be
issued from time to time in one or more series. The Subordinated Debt Securities
are issuable in one or more series pursuant to an indenture supplemental to the
Indenture or a resolution of Capital Funding's Board of Directors or a special
committee thereof (each, a "Supplemental Indenture") (Section 2.01).
In the event Subordinated Debt Securities are issued to a U S WEST Trust or
a trustee of such trust in connection with the issuance of Trust Securities by
such U S WEST Trust, such Subordinated Debt Securities subsequently may be
distributed pro rata to the holders of such Trust Securities in connection with
the dissolution of such U S WEST Trust upon the occurrence of certain events
described in the Prospectus Supplement relating to such Trust Securities. Only
one series of Subordinated Debt Securities will be issued to a U S WEST Trust or
a trustee of such trust in connection with the issuance of Trust Securities by
such U S WEST Trust.
Reference is made to the Prospectus Supplement which will accompany this
Prospectus for the following terms of the series of Subordinated Debt Securities
being offered thereby: (i) the specific title of such Subordinated Debt
Securities; (ii) any limit on the aggregate principal amount of such
Subordinated Debt Securities; (iii) the date or dates on which the principal of
such Subordinated Debt Securities is payable and the right, if any, to extend
such date or dates; (iv) the rate or rates at which such Subordinated Debt
Securities will bear interest or the method of determination of such rate or
rates; (v) the date or dates from which such interest shall accrue, the interest
payment dates on which such interest will be payable or the manner of
determination of such interest payment dates and the record dates for the
determination of holders to whom interest is payable on any such interest
payment dates; (vi) the right, if any, to extend the interest payment periods
and the duration of such extension; (vii) the period or periods within which,
the price or prices at which, and the terms and conditions upon which, such
Subordinated Debt Securities may be redeemed, in whole or in part, at the option
of Capital Funding; (viii) the right and/or obligation, if any, of Capital
Funding to redeem or purchase such Subordinated Debt Securities pursuant to any
sinking fund or analogous provisions or at the option of the holder thereof and
the period or periods for which, the price or prices at which, and the terms and
conditions upon which, such Subordinated Debt Securities shall be redeemed or
purchased, in whole or part, pursuant to such right and/or obligation; (ix) the
terms of subordination; (x) the form of such Subordinated Debt Securities; (xi)
if other than denominations of $25 or any integral multiple thereof, the
denominations in which such Subordinated Debt Securities shall be issuable;
(xii) any and all other terms with respect to such series; and (xiii) whether
such Subordinated Debt Securities are issuable as a global security, and in such
case, the identity of the depositary. (Section 2.01).
The Indenture does not contain any provisions that afford holders of
Subordinated Debt Securities protection in the event of a highly leveraged
transaction involving U S WEST or Capital Funding.
DEBT GUARANTEES
The Indenture provides that U S WEST will fully and unconditionally
guarantee the due and punctual payment of the principal, premium, if any, and
interest on the Subordinated Debt Securities when and as the same shall become
due and payable, whether at maturity, upon redemption or otherwise. (Section
2.12) Since U S WEST is a holding company, the right of U S WEST and, hence, the
right of creditors of U S WEST (including the holders of the Subordinated Debt
Securities) to participate in any distribution of the assets of any subsidiaries
of U S WEST, whether upon liquidation, reorganization, or otherwise, is subject
to prior claims of creditors of the subsidiary, except to the extent that claims
of U S WEST itself as a creditor of a subsidiary may be recognized.
SUBORDINATION
The Subordinated Debt Securities will be subordinated and junior in right of
payment to certain other indebtedness of Capital Funding and the Debt Guarantees
will be subordinated and junior in right of payment to certain other
indebtedness of U S WEST to the extent set forth in the Prospectus Supplement
that will accompany this Prospectus.
9
CERTAIN COVENANTS
If Subordinated Debt Securities are issued to a U S WEST Trust or a trustee
of such trust in connection with the issuance of Trust Securities by such U S
WEST Trust and (i) there shall have occurred any event that would constitute an
Event of Default or (ii) U S WEST shall be in default with respect to its
payment of any obligations under the related Preferred Securities Guarantee or
Common Securities Guarantee, then (a) U S WEST and Capital Funding shall not
(and, if it is a wholly-owned subsidiary of U S WEST, U S WEST shall cause U S
WEST Communications, Inc. not to) declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase or make a liquidation payment
with respect to, any of its capital stock, and (b) U S WEST and Capital Funding
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities issued by U S WEST or Capital
Funding which rank pari passu with or junior to such Subordinated Debt
Securities.
If Subordinated Debt Securities are issued to a U S WEST Trust or a trustee
of such trust in connection with the issuance of Trust Securities by such U S
WEST Trust and Capital Funding shall have given notice of its election to defer
payments of interest on such Subordinated Debt Securities by extending the
interest payment period as provided in the Indenture and such period, or any
extension thereof, shall be continuing, then (a) U S WEST and Capital Funding
shall not (and, if it is a wholly-owned subsidiary of U S WEST, U S WEST shall
cause U S WEST Communications, Inc. not to) declare or pay any dividend on, make
any distributions with respect to, or redeem, purchase or make a liquidation
payment with respect to, any of its capital stock, and (b) U S WEST and Capital
Funding shall not make any payment of interest, principal or premium, if any, on
or repay, repurchase or redeem any debt securities issued by U S WEST or Capital
Funding which rank pari passu with or junior to such Subordinated Debt
Securities.
In the event Subordinated Debt Securities are issued to a U S WEST Trust or
a trustee of such trust in connection with the issuance of Trust Securities of
such U S WEST Trust, for so long as such Trust Securities remain outstanding, U
S WEST will covenant (i) to directly or indirectly maintain 100% ownership of
the Common Securities of such U S WEST Trust; provided, however, that any
permitted successor of U S WEST under the Indenture may succeed to U S WEST's
ownership of such Common Securities, (ii) to use its reasonable efforts to cause
such U S WEST Trust (a) to remain a statutory business trust, except in
connection with the distribution of Subordinated Debt Securities to the holders
of Trust Securities in liquidation of such U S WEST Trust, the redemption of all
of the Trust Securities of such U S WEST Trust, or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration of such U
S WEST Trust, and (b) to otherwise continue not to be classified as an
association taxable as a corporation or partnership for United States federal
income tax purposes and (iii) to use its reasonable efforts to cause each holder
of Trust Securities to be treated as owning an undivided beneficial interest in
the Subordinated Debt Securities. (Section 4.07).
FORM, EXCHANGE, REGISTRATION AND TRANSFER
Subordinated Debt Securities of each series will be issued in registered
form and in either certificated form or represented by one or more global
securities. If not represented by one or more global securities, Subordinated
Debt Securities may be presented for registration of transfer (with the form of
transfer endorsed thereon duly executed) or exchange, at the office of the
Debenture Registrar or at the office of any transfer agent designated by Capital
Funding for such purpose with respect to any series of Subordinated Debt
Securities and referred to in an applicable Prospectus Supplement, without
service charge and upon payment of any taxes and other governmental charges as
described in the Indenture. Such transfer or exchange will be effected upon the
Debenture Registrar or such transfer agent, as the case may be, being satisfied
with the documents of title and identity of the person making the request.
Capital Funding has appointed the Debt Trustee as Debenture Registrar with
respect to the Subordinated Debt Securities. (Section 2.05). If a Prospectus
Supplement refers to any transfer agents (in addition to the Debenture
Registrar) initially designated by Capital Funding with respect to any series of
Subordinated Debt Securities, Capital Funding may at any time rescind the
designation of any such transfer agent or approve a change in
10
the location through which any such transfer agent acts, except that Capital
Funding will be required to maintain a transfer agent in each Place of Payment
for such series. (Section 4.02). Capital Funding may at any time designate
additional transfer agents with respect to any series of Subordinated Debt
Securities.
In the event of any redemption in part, Capital Funding shall not be
required to (i) issue, register the transfer of or exchange any Subordinated
Debt Securities during a period beginning at the opening of business 15 days
before any selection for redemption of Subordinated Debt Securities of like
tenor and of the series of which such Subordinated Debt Securities are a part,
and ending at the close of business on the earliest date on which the relevant
notice of redemption is deemed to have been given to all holders of Subordinated
Debt Securities of like tenor and of such series to be redeemed and (ii)
register the transfer of or exchange any Subordinated Debt Securities so
selected for redemption, in whole or in part, except the unredeemed portion of
any Subordinated Debt Securities being redeemed in part. (Section 2.05).
PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and premium (if any) on any Subordinated Debt Securities will be
made only against surrender to the Paying Agent of such Subordinated Debt
Securities. Unless otherwise indicated in an applicable Prospectus Supplement,
principal of and any premium and interest, if any, on Subordinated Debt
Securities will be payable, subject to any applicable laws and regulations, at
the office of such Paying Agent or Paying Agents as Capital Funding may
designate from time to time, except that at the option of Capital Funding
payment of any interest may be made by check mailed to the address of the person
entitled thereto as such address shall appear in the Debenture Register with
respect to such Subordinated Debt Securities. (Section 4.03). Unless otherwise
indicated in an applicable Prospectus Supplement, payment of interest on a
Subordinated Debt Security on any Interest Payment Date will be made to the
person in whose name such Subordinated Debt Security (or predecessor security)
is registered at the close of business on the Regular Record Date for such
interest payment. (Section 2.03).
Capital Funding will act as Paying Agent with respect to the Subordinated
Debt Securities. Capital Funding may at any time designate additional Paying
Agents or rescind the designation of any Paying Agents or approve a change in
the office through which any Paying Agent acts, except that Capital Funding will
be required to maintain a Paying Agent in each Place of Payment for each series
of the respective Subordinated Debt Securities. (Sections 4.02 and 4.03).
All moneys paid by Capital Funding to a Paying Agent for the payment of the
principal of or premium or interest, if any, on any Subordinated Debt Securities
of any series which remain unclaimed at the end of two years after such
principal, premium, if any, or interest shall have become due and payable will
be repaid to Capital Funding and the holder of such Subordinated Debt Securities
will thereafter look only to Capital Funding for payment thereof. (Section
11.05).
GLOBAL SECURITIES
If any Subordinated Debt Securities of a series are represented by one or
more global securities (each, a "Global Security"), the applicable Prospectus
Supplement will describe the circumstances, if any, under which beneficial
owners of interests in any such Global Security may exchange such interests for
Subordinated Debt Securities of such series and of like tenor and principal
amount in any authorized form and denomination. Principal of and any premium and
interest on a Global Security will be payable in the manner described in the
applicable Prospectus Supplement. (Section 2.11).
The specific terms of the depositary arrangement with respect to any portion
of a series of Subordinated Debt Securities to be represented by a Global
Security will be described in the applicable Prospectus Supplement.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting U S WEST, Capital Funding and
the Debt Trustee, with the consent of the holders of not less than a majority in
principal amount of the Subordinated Debt Securities of each series which are
affected by the modification, to modify the Indenture or any supplemental
indenture affecting that series or the rights of the holders of that series of
Subordinated Debt Securities;
11
provided that no such modification may, without the consent of the holder of
each outstanding Subordinated Debt Security affected thereby, (i) extend the
fixed maturity of any Subordinated Debt Securities of any series, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, or reduce any premium payable upon the redemption thereof,
without the consent of the holder of each Subordinated Debt Security so affected
or (ii) reduce the percentage of Subordinated Debt Securities, the holders of
which are required to consent to any such supplemental indenture, without the
consent of the holders of each then outstanding Subordinated Debt Security
affected thereby. (Section 9.02).
In addition, U S WEST, Capital Funding and the Debt Trustee may execute,
without the consent of any holder of Subordinated Debt Securities, any
supplemental indenture for certain other usual purposes including the creation
of any new series of Subordinated Debt Securities. (Sections 2.01, 9.01 and
10.01).
EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events which has occurred and is continuing constitutes an "Event of Default"
withrespect to each series of Subordinated Debt Securities:
(a) failure for 90 days to pay interest on the Subordinated Debt
Securities of that series, including any Additional Interest in respect
thereof, when due; provided, however, that a valid extension of the interest
payment period by Capital Funding shall not constitute a default in the
payment of interest for this purpose; or
(b) failure to pay principal or premium, if any, on the Subordinated
Debt Securities of that series when due whether at maturity, upon redemption
by declaration or otherwise, or to make any sinking fund payment with
respect to that series; provided, however, that a valid extension of the
maturity of such Subordinated Debt Securities shall not constitute a default
for this purpose; or
(c) failure to observe or perform any other covenant (other than those
specifically relating to another series) contained in the Indenture for 90
days after written notice to Capital Funding from the Debt Trustee or the
holders of at least 25% in principal amount of the outstanding Subordinated
Debt Securities of that series; or
(d) certain events in bankruptcy, insolvency or reorganization of U S
WEST or Capital Funding; or
(e) in the event Subordinated Debt Securities are issued to a U S WEST
Trust or a trustee of such trust in connection with the issuance of Trust
Securities by such U S WEST Trust, the voluntary or involuntary dissolution,
winding-up or termination of such U S WEST Trust, except in connection with
the distribution of Subordinated Debt Securities to the holders of Trust
Securities in liquidation of such U S WEST Trust, the redemption of all of
the Trust Securities of such U S WEST Trust, or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration of
such U S WEST Trust. (Section 6.01).
The holders of a majority in aggregate outstanding principal amount of any
series of the Subordinated Debt Securities have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Debt Trustee for that series. (Section 6.06). The Debt Trustee or the holders of
not less than 25% in aggregate outstanding principal amount of any particular
series of the Subordinated Debt Securities may declare the principal due and
payable immediately on default with respect to such series, but the holders of a
majority in aggregate outstanding principal amount of such series may annul such
declaration and waive the default with respect to such series if the default has
been cured and a sum sufficient to pay all matured installments of interest and
principal due otherwise than by acceleration and any applicable premium has been
deposited with the Debt Trustee. (Sections 6.01 and 6.06).
The holders of a majority in aggregate outstanding principal amount of any
series of the Subordinated Debt Securities affected thereby may, on behalf of
the holders of all the Subordinated Debt Securities of such series, waive any
past default, except (i) a default in the payment of principal, premium, if any,
or interest (unless such default has been cured and a sum sufficient to pay all
matured installments of interest and principal due otherwise than by
acceleration and any applicable premium has been deposited with the Debt
Trustee), (ii) a default in the covenant of each of U S WEST and certain of its
subsidiaries not to
12
declare or pay dividends on, or redeem, purchase or acquire any of its capital
stock during an interest deferral period, or (iii) a default in the covenant of
Capital Funding to defer interest payments on all Subordinated Debt Securities
held by the other U S WEST Trusts during such interest deferral period. (Section
6.06).
CONSOLIDATION, MERGER AND SALE
The Indenture does not contain any covenant which restricts the ability of U
S WEST or Capital Funding to merge or consolidate with or into any other
corporation, sell or convey all or substantially all of its assets to any
person, firm or corporation or otherwise engage in restructuring transactions.
(Section 10.01).
DEFEASANCE AND DISCHARGE
Under the terms of the Indenture, U S WEST and Capital Funding will be
discharged from any and all obligations in respect of the Subordinated Debt
Securities of any series (except in each case for certain obligations to
register the transfer or exchange of Subordinated Debt Securities, replace
stolen, lost or mutilated Subordinated Debt Securities, maintain paying agencies
and hold moneys for payment in trust) if Capital Funding deposits with the Debt
Trustee, in trust, moneys or Government Obligations, in an amount sufficient to
pay all the principal of, and interest on, the Subordinated Debt Securities of
such series on the dates such payments are due in accordance with the terms of
such Subordinated Debt Securities. (Sections 11.01 and 11.02).
GOVERNING LAW
The Indenture, the Subordinated Debt Securities and the Debt Guarantee will
be governed by, and construed in accordance with, the internal laws of the State
of New York. (Section 13.05).
INFORMATION CONCERNING THE DEBT TRUSTEE
The Debt Trustee, prior to default, undertakes to perform only such duties
as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. (Section 7.01). Subject to such provision,
the Debt Trustee is under no obligation to exercise any of the powers vested in
it by the Indenture at the request of any holder of Subordinated Debt
Securities, unless offered reasonable indemnity by such holder against the
costs, expenses and liabilities which might be incurred thereby. (Section 7.02).
The Debt Trustee is not required to expand or risk its own funds or otherwise
incur personal financial liability in the performance of its duties if the Debt
Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it. (Section 7.01).
U S WEST and certain of its affiliates, including Capital Funding, maintain
a deposit account and banking relationship with the Debt Trustee. The Debt
Trustee serves as trustee under other indentures pursuant to which unsecured
debt securities of U S WEST are outstanding.
MISCELLANEOUS
Capital Funding and U S WEST will have the right at all times to assign any
of their respective rights or obligations under the Indenture to a direct or
indirect wholly-owned subsidiary of U S WEST; provided that, in the event of any
such assignment, Capital Funding and U S WEST, as the case may be, will remain
liable for all of their respective obligations. Subject to the foregoing, the
Indenture will be binding upon and inure to the benefit of the parties thereto
and their respective successors and assigns. The Indenture provides that it may
not otherwise be assigned by the parties thereto. (Section 13.11).
PLAN OF DISTRIBUTION
Capital Funding may sell any series of Subordinated Debt Securities and the
U S WEST Trusts may sell the Preferred Securities being offered hereby in one or
more of the following ways from time to time: (i) to underwriters for resale to
the public or to institutional investors; (ii) directly to institutional
investors; or (iii) through agents to the public or to institutional investors.
The Prospectus Supplement with respect to any Offered Securities will set forth
the terms of the offering of such Offered Securities, including the name or
names of any underwriters or agents, the purchase price of such Offered
Securities and the proceeds to
13
Capital Funding or the applicable U S WEST Trust, as the case may be, from such
sale, any underwriting discounts or agency fees and other item's constituting
underwriters' or agents' compensation, any initial public offering price, any
discounts or concessions allowed or reallowed or paid to dealers and any
securities exchanges on which such Offered Securities may be listed.
If underwriters are used in the sale, such Offered Securities will be
acquired by the underwriters for their own account and may be resold from time
to time in one or more transactions, including negotiated transactions, at a
fixed public offering price or at varying prices determined at the time of sale.
Unless otherwise set forth in the Prospectus Supplement, the obligations of
the underwriters to purchase any series of Offered Securities will be subject to
certain conditions precedent and the underwriters will be obligated to purchase
all of such series of Offered Securities, if any are purchased.
Underwriters and agents may be entitled under agreements entered into with U
S WEST, Capital Funding and/or a U S WEST Trust to indemnification by U S WEST,
Capital Funding and/or such U S WEST Trust against certain civil liabilities,
including liabilities under the Securities Act, or to contribution with respect
to payments which the underwriters or agents may be required to make in respect
thereof. Underwriters and agents may be customers of, engage in transactions
with, or perform services for U S WEST and its affiliates in the ordinary course
of business.
Each series of Offered Securities will be a new issue of securities and will
have no established trading market. Any underwriters to whom Offered Securities
are sold by Capital Funding or by a U S WEST Trust for public offering and sale
may make a market in such Offered Securities, but such underwriters will not be
obligated to do so and may discontinue any market making at any time without
notice. The Offered Securities may or may not be listed on a national securities
exchange.
LEGAL OPINIONS
Certain matters of Delaware law relating to the validity of the Preferred
Securities will be passed upon for the U S WEST Trusts by Richards, Layton &
Finger, Wilmington, Delaware, special Delaware counsel to the U S WEST Trusts.
The validity of the Preferred Securities Guarantees, Subordinated Debt
Securities and Debt Guarantees and certain legal matters relating thereto will
be passed upon by Weil, Gotshal & Manges, New York, New York. Weil, Gotshal &
Manges will rely on the opinion of Stephen E. Brilz, Senior Attorney of U S
WEST, as to certain matters of Colorado law. Certain matters as to United States
federal income taxation will also be passed upon by Weil, Gotshal & Manges.
EXPERTS
The consolidated financial statements and the consolidated financial
statement schedule included in U S WEST's Annual Report on Form 10-K for the
year ended December 31, 1994 are incorporated herein by reference in reliance on
the reports of Coopers & Lybrand L.L.P., independent certified public
accountants, given upon the authority of that firm as experts in accounting and
auditing.
14
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY U S WEST INC., U S WEST FINANCING I OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF U S WEST INC. OR U S WEST FINANCING I SINCE THE DATE HEREOF. THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICIATION.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
-----
Summary Financial Information.................. S-3
U S WEST, Inc.................................. S-4
U S WEST Capital Funding, Inc.................. S-4
U S WEST Financing I........................... S-4
Recent Developments............................ S-5
Investment Considerations...................... S-7
Capitalization of U S WEST..................... S-10
Accounting Treatment........................... S-11
Use of Proceeds................................ S-11
Descriptions of the Preferred Securities....... S-11
Description of the Subordinated Debt Securities
and the Debt Guarantee........................ S-21
Effect of Obligations Under the Subordinated
Debt Securities, The Debt Guarantee and the
Preferred Securities Guarantee................ S-26
Certain Federal Income Tax Consequences........ S-27
Underwriting................................... S-30
Legal Matters.................................. S-31
PROSPECTUS
Available Information.......................... 2
Incorporation of Certain Documents by
Reference..................................... 3
U S WEST Capital Funding, Inc.................. 4
The U S WEST Financing Trusts.................. 4
U S WEST, Inc.................................. 4
Ratio of Earnings to Fixed Charges............. 5
Use of Proceeds................................ 5
Description of the Preferred Securities........ 5
Description of the Preferred Securities
Guarantees.................................... 6
Description of the Subordinated Debt Securities
and the Debt Guarantees....................... 8
Plan of Distribution........................... 13
Legal Opinions................................. 14
Experts........................................ 14
__,000,000
PREFERRED SECURITIES
[LOGO]
U S WEST FINANCING I
% TRUST ORIGINATED
PREFERRED SECURITIES ("TOPRS")
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY
U S WEST, INC.
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
____ __, 1995
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Securities and Exchange Commission Filing Fee.................. $344,827.59
Rating Agency Fees............................................. 200,000.00
Blue Sky Fees and Expenses..................................... 20,000.00
Trustee's Expenses............................................. 30,000.00
Printing and Engraving Fees.................................... 150,000.00
Accounting Fees and Expenses................................... 30,000.00
Legal Fees and Expenses........................................ 150,000.00
Miscellaneous.................................................. 5,172.41
----------
Total...................................................... $930,000.00
----------
----------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-laws of U S WEST and Capital Funding provide for the indemnification
of directors and officers to the extent permissible under applicable law.
Sections 7-109-101 through 7-109-110 of the Colorado Business Corporation Act
(the "CBCA") specify the circumstances under which a corporation may indemnify
its directors, officers, employees, fiduciaries or agents. For acts done in a
person's "official capacity," the CBCA generally requires that an act be done in
good faith and in a manner reasonably believed to be in the best interests of
the corporation. In all other civil cases, the person must have acted in good
faith and in a way that was not opposed to the corporation's best interests. In
criminal actions or proceedings, the CBCA imposes an additional requirement that
the actor had no reasonable cause to believe his conduct was unlawful. In any
proceeding by or in the right of the corporation, or charging a person with the
improper receipt of a personal benefit, no indemnification can be made, except
that in a proceeding by or in the right of the corporation, indemnification for
reasonable expenses incurred in connection with such proceeding is permitted.
Indemnification is mandatory when any director or officer is wholly successful,
on the merits or otherwise, in defending any civil or criminal proceeding.
The Declaration of each U S WEST Trust provides that no Regular Trustee,
affiliate of any Regular Trustee, or any officers, directors, shareholders,
members, partners, employees, representatives or agents of any Regular Trustee,
or any employee or agent of such U S WEST Trust or its affiliates (each an
"Indemnified Person") shall be liable, responsible or accountable in damages or
otherwise to such U S WEST Trust or any employee or agent of the trust or its
affiliates for any loss, damage or claim incurred by reason of any act or
omission performed or omitted by such Indemnified Person in good faith on behalf
of such U S WEST Trust and in a manner such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by such Declaration or by law, except that an Indemnified Person shall be
liable for any such loss, damage or claim incurred by reason of such Indemnified
Person's gross negligence or willful misconduct with respect to such acts or
omission. The Declaration of each U S WEST Trust also provides that to the
fullest extent permitted by applicable law, U S WEST shall indemnify and hold
harmless each Indemnified Person from and against any loss, damage or claim
incurred by such Indemnified Person by reason of any act or omission performed
or omitted by such Indemnified Person in good faith on behalf of such U S WEST
Trust and in a manner such Indemnified Person reasonably believed to be within
the scope of authority conferred on such Indemnified Person by such Declaration,
except that no Indemnified Person shall be entitled to be indemnified in respect
of any loss, damage or claim incurred by such Indemnified Person by reason of
gross negligence or willful misconduct with respect to such act or omissions.
The Declaration of each U S WEST Trust further provides that, to the fullest
extent permitted by applicable law, expenses (including legal fees) incurred by
an Indemnified Person in defending any claim, demand, action, suit or proceeding
shall, from time to time, be advanced by U S WEST prior to the final disposition
of such claim, demand, action, suit or proceeding upon receipt by of an
undertaking by or on behalf of the Indemnified Person to repay such amount if it
shall be determined that the Indemnified Person is not entitled to be
indemnified for the underlying cause of action as authorized by such
Declaration.
II-1
The directors and officers of Capital Funding and U S WEST and the Regular
Trustees are covered by insurance policies indemnifying against certain
liabilities, including certain liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"), which might be incurred by them in such
capacities and against which they cannot be indemnified by Capital Funding, U S
WEST or the U S WEST Trusts.
Any agents, dealers or underwriters who execute any of the agreements filed
as Exhibit 1 to this registration statement will agree to indemnify Capital
Funding's and U S WEST's directors and officers and the U S WEST Trustees who
signed the registration statement against certain liabilities which might arise
under the Securities Act with respect to information furnished to Capital
Funding and U S WEST or any of the U S WEST Trusts by or on behalf of any such
indemnifying party.
ITEM 16. EXHIBITS.
Exhibits identified in parentheses below are on file with the SEC and are
incorporated herein by reference to such previous filings. All other exhibits
are provided as part of this electronic transmission.
1 - Form of Underwriting Agreement for offering of Preferred
Securities.
*4-A - Certificate of Trust of U S WEST Financing I.
*4-B - Certificate of Trust of U S WEST Financing II.
*4-C - Certificate of Trust of U S WEST Financing III.
4-D - Form of Amended and Restated Declaration of Trust.
4-E - Form of Indenture among U S WEST, Inc., U S WEST Capital Funding,
Inc. and Norwest Bank Minnesota, National Association, as
Trustee.
4-F - Form of Supplemental Indenture to Indenture to be used in
connection with the issuance of Subordinated Debt Securities and
Preferred Securities.
4-G - Form of Preferred Security (included in 4-D above).
4-H - Form of Subordinated Debt Security and Debt Guarantee (included
in 4-F above).
4-I - Form of Preferred Securities Guarantee.
5-A - Opinion of Weil, Gotshal & Manges.
5-B - Opinions of Richards, Layton & Finger.
5-C - Opinion of Stephen E. Brilz, Esq.
8 - Opinion of Weil, Gotshal & Manges.
(12) - Computation of Ratio of Earnings to Fixed Charges of U S WEST,
Inc. (Exhibit 12 to Form 10-K for the year ending December 31,
1994, File No. 1-8611).
23-A - Consent of Independent Public Accountants.
23-B - Consent of Weil, Gotshal & Manges is contained in the opinions of
counsel filed as Exhibits 5-A and 8.
23-C - Consent of Richards, Layton & Finger is contained in the opinion
of counsel filed as Exhibit 5-B.
23-D - Consent of Stephen E. Brilz, Esq. is contained in the opinion of
counsel filed as Exhibit 5-C.
*24. - Powers of Attorney (the powers of attorney for the U S WEST
Trustees of U S WEST Financing I, U S WEST Financing II and U S
WEST Financing III are included in Exhibits 4-A, 4-B and 4-C,
respectively).
25-A - Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of Norwest Bank Minnesota, National Association, as
Trustee under the Indenture.
25-B - Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of the First National Bank of Chicago, as Trustee
under the Amended and Restated Declaration of Trust of U S WEST
Financing I and the Preferred Securities Guarantee of U S WEST,
Inc. for the benefit of the holders of Preferred Securities of U
S WEST Financing I.
II-2
25-C - Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of the First National Bank of Chicago, as Trustee
under the Amended and Restated Declaration of Trust of U S WEST
Financing II and the Preferred Securities Guarantee of U S WEST,
Inc. for the benefit of the holders of Preferred Securities of U
S WEST Financing II.
25-D - Statement of Eligibility under the Trust Indenture Act of 1939,
as amended, of the First National Bank of Chicago, as Trustee
under the Amended and Restated Declaration of Trust of U S WEST
Financing III and the Preferred Securities Guarantee of U S
WEST, Inc. for the benefit of the holders of Preferred
Securities of U S WEST Financing III.
<FN>
- ------------------------
* Filed previously.
ITEM 17. UNDERTAKINGS.
The Registrants hereby undertake that, for purposes of determining any
liability under the Securities Act, each filing of U S WEST's Annual Report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") (and where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions referred to in Item 15 (other than the
insurance policies referred to therein), or otherwise, the Registrants have been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrants of expenses incurred
or paid by a director, officer or controlling person of the Registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The Registrants hereby undertake:
(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;
(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;
provided, however, that the undertakings set forth in paragraphs (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by U S WEST pursuant to Section 13 or Section 15(d) of the Exchange Act
that are incorporated by reference in this 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.
II-3
(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.
The Registrants hereby undertake that:
(1) 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 registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of the registration statement as of
the time it was declared effective.
(2) For the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, U S WEST, INC.
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO
THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF DENVER, STATE OF COLORADO, ON THE 28TH
DAY OF APRIL, 1995.
U S WEST, Inc.
By /s/ STEPHEN E. BRILZ
------------------------------------
Stephen E. Brilz
Assistant Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING DIRECTORS AND OFFICERS OF U S WEST, INC. IN THE CAPACITIES AND ON THE
DATE INDICATED.
PRINCIPAL EXECUTIVE OFFICER:
RICHARD D. McCORMICK* Chairman of the Board,
President and Chief
Executive Officer
PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER:
JAMES M. OSTERHOFF* Executive Vice
President and Chief
Financial Officer
DIRECTORS:
RICHARD B. CHENEY*
REMEDIOS DIAZ-OLIVER*
GRANT A. DOVE*
ALLAN D. GILMOUR*
PIERSON M. GRIEVE*
SHIRLEY M. HUFSTEDLER*
ALLEN F. JACOBSON*
RICHARD D. MCCORMICK*
MARILYN CARLSON NELSON*
FRANK POPOFF*
GLEN L. RYLAND*
JERRY O. WILLIAMS*
DANIEL YANKELOVICH*
*By /s/ STEPHEN E. BRILZ
--------------------------------------
Stephen E. Brilz
Attorney-in-Fact
Dated: April 28, 1995
II-5
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, U S WEST CAPITAL
FUNDING, INC. CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF DENVER, STATE OF
COLORADO, ON THE 28TH DAY OF APRIL, 1995.
U S WEST Capital Funding, Inc.
By /s/ STEPHEN E. BRILZ
------------------------------------
Stephen E. Brilz
Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or amendment thereto has been signed below by the
following directors and officers of U S WEST Capital Funding, Inc. in the
capacities and on the date indicated.
PRINCIPAL EXECUTIVE OFFICER:
JAMES T. ANDERSON* President
PRINCIPAL FINANCIAL OFFICER:
Vice President and
CHARLES J. BURDICK* Treasurer
PRINCIPAL ACCOUNTING OFFICER:
Vice President and
JAMES R. TAUCHER* Controller
DIRECTORS:
JAMES T. ANDERSON*
JAMES M. OSTERHOFF*
*By /s/ STEPHEN E. BRILZ
- -----------------------------------
Stephen E. Brilz
Attorney-in-Fact
Dated: April 28, 1995
II-6
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, U S WEST
FINANCING I, U S WEST FINANCING II AND U S WEST FINANCING III CERTIFY THAT THEY
HAVE REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL THE REQUIREMENTS FOR FILING
ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION
STATEMENT TO BE SIGNED ON THEIR BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF DENVER, STATE OF COLORADO, ON THE 28TH DAY OF APRIL,
1995.
U S WEST Financing I
By /s/ JAMES T. ANDERSON
------------------------------------
James T. Anderson, Trustee
By /s/ CHARLES J. BURDICK
------------------------------------
Charles J. Burdick, Trustee
By /s/ ROGER FOX
------------------------------------
Roger Fox, Trustee
U S WEST Financing II
By /s/ JAMES T. ANDERSON
------------------------------------
James T. Anderson, Trustee
By /s/ CHARLES J. BURDICK
------------------------------------
Charles J. Burdick, Trustee
By /s/ ROGER FOX
------------------------------------
Roger Fox, Trustee
U S WEST Financing III
By /s/ JAMES T. ANDERSON
------------------------------------
James T. Anderson, Trustee
By /s/ CHARLES J. BURDICK
------------------------------------
Charles J. Burdick, Trustee
By /s/ ROGER FOX
------------------------------------
Roger Fox, Trustee
II-7